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4 reasons to get out of debt

Some people are just fine with carrying large credit card debt. But they're missing several important points.

By MSN Money Partner Jun 13, 2012 10:31AM

This post comes from Tara Struyk at partner blog Wise Bread. 

Wise Bread on MSN Money

I spend a lot of time writing about why debt is bad news. As a result, I've actually gotten a lot better at avoiding debt in my own life and paying off any debt I do take on as quickly as possible. I guess I believe in my own advice.

Image: Worried couple (© Digital Vision/Getty Images)But sometimes I have to wonder. I know a few people who carry a lot of debt, and it just doesn't seem to faze them that much. They have a nice life, a lot of nice things, and they pay for it all in installments. Is that really so bad? If carrying debt doesn't bother them, why would they bother making it go away?

It's a good question, and it's one a lot of people are faced with. After all, when life is good, why on earth would anyone want to switch to austerity mode? If you have a lot of debt, paying it off will not be nearly as fun as racking it up -- and it'll probably take a lot longer too. But there are still some really good reasons why you should suck it up and pay it off. (See also: "How to start fighting debt -- today.")

Debt is a self-imposed pay cut

If you carry a lot of debt -- especially high-interest credit card debt -- it costs you money each and every month. Let's say you have $7,100 on your credit card, the average for those who carry a balance. At an 18% interest rate, you'll pay more than $10,000 in interest before you pay off the debt, assuming you make a minimum payment of 1% of the balance plus finance charges each month. That's $10,000 for absolutely nothing. If your employer took that from your paycheck, you'd be screaming bloody murder. So why would you do it to yourself? (Post continues below.)

You can't borrow a backup plan

If you're carrying a debt with a manageable payment, it's a cycle that can often be perpetuated for a very long time -- pay it down a bit, rack it up a bit, and repeat. But that cycle can quickly collapse in the face of an emergency. What if you lose your job, get sick, or run into a major unexpected expense? The likely result is that you'll fail to make your payments, and possibly default on your loan. That's bad news for your credit and, ultimately, it's bad news for you. Not only will you be cut off from borrowing for a while, but bad credit can even get in the way of renting an apartment or securing a job.

More debt, fewer options

And being in debt doesn't just have negative consequences. It can also keep unexpected opportunities just out of reach, such as the chance to travel, invest, or start your own business. If you're debt-free or, better yet, have some cash in the bank, you'll have a lot more freedom to be spontaneous and embrace life's good surprises while creating the financial security you need to keep the bad ones from destroying you.

Debt drags you down

You know that churning feeling you get in your stomach when you get your credit card statement in the mail? That's not indigestion; it's stress, and it can seriously affect your health. A 2008 poll by The Associated Press and AOL Health showed that people who were dealing with mountains of debt were more likely to report health problems such as ulcers, migraines, anxiety, depression, and even heart attacks.

It's easy to swipe that credit card and forget about it, but there's always a point where a debt becomes too big to ignore. Unfortunately, by the time you feel the heat, you're probably already in very hot water. If you can, get out of debt before it starts to keep you up at night. By the time it gets that bad, it may already be too late.

Why get out of debt?

Whether you make the move to get out debt is up to you, but don't fool yourself into thinking that your debt isn't a problem. Just like the charges on your credit card, you can only defer the consequences of carrying too much debt for so long. Eventually, it'll be time to pay the price.

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