Few of us can sit this one out. We all dance the dance of debt. Mortgages and school loans are a way of life. But when we stop to consider our car loans, home equity loans, buy-now-pay-later plans and those precious credit cards of ours, we may ask ourselves, “How did we get here?”

We started out using debt sparingly for worthwhile pursuits, like college and home ownership. But, somewhere along the way, we began acquiring debt on impulse and turning a blind eye to higher financial priorities. We made an unholy bargain. We swapped our retirement plans for regular indulgences at Target. Our kids got iPods instead of college funds. “We’ll take care of it later” became our financial strategy.

The truth is, though, that we won’t be able to take care of it later. Debt casts a long shadow. It robs us of our golden opportunity to save early. For each year that debt forces us to put off saving, the amount we’ll need to save goes up. Saving early creates a cushion that we simply cannot re-create later without a whole lot more sacrifice.

We have a choice. We can use our extra, say, $500 a month to buy a new car and service the loan for five years. Then, we’d have a 5-year-old car and no savings. Or, we could put off the car and invest the $500 at 8%. Five years later, we’d have $38,000, which grows to $120,000 in 20 years and $260,000 in 30.  Our buddy with the 5-year-old car would have to spend the next eight years at $500-a-month to just catch up. Yet, we’re now able to buy the car, continue investing, and still significantly outpace our buddy in the long run.

So, how do we go about ridding ourselves of debt we already have? Top of the list — escape the vortex of credit cards. Not only are the rates high, but interest on carried balances compounds monthly. For every month we carry a balance, we’re assessed a finance charge, which increases our balance. As our balance continues growing, so does the finance charge. It’s exponential. It may be worth using a lower interest loan — like a home equity — to pay off these balances ASAP.  

What about our very low-interest debt, like student loans? After the struggle to whittle down our higher interest debt, we tend to stop there. We hang onto lower interest items, believing we could net more by investing our extra cash rather than paying off the loan. True… but only if we actually invest the money. If it’s never earmarked for savings, it’s spent. So, we’re just left with the debt and its drag on our savings momentum.  

First the work and then the play. It’s my Grandma Reiner’s wisdom from “the old country.” It means we’re better off doing things in order of importance. Once we do the work of eliminating debt, we’re able to build financial security unfettered and make deliberate purchases with a clear conscience. Better still, we’ll gain that warm, fuzzy, though perhaps unfamiliar, feeling of financial responsibility… and integrity.   

What’s up next? Taking Stock of Your Finances.

Berry is not a Certified Financial Planner. She is the self-taught manager of her family’s finances and a cum laude graduate of Texas Tech Law School. Before making any financial decisions, evaluate all information carefully and consider consulting a financial professional.