6 Reasons Why You Should Pay Off Your Debt

If your finances are a bit out of control, there are many things you can do to gain back stability. Paying off debt is an essential part of getting your financial life in order. 

6 Things You May Not Know About Paying Off Debt

1. Paying Off Debt Will Help You Retire Early

Your income is the most valuable wealth-building tool that you have. When you work on paying off debt, you are enabling your income to be used for a more fulfilling purpose.

2. You’ll Create Job Flexibility

Money is typically the driving force when it comes to staying in a job you hate and away from a job you could love. Other times, it stands in the way of pursuing a passion, entrepreneurship, or being a stay-at-home parent. 

3. Your Credit Score Might Tank or Disappear

The two main factors that could affect your credit score while paying off debt are: Credit utilization – measures your credit balance versus the number of credit lenders say you can have. Credit mix – refers to the type of debts you carry. In other words, a good credit score would have a variety of debt: mortgage, auto loan, credit cards, among others.

4. More Money Will Appear in Your Budget

Here are great examples of what you can do with the extra money that’s burning a hole in your pocket: – Build up an emergency fund – Start or increase retirement contributions (IRAs and 401ks are an excellent place to start.) – Save for college expenses in a 529 – Make a sinking fund for a vacation (utilize travel rewards to decrease your costs) – Invest in real estate, whether actively or through a company like DiversyFund – Start a business

5. Debt Strategies Affect Your Total Costs

When you’re paying off debt, you need to go about it the right way. That involves thinking about how your debt payoff strategy will affect your total cost of debt.

6. Debt Gets Sold for Pennies on the Dollar

Allowing debts to be purchased by debt buyers is one way that companies try to recoup the money that they lent you. So, make sure to vet whoever contacts you about existing debts, but don’t be surprised if your debt is now owned by someone else.

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