It is not fun being in debt. When you owe someone money, you always have that in the back of your mind, especially when you don't think you don't know if you can pay it back.
If you borrowed fifty dollars fro a friend and neither of you negotiated any kind of interest rate, you just agreed to pay it back when you could, you're not going to feel very obliged to pay it back. On the other hand, if you owed a thousand dollars for a personal loan with a 12% interest rate, that's a different story.
Even so, the money you owe to friends and family are rarely burdensome compared to other debts. It's the larger debts with high interest rates that are problematic. Credit cards are some of the worst with interest rates as high as 30% sometimes more. Also, it the debt can build up really fast because of the high interest rates.
Should you pay your debt off? Yes. When it comes to financial management, paying off your debt should be top priority. One of your life long goals should always be to pay off all your debt. Debt grows faster and faster the more you have.
One argument is the tax deduction you get from your mortgage. The truth is you only get to deduct the interest you pay on your mortgage and when you deduct it, you only save a percentage.
For example, let's say you have a mortgage and your interest for the year came to $5,000. You were in the 25% tax bracket, so if you deducted $5,000 you'd only save 25% of it or $1,250, not the whole $5,000. If you had no other deductions, you'd have been able to deduct more than that for the standard deduction anyway, which in that case would mean no savings. If you had no mortgage, you'd save $5,000.
Another argument with a mortgage is that you can invest any extra you would put towards paying it off and earn more than the interest rate. Even if it worked out this way, very few people would actually take the extra and invest it. If you can, then do it, but still pay it off in the 15 or 30 year mortgage you originally singed your mortgage as.
Even if you kept your mortgage and paid it off in 15 or 30 years, all your other debt should be paid off as soon as possible. Even better, don't take out loans for things you can't afford. A house is enough. Otherwise, buy used and save until you can buy what you want.
If you borrowed fifty dollars fro a friend and neither of you negotiated any kind of interest rate, you just agreed to pay it back when you could, you're not going to feel very obliged to pay it back. On the other hand, if you owed a thousand dollars for a personal loan with a 12% interest rate, that's a different story.
Even so, the money you owe to friends and family are rarely burdensome compared to other debts. It's the larger debts with high interest rates that are problematic. Credit cards are some of the worst with interest rates as high as 30% sometimes more. Also, it the debt can build up really fast because of the high interest rates.
Should you pay your debt off? Yes. When it comes to financial management, paying off your debt should be top priority. One of your life long goals should always be to pay off all your debt. Debt grows faster and faster the more you have.
One argument is the tax deduction you get from your mortgage. The truth is you only get to deduct the interest you pay on your mortgage and when you deduct it, you only save a percentage.
For example, let's say you have a mortgage and your interest for the year came to $5,000. You were in the 25% tax bracket, so if you deducted $5,000 you'd only save 25% of it or $1,250, not the whole $5,000. If you had no other deductions, you'd have been able to deduct more than that for the standard deduction anyway, which in that case would mean no savings. If you had no mortgage, you'd save $5,000.
Another argument with a mortgage is that you can invest any extra you would put towards paying it off and earn more than the interest rate. Even if it worked out this way, very few people would actually take the extra and invest it. If you can, then do it, but still pay it off in the 15 or 30 year mortgage you originally singed your mortgage as.
Even if you kept your mortgage and paid it off in 15 or 30 years, all your other debt should be paid off as soon as possible. Even better, don't take out loans for things you can't afford. A house is enough. Otherwise, buy used and save until you can buy what you want.
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