Getting Out Of Debt Should Be Your First Priority

Most people today live paycheck to paycheck. As soon as you get paid, you will your pay bills first, your mortgage first, or even worse, your credit card debt. There’s thousands of books and information out there to give complete in-depth information about this, but lets get to the basics.

Credit card debt (or any debt, such as student loans or personal loans) can dig you deeper into a hole. If you make the minimum payments on your credit card, it can take you YEARS to get out of debt (and paying a huge amount in interest). Before you can really start investing, you need to get out of debt as quick as possible. Instead of having money work for you, it’s working against you. Time is your biggest asset, and seeing how money can grow over time, debt will grow even bigger over time.


From my personal experiences, I’ve been in credit card debt as much as $6,000! Guess what most of that was spent on? Clothes, shopping, and even a whole weekend snowboarding. It took lots of economic classes and reading to realize how dumb this is. In 2009, my credit card hovered around a net balance of $4000. At the end of the year, I took a look at how much I paid in just interest. On a $4000 balance, I paid over $950. That’s money completely wasted (of course my APR was 29.99% and not having good credit rating, which is enormously high). What you need to do is start paying these off immediately! And no, I don’t mean make the minimum payments. That’s what I was doing, and I started the year around $2000 in debt, made the minimum payment each money, and ended up with around $4000. I kept digging myself deepeer while barely making the interest payment.

The first thing you can do to stop digging yourself deeper, is cut the card up. Stop using it. Now to make a simple illustration on how long it would take you to get out of debt, let’s assume you have a credit card balance of around $5000 (with an APR of 20.99%). Now lets also assume you make $100 payment each month on this card, it would take you 118 months to pay off! That’s around 10 years! You would end up paying a total of $11,972.84 (that’s a little less than $7,000 in just interest). Now if you were to go above the minimum payment of $100, and double it to $200 each month, it would only take less than 3 years to pay off! That’s a 7 year difference just by paying an extra $100 each month on your debt on top of the minimum. You would only end up spending a total of $6,632.05 (a total of $1,632.05 in interest). You would save $5,340.79 (which is more than you spent in the first place).

Credit cards should be your first priority. They almost always have the highest interest rates, and usually (hopefully) the smallest amounts. After those are paid, you should start on other types of debt, such as student loans, auto loans, mortgages. Student loans will never go away, not even if you declare bankruptcy. Depending on how much you have, these should be paid off before a mortgage, but not before anything else. They typically carry lower interest rates around 4-6%. If you have a car loan, that needs to be second to credit cards. Most people think you need to have a car payment. It’s almost like once you buy a car (and hopefully not a brand new one, because those loose 20% of their value the second you drive them off the car lot), you basically only drive it until it’s paid off. And then you need to go take out another loan to buy a new one! That’s not smart. You’re paying a ton in interest for something that depreciates rapidly (yes your car, even if it “holds it’s value good”). So if you have a car payment of $300 a month, and you work extra hard to get it paid off early, and you started investing that $300 a month into a mutual fund every month…  you would have $3.5 million in 40 years! Is a car payment really necessary?

Mortgages are a different story. This is the only debt that isn’t completely awful. Only because it’s difficult to save up $200,000, and without a mortgage, you’re throwing money away to rent every month. Obviously, if you can pay for a house in full, that’s always better. But once you’re other debts are paid off, you can work on your mortgage. Put all that extra money into paying your house off. Once you get to this stage though, I’d start investing as well.

I hope this gives you some insight on how bad debt can be, and how getting out of debt should be your first priority. And once you make that last payment, you will have more money to invest and gain a return on for the future.

Image from: bestcandyever.com

Bryan Vieregge  (53 Posts)

Graduated from Texas Tech University in 2011 with a Bachelor's in Economics and Business Administration. I've been writing personal finance articles since 2010. I currently invest in stocks, bonds, real estate, and several business models.

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