The governments of many countries take on massive debt, why can’t you? That seems to be popular reasoning these days as consumers have more household debt than ever before. As you make minimum monthly payments, it is easy to ignore your debt. However, we are going to show you why managing and getting out of debt is imperative.
You Are Basically Giving Your Money Away
When you do not have a plan for paying off your debt, it takes much longer to settle your account, and you pay much more. Let’s look at an example. For instance, you have a £5,000 credit card debt with 14% APR and a minimum monthly payment of £100. If you continue to pay £100 per month, it will take you over six years to pay off the debt, and you will pay £2,548 in interest. On the other hand, if you can pay £200 a month, the debt will be gone in two-and-a-half years, and you will pay less than £1,000 in interest.
Be Prepared for Emergencies
Many of us are okay with just scraping by…until disaster strikes. Whether your truck blows a head gasket, you need to fly to visit a terminally ill loved one, or you break a leg, unexpected expenses can throw a family into turmoil. And, when you have a ton of debt, you may be in even worse shape.
Part of managing your debt sensibly is being prepared for these emergencies so you do not have to go into even more debt to deal with them. This might mean squirreling away a thousand dollars before you start making extra payments. This will also go a long way in giving you peace of mind.
What Are You Going To Do when You Retire?
If you’re in your 20s or 30s, you probably haven’t given retirement much thought. And, as we get used to ignoring retirement and taking on house payments, plans for saving towards retirement fall to the wayside. What will you do when you are 65 and unable to work any longer?
When you have your debt under control, it is easier for you to start saving for retirement. And, the sooner you start, the more comfortable your twilight years will be. For example, if you are 30 and start putting away $200 per month in mutual funds with a strong track record (10+ percent annual growth rate), you can expect to have over £76,000 per year (for 20 years) to tide you over when you retire at 65.