Has Debt Become the Normal?
Some people say it started from the top. Without getting into political bias, just look at the national debt. We are around 23 trillion dollars in debt, let me write that number out, $23,000,000,000,000. That is a huge problem and we act like it is nothing. Now to what matters even more, that is the people. According to Northwest Mutual the average American was around $38,000 in 2018, this does not include mortgages. The average American had about $185,000 in mortgage debt according to NerdWallet. American’s continue to accumulate more debt every year. The raise in debt needs to end, so financial freedom can begin.
Currently I only have a mortgage for my house, which is my only debt. This was not the story just a few years ago. I went to college like most people and accrued debt like most college students. I was very fortunate that my mother provided some assistance along the way. Even with that help, I left college with a bachelor’s degree and around $35,000 in student debt. That is also with me working part time while I was in college. I used my bachelor’s degree for the first couple years and then decided I wanted to do something else. The debt still did not leave me. My first year out of college I made $18,000 following my path for my degree in 2010. I had probably spent between $80,000-90,000 for the degree. I worked a part time job on the weekend that added a few hundred dollars every month with that job. The second year was a little better and I made around $30,000. I did not have a lot of wiggle room to pay back my student loans. I could at least make the requirement payment every month, so I would not fall further behind. I have heard a similar story repeated by others over and over again. We are starting our careers behind financially and then we must play catch up. It is the sad truth for your typical college student. Students need to be provided with more fincial literacy before leaving high school. They need to understand the benefits and consequences that come along with college. They need to understand the true consequences of debt.
After working three part time firefighter/paramedic jobs I decided to buy a Tacoma. I had to take out a loan to pay for the truck. My Honda Civic was hardly worth anything by then. I was also still paying on student loan. I did not think much of it and thought this was normal. My mindset was yea, I can make these monthly payments. Then my wife and I decided to buy a house. I know this is debated between good and bad debt, but it is still debt. After I bought the house, I decided I wanted a bigger truck instead of a Tacoma. I went out and bought a Ram 1500. Again, adding to my debt. As you can see, it is easy to fall into this cycle and not think much of it. I was at least smart enough not to carry credit card debt, but I still had a lot of money going out to loan payments each month. I was the typical American Consumer. Then I found Mr. Money Mustache, the Mad Fientiest, and ChooseFI. It completely changed my outlook.
With my head was on straight, I had to form a plan. I want to touch on some ways of paying off debt early. If you really struggle with debt, Dave Ramsey is a great resource. He the get out of debt guy. However, I do not fully agree with his investing strategies, for debt he is a great resource. If you owe money for something it is debt. The only debt that is not a big concern is a mortgage on your house, as long as it is reasonable amount. If you are reading this post and thinking to yourself, I don’t have any extra money to payoff debt, visit my articles on savings and come back.
First you need to collect all your debt information. Make sure you have the total debt for each item and annual interest rate. Once you have this information, it is time to start developing a plan. There are a couple ways you can attack these loans. The first way is by interest rate. Put your loans in order from highest interest rate to the lowest. Then take extra money you are now saving every month and put it towards that loan. Once you have paid off this loan, move to the next highest and so on. This will be the most efficient way to pay off loans. However, we must always consider the mental aspect when it comes to tackling such a big task. Some people will look at their highest interest loan and it may also have the highest principal left. One could then see this as a daunting task and decide not to even try to pay it off early. Another way to pay off loans is to start with the smallest loan and pay it off first. Being able to quickly payoff a loan builds confidence in the process. It also gives people the satisfaction of paying off a loan quicker. Once you pay off the smallest one, move to the new smallest loan and tackle that one. Based on interest, this is not the most efficient way, but it still works and it can be easier to establish the new behavior with your money and make it second nature. The mental game is something that must always be consider in the financial game.
I kind of hinted at this early, but paying off your mortgage on your house is highly debated in the personal finance community. Right now, interest is very low and you can argue you can make more money by investing money. On the other hand there is no guarantee with investing money, so one could argue to payoff the mortgage early and save a ton of money on interest payments. Again, paying off your mortgage early is a huge accomplishment. Typically, if you have your mortgage paid off, you probably have no other debt. This is a very powerful position to be in. When you are figuring out how to tackle your debt, don’t include your mortgage at first. Once everything else is paid off, then a decision can be made.
The thing about debt is that it is always places handcuffs on you. It is extremely hard to be completely financially independent and still be in debt. Paying off debt is not an easy task, but it is what needs to be done. It is time to step out of the consumerism line and start your own. It is time to be free and free from debt.