Don’t Just Plan Your Debt Based on Size

Don’t Just Plan Your Debt Based on Size, Factor In Time As Well

When planning out your debt, it’s very easy to think that as long as you undertake small debt, you’re okay. There’s a lot to be said about this strategy. After all, the amount of interest you have to pay is determined by the size of the principal. The smaller the principal, the lower the interest fees. This is pretty straightforward. This is common sense.

The problem is a lot of people think that the analysis stops here. This really is too bad because if you overlook one key factor, the factor of time, you might actually end up in over your head. How?

You might be taking out debt with a false sense of confidence. You might think, “Since I’m just taking out small piles of debt here and there, then it’s okay.” However, if you pay attention to the timeline and you commit to long-term fixed debt repayment schemes, you might actually be losing a lot of money. You are paying more over time, but it doesn’t feel like it. Why?

The payments are drawn out. You don’t feel the initial pain. In fact, the monthly expenses are quite light on your pocket.

This is an illusion. Don’t fall for the long repayment time illusion. Low payment stretched out over a longer period of time is not lower debt. In fact, you’re spending a lot more money. It’s much better to save that capital and use it to buy assets instead of just wasting it all on a long-term fixed debt.

Too many Americans fall for the debt consolidation trap because they are simply looking for a quick fix. Well, if you look at the total amount of money you’d have to pay at the end of the payment period, you will realize that the price you paid for that quick fix is actually very steep.

What’s the solution?

The best solution is to resist the easy temptation of debt consolidation and plow most of your available cash into your highest interest debts. Keep this up until you retire the highest interest debts and then work on the rest of your debt pile. To really fast track this situation, you need to reduce your expenses. Keep reducing and free up the cash to repay debt. Never, under any circumstance, use this freed up expenses to take on more expenses or, worst of all, new liabilities. If you do this, you can knock out your debts.

Proper debt elimination planning is not just about knocking out the problem in front of you. Sure, it is very tempting to just try any kind of easy shortcut or easy plan to get out of your debt. But, if you take the wrong path, you might actually be creating more problems than you are fixing.

Don’t fall for this all too common problem. Instead, focus on doing the hard but necessary stuff first. It’s all about staring your problems in the eye and fighting the temptation to run away from the fight. Keep addressing the problem head on and you will be sure to get a real long term solution.


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