Paying off debt is not easy. Trust me, I’ve been there. It can be especially hard if it’s credit card debt. Credit card debt can be crippling to you, and your wallet. It also makes it impossible to invest.
Think about it, you’re paying 18-20% on credit card debt and you’re also going out and doing great as investor making 15% a year. Sadly, you’re still losing 3-5% a year because of the credit card debt.
It is important to understand the impact of compounding rates of return that apply to you not only as an investor but as someone with debt. It can work against you as much as it can work for you, which is why debt can be so hard to get rid of.
I have come up with some tips on how to get rid of debt, and how to succeed using compounding rates of return to make a lot of money.
Make a Lifestyle Change
The hardest part of getting out of debt is changing your lifestyle. You have to cut back on spending, at least for awhile.
A friend of mine is a single mom with two kids. Neither her son nor her daughter works, and she has two extra bedrooms in her house after the divorce. She doesn’t use any of these resources to get out of debt. She does not change her lifestyle to create capital for investing.
She actually has gone even deeper into debt after buying a new car for her daughter. This is after her daughter complained that her friends at school would kid her for not having her own vehicle.
You can really kill yourself by trying to impress people who really don’t care that much one way or the other.
If all my friend did was rent out the extra rooms and have her two kids get jobs, she could be picking up hundreds of bucks per month. Once her debt was gone she would have been able to invest that extra money.
Make Sacrifices Now & Save For Later
Along with changing your lifestyle, you will have to sacrifice some things you want to do or buy right now. You may want a nicer car or a bigger apartment, but you have to learn to say “No” to those things for now.
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