Paying Debt off Early
Debt is often part and parcel of the society we live in. Mortgages and car loans are often very much the norm. With house prices so high and the need for reliable transport, we are often left with no choice but to acquire debt. Now not all debt is bad or should be avoided. Mortgages for example are often essential to get on the property market. We often live in the hope our house increases in value, therefore giving us profitable debt.
Now there are many other types of debt like consumer debt that we really could do without. My advice on this would be to clear it as soon as you can. It’s not needed, never was and never will be. Ok so maybe the roof needed fixing under emergency circumstances. Your thinking is “well this can’t be avoided”. However, with good financial planning in place and an emergency fund within easy reach, you could have avoided acquiring this debt.
What I am going to talk about in this article is clearing and paying of debt early. There is no reason we need to go around with debt on our shoulders. Debt can cause a lot of pressure on both our mental and physical health. The burden, stress and pressure of having debt is huge. Looking at it this way, whatever the repayments are on your loans, credit cards whatever, you need to subtract this from your wages as if it is not your own money. It needs to be paid towards your debt.
Now imagine if you didn’t need to pay your debts. You had no debt of any kind. How much extra money would you have in your pocket? How would your financial goals change? What would you do with that money? Would you go on more holidays, do more days out with your family or would you save for a large goal? Or would you simply sleep better at night knowing that what you work for is your own and you don’t have to worry about owing anything to anybody? Put it this way your future would be clear and you wouldn’t be paying for your past.
Paying off debt early removes the worry of the future. Have you ever worried about becoming unwell or losing your job. Thinking how am I going to pay of these debts? Paying off debt early really does provide a clear future path which you own and can plan for without pressure.
Now the practical side. Basically you will save yourself a lot of money in interest. Here’s an example. You’ve got a loan for €25,000. Let’s say it was a home improvement loan. The loan is over 10 years. You’ve done up the house, you’ve got the sofa, the walls have been painted and new kitchen put in. The payments are €265 a month. Doesn’t seem so bad, however the total cost of interest you pay is €6819 at 5.22%apr. Imagine it is 10 years down the line, the couch needs replacing because the kids have jumped up and down on it or the dog has eat the leg of it, the walls need a fresh coat of paint and the kitchen appliances have just give up. The amount in interest you have paid over the 10 years would have sorted all that.
Now look at it this way, you got that loan but you’ve decided to pay it off much faster. You’ve set yourself a target that you will put all your effort into clearing this debt. So your going to try and clear it in 2 years. Every pay-check or spare money you have you throw at the loan. You manage to clear it in the 2 years and you save yourself nearly €5500 in interest! You did this by paying just over €1000 a month rather than €265.
This all looks good but what if you don’t have the extra money every month. That’s ok too. Keep the payments as they are and when you do have the money, pay it off the loan. Set up a loan payee on your current account. So whenever you’ve got an extra €10 throw it in. Even a extra €10 a month can save you a lot of interest.
Personally I use charts as motivation. It’s such a simple task but I find coloring in my progress as I go along gives me huge satisfaction. It’s the visual aspect of it and provides instant gratification of your progress. Simply write the figures on the side of the chart and color in as your debt decreases. Try it and see!
Now I know paying of debt early is not right for everybody. I am all about doing what is best for you. This is just my personal thoughts and feelings surrounding the matter and I hope you enjoyed reading them!
