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Is Your Debt Holding Your Finances Back?

4 minute read

David Ning

By David Ning

Debt is one of those things that really weighs on your finances. It can severely reduce your ability to build wealth. That’s why debt is one of the worst holes you can dig for yourself when it comes to your finances. If you have debt, especially high interest consumer debt, then there is a good chance that it’s holding your finances back in a major way.

Many of us think that we are living within our means when we really aren’t. Even if you can make the minimum payments on your credit card, you aren’t truly living within your means. You’re only going to take on more debt whenever you need to pay for something big. If you want to truly take control of your finances and begin building wealth, you need to pay off your debt as quickly as possible.

Stop Paying Interest

One of the biggest reasons that debt is such a drain on your finances is the interest you’ll pay on it. Interest is just an extra fee you pay when you borrow money. It doesn’t provide you with any extra value. It just goes straight into someone else’s pocket. Instead of using that money to save, invest, or buy things that are important to you, you are just paying it to someone else. You receive no benefit in the process, except the “privilege” of continuing to borrow more money.

Take credit card for example. They often have interest rates around 20%. When you buy anything with plastic and don’t pay the balance off when the first bill is due, you are essentially paying for it with a 20% markup. And that’s if you pay the whole thing off in the first year. If not, then whatever balance is left gets the 20% treatment added again. If you only pay for the minimum balance, it could take decades to pay off the balance. By the time you are done, you’ll have paid for that item a few times over.

That’s why paying off debt quickly is one of the best things you can do for your financial situation. Stop paying interest, and start earning it. Even the meager interests you earn from a savings account is way better than paying interest to someone else through borrowing. You’ll be in a better position going forward and be able to use your money for things that matter to you. Paying off debt is one of the best investments you can make in your own financial future. Stop paying interest, so you can start moving forward with your finances.

Create Financial Freedom

Another problem with debt is that it represents an obligation. You have to make those payments before you can pay for other things. So, your money really isn’t all yours when you’re in debt. Your debt, in a way, is a financial shackle around your wrists. You aren’t really in control of the way your money is used when part of that money is being used to service what you owe.

Paying off your debt as fast as you can means that you have more freedom to use your own money. Once you are debt free, the money you make will no longer be directed at different obligations. It will truly be your money. Then you can use it for your benefit. Until you get rid of your debt, you are beholden to someone else and lack true financial freedom.

Good Debt vs. Bad Debt

I don’t really like the idea of “good and bad debt”, that somehow debt can be good if you use it on certain purchases. Even if that debt is going towards a financial asset (like a home), you still owe back whenever you borrow — plus interest. When you borrow as much as you can to buy the biggest house your bank deems you can afford, you are also committing to decades of obligations. Sure, that bigger and nicer house is absolutely stunning. It’s everything you thought it would be. And you’ll pay dearly for it.

However, you could instead buy a smaller house, bank the difference, and then use that excess to improve your quality of life. The difference is that you can dial that last expense back anytime. However, you’re stuck with the financial obligation of a huge mortgage when you buy a house with little wiggle room. But don’t worry, it will be paid off after a few decades, right?

Improve Your Finances

While debt might seem like a useful tool at first, it quickly becomes disappointing as soon as you take on that obligation. That’s because the emotional high provided by a purchase is often short lived. However, the requirement that you pay that bill every month is long term. These recurring bills can begin to cause stress on your finances, and even in other areas of your life if you aren’t careful. After the initial excitement of buying something new wears off, it becomes a burden. Especially if you end up paying for it over and over again.

Instead of having this experience, you can improve your finances by saving up for what you want to buy and avoiding debt. In the cases of a big purchase (like a house) where it’s virtually impossible to save up cash to buy it outright, you should try to get into as little debt as possible. And at least shop around for the cheapest debt you can find.

If you are in debt, try to pay off what you owe as soon as you can. Then avoiding racking up new debt in the future. Eventually, your finances will move forward and you’ll progress toward financial freedom. Otherwise, you’ll always be stuck in neutral.

Couple Stressed About Finances Holding Help SignShutterstock
David Ning

Experienced Finance Writer

David is a published author, entrepreneur and a proud dad. He firmly believes that anyone can build a solid financial foundation as long as they are willing to learn. He runs, where he discusses every day money issues to encourage the masses to think about their finances more often.


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