There are all times in our life when we’ve procrastinated – sometimes it’s benefitted us, sometimes it’s slowed our progress significantly. However, there are some things we procrastinate that we don’t realize have a profound effect on our lives — procrastinating paying off our debts is one of them. Below I’m going to walk you through why crushing your debt is so important, and why it truly is better to do it sooner rather than later!
Let’s Talk About Debt
Before you can even begin to work on your debt, you need to be comfortable with the concept of it. While I don’t like to give things a good/bad connotation, having a significant amount of debt can cause stress in your life, as well as cause you to pay more out of pocket the longer you wait to deal with it. These are two things I want to save you from!
There are many sources of debt – student loans, bank loans, financing a car, taking out a mortgage, etc. For this post, I’m more leaning towards the kinds of debt that don’t include a mortgage/financing a car. (While these are still forms of debt, they eventually lead you to acquire property you will own.) The type of debt you want to tackle is the one that’s going to cost you more in the long run – these are the student loans, the bank loans/lines of credit, and your credit card debt.
Becoming comfortable with the idea of your debt means acknowledging it exists and forming a plan to tackle it. Let’s go over the ‘why’ and the ‘how’ to get you that much closer to being debt free!
Related Post: 5 Things to Do With Your Paycheque the Second You Get It
Crushing Your Debt – Why Sooner is Better Than Later
Understanding why you should tackle your debt sooner rather than later is just as important as how you’re going to do it!
There are times when small amounts of stress are good – when you’re under pressure to create before a deadline, or you’re going to be experiencing a life-changing event. However, it’s no secret that prolonged stress has a physiological effect on the body (here’s an in-depth list of what stress can do to the entire body!). It’s also no secret that having a significant amount of debt can cause undue stress on our bodies!
When you pay off debt, you decrease that level of stress in your body. You will gain a sense of freedom and accomplishment, as well as an opportunity to start over. Without debt looming around to hang over you, you will be able to make choices and money-moves to get you to the financial place you want to be! For a list of benefits of paying of debt from a psychological aspect, check out this article here.
Spending Less in the Long Run
Did you know the average Canadian has around $8,000 worth of credit card debt? Did you also know that 30% of Canadians don’t pay off their credit card balance at the end of the month? (source).
The trouble with debt sometimes isn’t just the principle, it’s the accumulation of costs around the principle. With things such as interest, various fees (late payment fee, overdraft fee, etc.), your debt could end up costing you way more than you initially spent in the long run.
Letting your debt sit there doesn’t grow your debt. That amount doesn’t change – however, it still continues to accumulate interest. You may look at the interest percentage and think it won’t hurt too much, but any money you spend on interest is money that you’re not spending to better yourself or your life. The sooner you pay off the principle, the sooner you stop paying interest ( = more money in your pocket)!
Here are 5 ways ignoring your debt/procrastinating your re-payment can cost you in the long run!
Improve Your Credit Standing
Think of your credit score as your financial report card. Your credit score is what allows you to be able to do things such as applying for mortgages, car loans, credit cards and more (here’s how credit scores work in Canada). The way you pay down your debt (ex. making payments on time, meeting all monthly payments etc.) is reflected in your score.
Another huge impact on your credit score and how you will apply for future loans is determined by how much you already owe. Taking care of credit card debts and loans before you apply for bigger ticket items (ex. a house!) can help to improve your score!
So I’ve told you the benefits and why you should be crushing your debt sooner rather than later, so let’s get into the how!
If you feel like you don’t know the first thing about debt repayment or finances, the internet has a plethora of completely free resources. You don’t need to know everything about finances, but learning the basics can empower you and give you the tools needed to get started and crush your debt NOW! To get you started, I’ll drop a few resources I found super helpful when starting out on my financial journey!
The Balance (thebalance.com)
Broke Millennial (brokemillennial.com)
The Simple Dollar (thesimpledollar.com)
You can’t make a plan to crush your debt without actually sitting down and getting intimate with your finances. Once you’ve done a bit of research and familiarized yourself with the financial basics, it’s time to assess your own debt. Things you need to consider are:
1. How much debt do I have?
2. What is my debt to income ratio?
3. What are my interest rates for each of my debts?
4. How soon can I pay this off?
This article provides helpful information for assessing your debt and several tools to help you answer the above questions!
Make a Plan
Now that you’ve assessed, it’s time to act! Coming up with a plan to crush your debt gets you one step closer to paying off that debt (cue party face emoji!). Whether this plan involves you coming up with it by yourself, or seeking out the help from a financial advisor, creating a plan that is realistic and can be easily implemented is key!
When it comes to creating a plan, I absolutely love this article (How to Set Up a Debt Repayment Plan in 6 Easy Steps). This article is easy to read and follow, and gives you practical, actionable steps towards coming up with a debt repayment plan.
I get it, having a debt repayment plan in place can make you feel a little claustrophobic. You may feel as though you have to live a strict, rigid lifestyle to be able to achieve becoming debt free. This is not the case! It’s important to leave a little wiggle room for fun spending and treats.
Just like a very strict diet, if you create a budget/debt repayment plan that’s way too strict, you may find yourself under pressure and unable to resist splurging. Take this into consideration when creating your plan and make sure there is wiggle room for enjoyment.
Debt repayment can feel like a long, drawn out process, but remember – every payment you make, you’re getting one step closer to being debt free (and how sweet will that be)! Of course, I wouldn’t leave you hanging without a little bit of help! Here are 19 Ways to Stay Motivated While Paying Off Debt!
Here are 3 helpful articles to keep you motivated and on the right track to paying off debt:
When it comes to paying off debt, you don’t need to be perfect. You might make mistakes, stumble, fall off track, or need to adjust the plan several times. That is OK! Crushing Your Debt – Why Sooner is Better Than Later was born out of the idea that getting started on bringing a mountain down to a molehill is the most important thing. The most important thing is that you become aware of your finances, empower yourself to make important changes, and get to crushing your debt!
Tell me some of your financial goals below! What worked for you when you were paying off your debt?