Don’t wait to start paying off what you owe, because otherwise what you owe will hold you back, Suze Orman, personal finance expert and bestselling author of “Women and Money,” tells CNBC Make It. “Debt is bondage,” she says. “You will never, ever, ever have financial freedom if you have debt.”
You should aim to eliminate debt as soon as possible, Orman says, but not just because it costs you money. The side effects of debt can affect other important parts of your life, keeping you from earning more and getting what you want, professionally.
“When you are in debt, you feel it,” Orman says, and “your boss can feel that,” too. In essence, “you render yourself powerless.”
Carrying debt can make you feel out of control and dependent on other people: “You walk into an interview and you need that job because you have to pay for your debt.”
That’s a problem because “powerlessness repels people, and people control money,” Orman says.
Once you’re out of debt, though, you exude confidence. “You attract people to you,” Orman says. “And guess what? Then you attract money. So get yourself out of debt and stay out of debt, the sooner the better, if you ask me.”
Kevin O’Leary, an investor on ABC’s “Shark Tank” and personal finance author, also takes a strong stance against debt, although his reasons are more practical. “People today don’t spend enough time thinking about the future and what they’ve got to save for when they get old,” he tells CNBC Make It.
“Think about life,” O’Leary explains. “You go to college — student debt. Then, you find someone, you get married, you buy a house, more debt — that’s called a mortgage. You have kids, more debt — getting them through school.”
According to O’Leary, you should aim to have all of your debt paid off by age 45. “The reason I say 45 is the turning point, or in your 40s, is because, think about a career: Most careers start in early 20s and end in the mid-60s,” he says. “So, when you’re 45 years old, the game is more than half over, and you better be out of debt, because you’re going to use the rest of the innings in that game to accrue capital.”
Paying off certain kinds of debt should take priority, though, Orman notes. Mortgages and student loans are often seen as “good debt,” while credit card debt is considered “bad debt” because it often comes with higher interest rates, which can add up quickly. Depending on how many cards you have and the amount you owe, you could lose thousands of dollars on interest alone, so start there.
Next, commit to a method for paying off your debt.
It suggests you list all of your debts from smallest to largest. Focus on the smallest debt and funnel as much cash as you can toward paying it off while still paying the minimum balance on the others. Then, once the smallest debt is repaid, move on to the second-smallest debt. You’ll be motivated by seeing debts disappear one at a time.
Other experts recommend the avalanche method: Start by listing out the interest rates on your debt and focus on paying off the debt with the highest interest rate. This strategy can help you save by minimizing how much you spend in interest payments over time.
No matter the method, eliminating debt, especially credit card debt, is crucial for both your financial and emotional health, says Orman.
“If you’re out of debt, when you’re being responsible with your money, what happens?” she says. “You feel powerful! And other people can feel that you’re powerful.”
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