Interest is a double-edged sword. Those who pay it can get caught in a vicious cycle of debt that plagues them for years. On the other hand, those who earn it can use it to build wealth and become financially independent.
Years ago, I came across a quote from J. Reuben Clark that I’ll always remember. In a conference talk, he admonished church members to pay off their debt. He personified interest as a vicious taskmaster who takes everything from us and gives nothing in return. Enjoy this masterpiece:
Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours; it never has short crops nor droughts; it never pays taxes; it buys no food; it wears no clothes; it is unhoused and without home and so has no repairs, no replacements, no shingling, plumbing, painting, or whitewashing; it has neither wife, children, father, mother, nor kinfolk to watch over and care for; it has no expense of living; it has neither weddings nor births nor deaths; it has no love, no sympathy; it is as hard and soulless as a granite cliff. Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.1
What a vile thing interest can be. If you’ve ever been caught under its crushing weight, you can identify with J. Reub’s assessment. I once interviewed a guy who, with his wife, had racked up $109,000 in credit card debt. Can you imagine how suffocating that must have felt?
Thankfully, the couple hit rock bottom when they stopped getting approved for new cards. With a lot of motivation and effort, they took some drastic measures and paid it off in a little more than four years. Even then, the interest they paid on those cards during the gazelle-intense payoff period was in the tens of thousands of dollars. Here’s more about their story.
What do we do about it?
If you’re up to your eyeballs in debt, it’s easy to feel hopeless about your situation. Regardless of which path you take, it’s likely going to be a long road ahead. But with persistence and a plan, you can eventually be free of interest’s vice grip on your throat. A few suggestions:
Use the debt avalanche method: The debt avalanche method is similar to the debt snowball method. You put as much extra cash as you can toward one of your credit cards or loans until it’s paid off. Next, you take the debt with the next highest interest rate. But now you take all the money you were putting toward the first account each month, and put it toward the next one. Repeat until your debt is gone.
The only difference between these two methods is how you prioritize your accounts. The debt snowball method focuses on the balances, starting with the smallest balance first. The debt avalanche method, on the other hand, focuses on interest rates, starting with the highest interest rate first. The former is good if you want quick wins that come with paying off an account quickly, but the latter will actually save you more money in interest paid.
Avoid adding more debt: When you’re trying to paying off debt, one of the worst things you can do is to add more to the mix. Progress is hard when you’re taking two steps forward and one step back. In some cases, continuing to use credit cards while trying to pay them off is more like taking one step forward and two steps back. If you’re working to pay off high-interest debt, stick with cash or your debit card until you can get things under control. And if you’re just working on student loans or other lower-interest debt, avoid taking out any unnecessary debt in the meantime.
Avoid debt in the first place: If you don’t have any toxic debt, do your best to keep it that way. “Live within your means” is the phrase we typically hear, but I don’t think that’s enough. Technically, someone living paycheck to paycheck is living within their means. Instead, live modestly.
I urge you to be modest in your expenditures; discipline yourselves in your purchases to avoid debt to the extent possible.2
If you’re not on a budget, now’s a good time to start! It’s not always easy, and we all have excuses, but staying on top of your money always makes life better down the road. Why? Because when you budget, you know exactly where your money’s going. You can easily find the areas where you can cut back so you can save more. The more you save, the easier it’ll be to cover emergencies when they come up and you don’t have to turn to debt. It can be hard, but it’s definitely simple.
Interest never sleeps, but there’s always hope
Debt sucks, and there may be times when you feel like you’ll always be in debt. Sometimes debt is necessary and sometimes we make mistakes. The sooner you accept it and focus on finding solutions the better, because interest isn’t going to wait for you to be ready. It’ll just steamroll you.