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6 Reasons You Should Start Paying Down Your Debt Now – That Bias

If you are uncomfortable about how big the debt you are, you are not alone. Only 23% of Americans report having no debt, according to Northwest Mutual's 2018 Planning and Progress study. And among those with debt, the average personal debt burden (excluding the mortgage) was a huge $ 38,000.

Fortunately, you can succeed in paying a lot of debt. Here are six compelling reasons why you should make your high interest debt a priority.

  A man in a suit is shackled to a large black ball that is bigger than he is.

Image Source: Getty Images. [1[ads1]9659005] No. 1: It's hard to reach financial goals

Here's a big reason you have to pay your debt – at least your high-interest debt – pronto: Having a lot of debt can make your financial goals unattainable, eventually crushing your dreams. If you want to collect a significant retirement war, put your kids through the college, or save for a down payment on a home, it can be difficult or impossible when making payments on all the money you owe.

Here is just one example: Imagine that through hard work saves $ 500 a month and uses it to pay off debt. That kind of money – $ 6,000 a year – can grow for you instead if you were not in debt. If it was invested and an average of 8% annually over 25 years, it would end up worth around $ 473,000!

No. 2: You Can Enjoy a Higher Credit Score

It is underappreciated by many people how important their credit score is. But the three-digit figure can make a big difference in your financial life – for example, when you want to take out a mortgage.

Check out the table below, which shows what difference a high credit score can make. It reflects the latest interest rates for someone borrowing $ 200,000 through a 30-year fixed rate mortgage, and shows that there is a huge $ 66,722 difference in total interest paid for the interest rates offered to those with the highest credit score and the lowest. [19659011] FICO points


Monthly payment

Total interest paid



$ 887

$ 119,306


3,622% [19659017] $ 912

$ 128235



$ 932

$ 135448





$ 956

$ 144279



$ 1,007

$ 162,379



$ 1,072

$ 186,028 [19659037] Source:, July 9, 2019. APR = annual percentage rate.

So what does it have to do with your debt burden? Well, how much you owe is a component of a typical FICO credit score, and it's the second most important, with about 30% impact on the score.

For a good or good credit score, aim to have a credit utilization rate (your total debt divided by the sum of all your credit limits) in just about 10% to 30%. Lenders don't want you to have your maximum credit limits or even get close. (The increase in credit limits may also improve the relationship. Sometimes you just have to ask the card issuer for an increase to get one.)

No. 3: Debt costs much more than you realize.

When sending out payments against the debt you owe, it is easy to assume that most or all of it reduces your balance. But a significant part of it goes only to interest.

Imagine you owe $ 20,000 on your credit card and you are charged 25% interest. If your minimum payments are 3% of your balance, you start paying a whole lot of $ 600 a month, which means you have to come up with $ 150 a week. If you can't pay it, your balance will grow and dig you deeper into debt.

What if you make make the $ 600 payment and all future 3% payments? Well, according to a web calculator, it will take more than 30 years to pay off the debt, and your total payout will exceed $ 63,000 – all for a $ 20,000 balance.

Credit card debt is typically the most expensive debt we have – – often because of the dreaded "punishment APR" feature that many cards have. A penalty for APR supports interest rates high – at as much as 25% or even 30% – if you pay only a single invoice late or commit another violation.

If you carry $ 20,000 in debt and are being charged 25% on it, you are facing $ 5000 a year in interest costs alone! It can be difficult to pay your balance in such a situation – or make some financial progress. (Some credit cards do not have the APR penalty rate, so you always favor those who do not do that when shopping on cards.)

  A piggy bank is shown, half submerged in water and with an unhappy expression.

Image Source: Getty Images.

No. 4: You do not want to enter into a pension with debt

Many aim to enter pension without a mortgage. It is a reasonable goal and one you can achieve if you pay your debt in the coming year or year. Retirement can be financially challenging enough – if you can wipe out your debt and pay off your mortgage, you have fewer things to worry about and be able to spend more of your regular income on things like food, travel, and entertainment (and healthcare, insurance, taxes and things like that.)

Nr. 5: Little or no debt can mean less stress and better health

Here's another excellent reason to pay off your debt ASAP: It can make you more relaxed and happy.

It is probably obvious that you have a lot of credit card debt can be stressful, especially if you are charged high interest rates. But other types of debt also take a toll. More than 7 million Americans were delayed making payments on car loans by the end of 2018 per New York Federal Reserve, and a survey commissioned by found car loans caused significant stress and anxiety, with 36% reporting they had a car loan. More stressful than looking for a new job and 22% say car debt has had a negative impact on their mental or emotional health.

Overall, 33% of workers found paying for debt to be a cause of stress in their lives, following a 2018 Fidelity Investments survey, and a Student Loan Hero survey found millennial to quote debt as their biggest source of financial stress. Debt has been linked to anxiety, depression and panic attacks, and it is often a top profession that couples argue for. Pay off your debt and you will have a lot to worry about.

No. 6: You will be richer!

Finally, this is perhaps obvious, but it is important and a powerful motivator: When you pay your debt – at least non-debt – you will get more money. You will no longer spend these dollars every month for car loans, student loans, and credit card debt. Instead, they will remain with you – and can be devoted to saving and investing to help you reach different goals.

The sooner you pay your debt, the better – and for many reasons.

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