When Is The Right Time To Pay Off Your Debt?

"Bad debt is sacrificing your future day needs for your present day desires."
- Suze Orman

Yesterday I gave a few reasons why paying off debt at once is the wrong way to go (Read Don't Pay Off Your Debt and Read This Instead). I figured the question would come up on when would it be the best time to pay off all debt and this will be the topic of today's discussion. 

Before I give my reply, I want you to take a look back on why you attained debt in the first place and ask yourself a few questions:

• Did you put yourself in debt because of necessity, or was it for pleasure?
• Was it worth it?
• How much in debt do you currently owe now?
• How much stress has it caused you?

These questions are important to ask because I'm sure you don't want to make the same mistake twice. These questions should apply to any kind of debt: your house mortgage, your student loan, your car loan, etc. The final question to ask yourself is: would you do it again?

As I meet with multiple clients a week, I find out a few interesting things. First of all, most people don't know what is the total amount of their debt. Secondly, the debt is not a small number, its typically tens of thousands of dollars. Finally, most (and in some cases all) of the money from someone's paycheck goes to pay off bills and debt with hardly any money to put in a savings account. So when is the best time to pay off the debt all at once? My simple answer is never, but the answer I'll give today is 'it depends.'

The only time where I believe it might be wise to pay off some debt is when you have negative cash flow on a consistent monthly basis. In many instances, the only solution some people see is to take a bigger loan to pay off the smaller loans. Debt is a complicated thing that requires an even more complex solution. In a blog last week, I gave some tips on how to change your negative cash flow to positive cash flow (Read How To Turn Your Cash Flow From Negative to Positive). The only complex solution I can give you consist of two words: sacrifice and discipline. 

If you are experiencing negative cash flow and it's mainly due to high amounts of debt, it's time to make some personal sacrifices. Sell your possessions. Sell your car, your big screen TV, your clothes, but start selling something so you can have cash in hand. Stop borrowing money and make money. Last year, I made $1,300 in 4 months just by selling my stuff on ebay. I sold DVDs, a broken guitar (yes, people will buy broken things online), mariachi attire that hasn't fit me since high school, and books that have just been collecting dust. I sacrificed my possessions. However, the hard part was the discipline. I took pictures of almost all things I had and tried to make them look nice. I was careful in my descriptions and tried to make the ebay pages look professional. I made sure that the items were shipped withing 48 hours. Was it a lot of work? Not really, it just seems like a lot of work when you list it out but my end result was there.

In conclusion, stop borrowing money and make money instead. Any thoughts?

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