How to cut your Debt?

You are fed up with your debt and want to start all over again? Tired of collection calls and worry about what would happen tomorrow? Tired of living pay day to pay day?

You are not alone. Each and every human being takes a debt atleast once in their lifetimes in one way or the other. The key to get out of debt is self-discipline. The best part about this is that you do not have to depend on financial advisor or some wall street guru or anyone else to get your life back on track. So, let us take a look at how it can be done.

Professionals often say that we should pre-pay our mortgage or you should keep paying the minimum due to the credit card companies but not the full amount due. Their argument is that if you have extra cash, you are better off investing in the stocks, bonds, real estate, gold etc etc for a better return rather than paying off your debt. 

Well, this is true in some cases who have enough cash to pay off their debt in a flash. For others like me, I would prefer to pay off any debt I have. Investing in the market in any instrument like stocks, bonds, precious metals, real-estate etc in no guarantee to get returns. Rather, we could loose that money pretty quickly especially in this volatile market. However, what is guaranteed is that we are paying interest on our mortgage every month until that is paid off. Most importantly, having no debt on your shoulders, just changing your life. It gives you confidence to try out new ventures and in your abilities to manage your debt.

Let us consider a very simple example. Banks lend us money at a mere 3.5%-4% these days. Banks are guaranteed to keep collecting 3.5-4% interest on the their loans every month in the normal situation. If there are 10 such loans they are guaranteed on collect 35-40% income on their investment.
Banks have enough smart people working for them. If we were to follow the so-called financial experts, banks should not make lend money on just 4% rather they should invest in hot items like stocks, bonds and real-estate and that will generate a very high return.

Guess what! Banks followed their advice in 2008 and we all know what happened.

Again, There are no guarantees on the returns in any investment. However, any interest charges/late charges etc are guaranteed every month if there is any outstanding dues against you.

So, save some money every month and focus on reducing or eliminating your debt before we start investing. You will have more success and more favorable results.

Have a question? Please leave a comment and I would be glad to answer.