Any money you’re putting toward monthly debt repayments isn’t going toward your savings. The sooner you pay off your debts, the sooner you can put your money into an investment that will earn you interest.
Keep in mind that when you pay back a loan or a credit card, you're paying it back in after-tax dollars. In other words, you must earn money to pay back the debt, plus interest, and you must pay taxes on that money. If you're in the highest tax bracket, you may have to earn more than $200 to pay off a $100 debt.
If you have debts and investments, you may be paying more interest on your debts than you’re making on your investments.
5 ways to reduce debt
- Budget a set amount each month.
- Get rid of high-interest debt first.
- Consolidate different debts into one.
- Set up an automatic savings plan.
- Make an extra mortgage payment.
Learn more about how to manage debt.