Reasons to Pay off Debt

Carrying high levels of debt or even multiple small debts can be stressful both personally and financially. Debt locks up or limits your spending power because your money is already pledged to paying the ongoing debt obligations, and makes it more difficult to get ahead financially. There are many great reasons to pay off existing debts, and the primary reason is sheer peace of mind.

High Interest Rates

The most common type of debt in the United States is credit card debt, and it's common for credit cards to carry 15 to 20 percent interest rates. That's a lot of money over time. Paying off a credit card that carries a 15 percent interest rate is equivalent to putting your money into a savings account that pays 15 percent interest. There is no bank in the world that will pay you 15 percent interest on your money, but you can pay yourself that simply by paying off high-interest debts like credit cards.

Disposable Income

Once you have some or all of your outstanding debts paid off, you may be surprised at how much extra disposable income you have. If you currently make a monthly credit card payment of $100, then once you have that debt fully paid off you'll find yourself with $100 to spare each month. If you have multiple credit accounts, loan payments and other debts, you may find that once they're all paid off you have a substantial amount of extra income available each month.

Control of Your Money

Paying off your debt gives you more control over your own money. When you have a lot of debt, it's common to feel very stressed and stretched to the limit because multiple small payments add up to a lot of money over time. And to meet those payment obligations, you don't have the luxury of deciding to use your money another way. Paying off the debts relieves the stress and opens up many more options for you to choose what you want to spend your money on.

Create Wealth

Once you pay off all of your debts and you begin to experience the feeling of abundance that comes with having so much extra money that is not required to pay your bills, you'll be able to start investing those funds and letting them work for you to create more. Instead of paying bills that charge you extra in interest payments, you'll be able to put your money into places that help earn you interest instead.