The Cost of Borrowing

Calculating debt on a calculator

It’s common knowledge that it is important to pay off high interest debt, such as credit card debt, but lower interest debt may not be seen as a high priority. However, any debt you carry negatively impacts your cash flow.

What is cash flow? Cash flow is your income after necessary expenses, such as your mortgage, utilities, car payment, and minimum payments on other debt. Because you are required to make these payments, if your cash flow is tight, you are at risk in the event of a job loss, or other life emergency.

The good news is that by paying down your debt, you can improve your cash flow. By paying off your loan or line of credit, and other debts, the money that would be going towards those payments has been freed up. This gives you the opportunity to put that money towards your savings. Tracking your expenses is essential to ensure that you are not over-spending on discretionary purchases, which could put you further in debt.

Consider making more than just the minimum payment on lower interest debt. Not only will you save money on interest, you will be debt free sooner and able to put more of your money away for your retirement, or a large purchase.