When your desire is to become debt-free, you must work hard to save money, increase your income, and pay off loans.
Besides a mortgage and a student loan, auto loans often prevent many adults from becoming completely debt-free. While paying for a car outright with cash is the best way to avoid building debt, most adults don’t have access to such capital.
Even if you are drowning in debt, the idea of a debt consolidation loan won’t appeal. The reason is the stigma behind the loan itself. Lots of people think there is never a time to consolidate all of their debts into one manageable loan. Why? It’s because you might spend more in the long run, and you stand to be in more debt. However, there are times when debt consolidation is a viable option and is worth considering. If you don’t know what these scenarios are, you can take a look at the following.
It is important to make sure that your money is working hard and not just sitting idle in a low interest deposit account. With the exception of keeping a few months worth of living expenses tucked away in a savings account as an emergency fund, I would advise that you make the rest of your money work much harder.
For example, right now we have an open variable rate mortgage at an interest rate of 2.5%. Rather than keeping all of our money in a savings account that pays less than 1%, we decided to put $5000 extra towards our mortgage principal to decrease the amount of interest we pay. Although 2.5% is a fairly low interest rate, our mortgage is our only debt right now; otherwise we would have paid off higher interest debt.