We spent some time talking about having debt and trying to figure out what to do about it, but it's really important to make a quick stop and understand why it's important to get rid of your debt.
One of the first reasons why it's important to get rid of your debts is because, at least here in the United States, your credit rating and scores are HUGELY IMPORTANT.
If you want to buy a house, unless you have a ton of cash sitting around, then you have to get a mortgage. The ability to get a mortgage and all the things that are part of that, like the interest rate you'll be paying on all that money, is based on your credit. The more negative your credit is, the more challenging it will be to obtain a mortgage. And if you're able to obtain a mortgage, then your interest rate will be sky-high if you manage to get a mortgage with not-so-good credit!
The same goes if you're trying to buy a car. If you want to finance or lease a car, the dealership runs your credit with their lenders. If they see bad credit, including debts that have existed for a long time, or debts that have had missed payments, then you'll either be denied the financing you need, or you'll be given the loan with a sky-high interest rate.
Another place bad credit comes up is if you're looking for a new apartment. Here in NYC, a prospective landlord is allowed to charge $20 for a credit check fee. I share that not because of the $20, but because the landlord is allowed to check your credit. Since doing credit checks have become easier and more accessible to people, you can expect more and more potential landlords to actually run your credit if you're looking to rent an apartment. If they see bad credit, then they can deny you the apartment.
Another reason why it's really important to get rid of your debt is because judgments follow you, and they accrue interest at an insane rate!
Credit card companies are very aggressive when it comes to collecting and enforcing their debts. If you've missed any payments to your credit card, then you know how quickly they'll take take action to hassle you, including calling you, emailing you, and sending you letters.
The next step after harassing you to make your payments is a lawsuit. Here in NYC, the civil court is flooded with hundreds of cases each day filed by credit card companies against people. Often, the service is improper in these cases, and a default judgment is entered against the person.
Unfortunately, you can't do anything to defend a case that you don't know about. So usually these judgments will pop up YEARS LATER - when someone is trying to buy a car or buy a house. At that point, the judgment has accrued so much interest - often thousands of dollars in interest - and the person is handcuffed with dealing with the creditor to try to settle that judgment.
One final reason to get rid of debt - and maybe most important - is the negative effects that debt can have on your health, including your physical, mental and emotional health.
If you want, you can search the internet and find lots of research that shows the negative effect that stress, worry and anxiety have on a person's well-being.
And if I were to ask you how does struggling with debt make you feel, I am willing to go out on a limb and say that struggling with debt makes you feel stressed, worried and anxious.
You don't want to open mail. You don't want to answer the phone. You're worried about how you're going to pay for your necessary things, like food and rent. You lose sleep.
There are many other reasons that we can go explore why it's important to get rid of your debt. These were just 3 reasons, and you can see why it's so important for people to get out from crushing debt. Knowing how important it is to get out of debt, the next step is to look at ways you can debt out of debt as soon as possible.
Previously, we looked at the challenge of making more money, and figured out that it's not as easy as it sounds. So while you should stay looking for ways to make more money, we should support that (or even accelerate that) by looking for ways to get out of debt as soon as possible, which we'll turn to next.
