Managing debt tends to stress people out. Seeing large sums of money you owe compared to a small checking account is daunting. The good news is, if you're in debt, there are ways out. If you're not in debt, then there are ways to avoid it.
But before we get into the nitty gritty of paying down debt, we need to pin down why debt holds you back. It all comes down to one simple reason: opportunity cost. Opportunity cost is the theoretical amount of money you are losing by using your money one way vs. using it another way. When considering debt, the opportunity cost is the money we're losing from paying interest instead of investing that same money.
Remember, interest rates are a bank's way of charging us to use their money, and as it turns out, it's very expensive. Especially when we consider how else we could be using that money.
It's opportunity cost that motivates us to pay off debt quickly and then start investing.
Not all debt is created equal, and some loans may give you something that you're willing to work to pay off. But in general, avoiding debt is best, especially loans used to buy a depreciating asset (like a car). In the deep dive, we'll discuss different types of debt, which types to consider, which to avoid like the plague, and how to prioritize paying off the debt you have.