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Wednesday 24 October 2018

Debt – Interest Isn’t The Worst Part

Never pick up heavy percentage
People who read this blog are generally pretty money savvy (and if not, hopefully will be soon). So I’m pretty sure that you already know how bad compound interest working against you can be (for example, how it can result in you buying a car for your bank.)

And then of course there is a lot to be said about about the opportunity cost – if those debt repayments were invested instead, it could leave you with a tidy sum of money as compound interest pushes you forwards instead of holding you back. So I won’t bore you with the numbers because you already know the dismal picture they paint.

And yet, the interest and opportunity cost might not even be the worst part about being in debt...

Interest Is Bad, But There's Something Worse

If you still have debt, I want you to close your eyes and imagi--
No, wait, that’s a stupid idea – how you gonna read the rest of this post with your eyes closed...

Okay, leave your eyes open, and instead just imagine you were debt free. Imagine that the monthly instalment amounts that were leaving your account and going towards debt repayments, were instead now free cash in your bank account each month.

What would you do with it?

Well, that money would now need a new home, and you will probably start picturing where you could allocate it? Suddenly a whole lot of possibilities get opened up to you.

You could save it and go on an epic holiday. Or start a business. It could be put towards your child’s education, or it could be invested to secure a comfortable or even early retirement.

Being debt free means you have choice again. The power is back in your hands.

Of course it can be tough deciding which of the options to pursue – but what a lekker problem to have! It’s a problem which allows you to fully discover what your priorities are on your own terms according to your own values. It's a problem which may even make you seriously consider just what it is you want to do with your life! (I know, deep right?)

On the other hand, when you are in debt, your priorities are chosen for you. Month in and month out, money leaves your account. Money that can have no other destination except for a bank or a lender. You don’t have a choice, and it’s as if that money was never yours to begin with.

Zero choice, and zero flexibility.

And, to me, that is the worst part about being in debt – it means that there is only a single and compulsory option for that money. You have only one choice.

This is why it is so important to attack your debt, and give yourself the power of choice again. Once you are out of debt, the options and possibilities really are endless.

If you are still in debt, why not use these options and possibilities as motivation to get out of debt as soon as possible? Knowing what your debt repayments will be used for once your debt is eliminated can be extremely motivating (e.g. I can't wait to start saving that R800/month credit card payment towards our next holiday).

Being debt free puts you in a powerful situation where you can really start kicking your finances up a gear. When you become debt-free, you will be amazed at the many doors that will be opened, and relish the many exciting paths you can walk.

The biggest downside of being in debt, its not that you end up paying so much interest over to the bank, its that it takes away your choice, and your freedom to decide what is important to you.

Choice – the best part about being debt free!

Till next time, Stay Stealthy!
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