When it comes time to pay down debt, there are two schools of thought. The first argues that you should pay it all down as quickly as possible. This may mean taking on extra jobs and sacrificing all of your fun and frivolous spending for as long as it takes to get the job done. The other school argues that you should pay it off as you are able without putting yourself under the stress of multiple jobs or giving up all of your fun activities. Which is right?
The financially smart answer is to pay it as fast as possible. Paying fast saves you thousands of dollars in interest charges and gets you on the road to a secure financial future much quicker. When you pay debt quickly, you find yourself able to save more for retirement and other goals much sooner. Since your savings need time to compound and grow, the sooner you start packing it in, the sooner you can reach your goals. You also have the psychological advantage of getting the debt off your back. It’s not hanging over your head and you’re able to fully enjoy your freedom.
The downside to paying it fast is that you do have to give up a lot of fun for a while. Barring a huge increase in income, you’ll have to give up all extra spending to have the cash to throw at your debt. You might also have to take on an extra job or send a partner back to work which beings more stress. It can be worth it, but paying fast comes with sacrifices. You may also have to temporarily suspend your savings. Once you have enough to cover some emergencies, all of your extra cash will go to debt repayment, which means you’ll lose out on some prime compounding years.
Paying slowly, on the other hand, may mean fewer sacrifices. If you just take a fraction of your extra cash and throw it at the debt, you can keep some back to have fun with. You may also be able to keep funneling some toward savings. This method can feel like less of an imposition than paying quickly.
You will pay more in interest with this method, however. Much more. You’ll also have to live with the debt much longer which, for some people, can be more stressful than paying it off quickly. You won’t be able to fully maximize your savings or enjoy your freedom as soon, either. Paying slowly may also mean that you are likely to incur more debt as you go along because you don’t feel the urgency of avoiding debt. You may start thinking things like, “Well, I’m still paying off the debt so a little more won’t hurt. We’ll take that vacation and charge it.”
The biggest drawback to paying slowly is that it sets you up for justifying not paying at all. You start saying things like, “Well, it’s not like I can pay it off anytime soon anyway, so I’ll just make the minimum payment,” or, “It’s not that big of a deal. I don’t really care if I ever get it paid off,” or, “I’m not seeing any progress, so I give up.” Your thinking may shift to the point where you figure that if you’re only throwing small extra amounts of money at the debt that it’s not really worth it so why bother.
This is why paying faster is not only the financially smart choice, but the psychologically smart choice, as well. Yes, it may mean more short term stress but when it’s over, it’s over. The urgency of meeting your goal is likely to keep you going long enough to get the job done. If you feel that urgency and you’re seeing regular progress, you’re not as likely to incur more debt or decide it doesn’t matter. Paying slowly leads to more justifications and excuses which leads to never getting the debt paid off. You have to decide for yourself how to approach your debt repayment but paying quickly, while requiring sacrifices, is usually the more foolproof method.
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