A brief essay on the importance of paying down debt, instead of issuing more or regular spending.

First and foremost, any debt is a liability: You will be owing a third party money and they will have leverage over you if you do not fork over the cash. Besides leverage, some form of going to the courts is possible, this usually follows after debt collectors utilise their leverage ineffectively. Paying it also provides with some piece of mind or that you no longer have to think about the sum owed.

Most debts carry interest, which saps away at your free cash flow (money can only be spent once), which reduces both freedom and long term growth potential of both yourself and your portfolio.

 

The main problem with putting this into practice: Private people* are inclined to spend money on more urgent desires, usually short term bonuses go to short term pleasures such as social activities which have no positive long term effect; the money and al of its potential is gone. More business minded individuals are constantly told that debt is not bad; you can write off interest (not in every country or for every loan, but this sentiment is very resilient).

Because of this, people are constantly told not to reduce their loans, but to spend even more. Ironically, the exact same people and media spreading the gospel of spending, are also the same crying foul when debt becomes unsustainable. So do not listen to them, simply pay what is owed.

 

*Those with actual debt issues or under receivership tend to a lot better, please remember that being in such a condition is rarely their own fault.