When the end of the year is approaching, many people start to set goals for the upcoming new year. Some people would prioritize health goals such as being more active or eating healthier meals. There are also individuals who want to focus on a project that they’ve been putting on the back burner for a while. Many people also set financial goals for the new year. However, the number of people who take bold steps to fulfill those goals is far smaller. Becoming debt free is something that has a significant impact on successfully reaching future financial goals.

In the united states, there are fewer people who recognize the value of taking actual steps to pay off their debts. At the end of 2019, credit card debt alone accounted for $1 trillion of outstanding balances from Americans. The second largest portion of the debt pie goes to student debts. When it comes to debts, it’s better to pay what you owe as soon as you can.

We also know the difficulties that American students experience after accumulating a huge loan debt for their studies. It can take several years after graduating from university to completely pay off the debts they incurred for their college degree. It is estimated that there are 42 million Americans with student loan debts that total $1.5 trillion.

In the past 40 years, wages have barely moved while the cost of education, housing, and medical care continues to rise. It is not a surprise that more and more people rely on loans to cover a portion of their expenses. From a survey by CreditCards.com, it was revealed that almost half of Americans have credit card debt and that the average family owes $6,000. Accumulating more debt does affect future financial decisions.

One, the amount of credit card debt you can have is limited. If you do not have a stellar credit score, you will also have to deal with higher interest rates on your debts. Two, if you use your credit card, you need to pay interest on your balance. Credit card interest rates are no joke with the average APR averaging 17.4%. Three, your ability to purchase items you need and want will be limited. As your credit card debts continue to grow, a bigger portion of your income will go to paying those monthly payments. Being debt free allows you to spend your hard-earned money on things that you really need.

If you have an active loan, this can also affect how lenders view future loan applications. This is especially important for those who want to open up a business. Make sure you are on time with those monthly payments so lenders can offer you favorable rates. For borrowers with multiple creditors, debt consolidation is something that sounds appealing. You only need to make one payment every month. However, a common mistake borrowers make is not doing enough research to find the program that suits their situation.

According to the survey by CreditCards.com, more than half of the respondents reported being stressed by their credit card debts. Many experienced the feeling of anxiety because of increasing debt balances, the lack of a source of income, and just the general fear of getting trapped in a debt cycle. This kind of stress can be harmful to both our physical and mental health.

During November and December, people prepare to score on Black Friday, Cyber Monday, and other seasonal shopping sales. However, in 2020, it was difficult to predict how much consumers would be willing to spend on shopping given the effects of the pandemic. Before COVID-19, there was an increase in personal debt as the holiday season approaches. Most borrowers paid off their personal debts in less than 3 months. Borrowers who accumulated more than $1,300 in debt would take 5 months to pay off the balance.

What does it mean to reduce and consolidate your debts? For one, you do not need to be at the mercy of your creditors. Lenders and credit card companies decide how much you need to pay monthly and how much interest to charge on your debts. Some companies can increase the interest or even the minimum payment and give you only a few months’ notice. If this happens you will have to rearrange your whole budgeting plan to accommodate that increase.

Next, you can grab the chance to buy assets. Auto loans and mortgages are categorized as secured debts. A secured debt has collateral involved. For car loans, the vehicle is the collateral while mortgages will use the house. If you default on payments, the property can be repossessed by the loan provider. But once you successfully pay off a secured debt, you have an asset that you can use however you like without worrying about repossession or foreclosure.

When you take out a loan or charge an expense to your credit card, you are committing your income for the next months or years to pay for that debt. Borrowers need to be careful taking out loans and opening credit cards since it is easy to be trapped in a debt cycle. A few years after the pandemic, with some sectors still feeling the aftereffects, perhaps borrowers can take the time to consider how they can reduce and manage the debts in their families.