8 Reasons to Erase Debt
Reasons for erasing debt will be as varied as the individuals who are attempting to do it. And the reasons can be just as personal. But here are 8 reasons to get you thinking about why it is important to eliminate debt, especially credit card debt, and get on a better path to saving.
1. Reduce Stress
Of the eight reasons this one is the most intangible but may be the most important. If you have less debt, maybe ideally no debt at all, it will be a great relief both financially and mentally. Less stress will lead to fewer fights with family about money. Less stress will create more happiness for you and your family. Which in turn leads to better overall health.
2. For Retirement
With less money going towards unnecessary bills, now more money can be funneled to your retirement plans. Increase your 401k’s. Add more money to your Roth IRA’s. Or just build up your cash reserves, bonds, CD’s, money market accounts, or any savings vehicle.
3. Kid’s Education
With no money going towards debt, you can now fully fund your childrens’ educational funds. Add more money to their 529 plans. Build up new ESA’s (Educational Savings Accounts). Or just bank cash in a savings account that is tagged to be used only for your child’s education, books, housing, or food related school costs.
4. Build Up The Emergency Fund
Build up your emergency fund. Various money experts advise to save different amounts depending on whom you are listening to. Some will say to save 3 to 6 months of living expenses. Others will say save 8 months to a year’s worth. Figure out what your comfort level is and save that. Or just get started and save your first month’s worth. And build from there. But now you have the freedom to build up that fund.
5. Vacation Money
Save money for a vacation. You may look at this one and think, really, for a vacation? Is that wise? But the truth is, once you have erased all of your debt, you owe yourself a prize. And why not make it a dream vacation. A cruise. Hawaii. A week on a beach in Mexico. With no debt, you have the freedom to save money for what you want. Just be sure to budget for it and pay cash. Don’t go back in debt for a vacation.
6. Save for a Home
With no debt, if you have yet to purchase your first home, you can start saving money for a 20% down payment on a new home. Or save more for a down payment if you can. Remember, the more you put down, the less you need to finance. Just aim for a mortgage you can safely afford. Don’t make the mistake of buying more house than you can afford. That is what got many people in trouble between the 1990 and 2009.
7. Save for a Second Home
If you already own a primary residence, and you have a fully funded emergency fund, and you have saved for your kids’ college funds, and your primary house is either paid off or close to being paid off, then start saving for a 2nd home. A vacation home in the mountains or a beach house may be your dream. Try to save up the full cost so that you can buy it outright. You don’t want to go into debt again for another house.
8. Leave a Legacy
Plan for the future. You can’t take the money with you when you die. Plan to leave a legacy for your children and grandchildren. If you have a large portfolio, set up some sort of charity fund that continues to give long after you are gone. Figure a way to give back way beyond your future.