The brutal truth is that if you want to be wealthy, you have to get rid of your debt. You can’t keep putting it off and you can’t justify reasons to keep it or accumulate more. You can’t get to the fun part of building wealth if you are buried in debt. Simply put, if you don’t get rid of your debt, you will never be wealthy
It’s not a secret that Americans are drowning in debt: $22 trillion – officially reported in US. As you can see, it’s quite a big number. A lot of it is mortgage debt, but we also find a lot of credit card debt and student loan debt as well.
Every penny that you pay to service debt is one less penny that could be invested in building your wealth. If you have $50,000 in debt on a credit card with a 15% annual interest rate, then that is $7500 that you pay out as interest per year. While you are paying the high interest, your debt is growing every month. You can see that unless you find some way to get rid of your debt quickly, it’ll become an uphill struggle to get ahead and be wealthy.
Many people tend to view very high levels of debt as normal or acceptable. Many people fail to recognize the effect of their high level of debt. They think that this high level of debt is normal and acceptable, so they don’t even realize how much it’s hurting them financially.
If you take a certain view on debt or if you underestimate the amount of your debt, then it can cause you serious problems in the future. It’s import to make sure you understand your net worth (your assets minus your liabilities) and that you understand where your money is going each month.
It’s often a huge surprise to people when they take a look at their total financial picture and they see how much money they are spending on debt every month. People want to think that they are doing well and managing to save money, when in reality they are spending every penny that comes in as fast as it comes in.
If you ever want to be wealthy, then you have to get rid of your debt. If you keep it, then your interest payments will eat up all of your wealth-building potential. You’ll spend all of your money on interest payments if you have enough debt and high enough interest rates on it. It will crush your wealth building efforts before they get started.
Now some of you are surely saying to yourselves “What about good debt?”. Of course, there is no such thing as good debt. All debt is bad, but some debt is useful. If you buy an investment property you will likely have a mortgage and that could be considered useful debt.
The investment property would be better if it was owned free and clear, so I wouldn’t say the debt was good, but if you couldn’t have bought the property without the debt then we can consider it useful debt. All the same, getting rid of this debt as quickly as possibly will only serve to increase your wealth.
Generally speaking, the less debt that you have, the better off you will be financially. Going into debt for an investment or business is one thing, but personal debts are quite another.
Useful debt is not the enemy here, but most of American’s debt is not useful debt. It’s money that was used to buy unnecessary goods and services. This is the debt that you need to get rid of if you want to be wealthy. The money spent on unnecessary goods and services is straight out of your pocket and straight into someone else’s pocket.
Stop spending money you don’t have. I’ve written previously about compound interest and it can work just as powerfully against you if you aren’t paying down your debts. Each month you will owe not only one your original debt, but on your interest on your debt.
Be smart. Pay off your debts. Invest your excess money. Use your money to buy things that make money. Whatever you do – don’t keep using credit.
If you don’t get rid of your debt, then never expect to be wealthy. Stop wasting your money and start investing in yourself and in real assets to make you wealthier every year.