Why You Need to Forget about Racing to Zero

Karen White Featured 0 Comments

If you’re in debt, it can be hard to think about anything else and easy to get caught up in tracking every cent that goes toward your debt repayments. It’s tough to see your net worth constantly in the red, and completely understandable that you’re extremely focused on getting the amount of debt you have to zero.

But this racing to zero can have some serious ramifications if you’re not careful. It sounds a little counterintuitive to say that having a one-track mind when it comes to destroying debt can be a bad thing, but when you don’t develop goals and plans outside of your efforts to pay back loans or reduce credit card balances, you’re actually risking future stability and financial success.

How Racing to Zero Can Negatively Impact Your Finances

Don’t get me wrong: working hard to pay off every last bit of debt is important, and crucial if you want to be financially secure and successful. It’s when you lose sight of all other financial priorities that you run into trouble.

When you’ve exclusively focused on debt repayment, once that debt is paid off you’ll be starting at “zero.” If it takes you five years to get rid of every bit of debt you have, if you’re only focusing on that financial goal, consider how you feel about being five years down the road without having established any kind of savings. Imagine five whole years passing and not having anything else to show for it but a net worth of $0.

Racing to zero may help you stem the tide of money leaving your checking account every month because you’re not continuing to pay interest on your debt, but it can cost you even more in missed opportunities.

If you look at the big picture – or life beyond debt – and plan ahead by putting a little here and a little there in investment accounts, it might take you a little longer than five years to be totally debt-free. But when you are, you’re going to be moving forward with far more than a net worth of $0 because you were focused on all your financial goals and priorities, and you gave some of your money a chance to grow via the magic that is compound interest.

Balancing Your Debt Journey with Other Financial Goals

The key to becoming financially independent is to focus on goals. While debt will drag you down, it may not always be the absolute most important aspect of your finances to think about – at least, not exclusively.

You need to learn to balance debt repayments with achieving your financial goals, such as building up an emergency fund, saving for your kids’ college, and your retirement. The door to your biggest investment opportunity is incrementally closing each and every day, because that opportunity is time.

To completely miss out on the opportunity to save and invest your money today will cost you down the road, because you didn’t give your nest egg enough time to earn interest and compound to grow exponentially. Before you throw every last cent at your debt, consider giving your other financial goals some thought.

Sure, you may still want to be most aggressive with debt repayment, because the interest on the money borrowed is costing you money. But you don’t have to completely ignore all your other financial goals. In fact, you can actually boost your progress toward those goals.

Could you pick up some part-time work on the side? Could you do a little freelance or consulting work in your free time? Earning more money is going to help you fast-track all of your financial goals so you can have an easier time not only aggressively tackling your debt, but also giving attention to worthy causes like emergency savings, college savings, and retirement savings.

Racing to zero is only going to get you just that: zero. You need a comprehensive plan that is going to help carry you forward with success once you pay off all your debts. Because that’s the good news: there is life after debt, and you’re going to want to be financially prepared for it.

By Kali Hawlk, Contributor