For many people, debt is a standard part of life. This is especially true for those with insufficient incomes to meet living expenses and must therefore resort to borrowing through education loans, personal loans, car loans and mortgages. In addition to these channels, the credit card has made it even easier to accumulate debt at an alarming rate.
Getting yourself out of debt as soon as possible is one key to financial happiness. Analyzing your outstanding borrowings and placing a priority on what should be paid off first will help structure your debt repayments. As your debt decreases, this frees up funds, previously used for interest payments, for other more important expenditures such as saving for the future, bill payments and putting money away for a rainy day.
The most important debt to think about paying off first is your mortgage. This puts you in a great situation where you own your home and do not have to continuously service the debt. Interest rates are currently at an all-time low, and have nowhere to move but upwards in the future. Depending on the mortgage agreement with your bank, decreasing the outstanding principle on your home loan can translate to very significant savings over the next 5 to 10 years.
Once a mortgage has been paid off, it is much easier to pay off those nagging debts like a car loan or credit card. It makes more sense to pay off the highest interest rate item first; however, paying off one item completely regardless of the interest rate can also help the consumer feel a sense of achievement and freedom.
Servicing the interest on accumulated debt creates an increasing burden on your income. Coming to a realization that long-term debt actually keeps you poorer is important for getting on the right track. Without the monthly interest payments, you would have more money to spend over the long-term. Take this opportunity to review your debt strategy and position yourself on the road to financial success.