pay off your debtsIf you’re like us DINKs, you’re probably wondering how to improve your financial bottom line. The recent covid related economic slowdown has torpedoed some people budgets, so some options for seeing immediate gains to one’s net worth are limited.

One way to immediately improve your bottom line is to pay off your debts. There are several advantages in doing so.

First, paying off debt improves your cash flow. Every dollar that’s borrowed usually costs you to carry the debt. Right, so if you owe 100 dollars at 6 percent annually, it costs you 6 bucks to carry the debt every year. Well, if you pay off the $100, then your budget has an additional 6 dollars more. Run some real numbers to see if what I’m saying makes sense.

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Second, paying off debt improves your net worth. For example, let’s say you have a mortgage worth $100,000, but you own $80,000 on your house. Your networth, all things being equal, would be $20,000 (i.e. $100,000 – $80,000 = $20,000). But, if you spend some time and aggressively pay down $10,000 on your mortgage, then your net worth is now $30,000. This is only natural, when pay down debt your net worth, and accordingly your ability to build wealth increases dramatically.

There are some tax issues with interest deductibility, but basically the first two points hold true.

Third, debt reduction is risk free. You incur absolutely no market risk, systemic risk, or other kinds of risk if you pay off debt. Every dollar you pay off is a dollar more towards your net worth, and a dollar that improves your cash flow – all at no risk to you. This is a contrast to stocks, bonds, cryptocurrency & starting a business or any of the other typical means that people use to improve their net worth.

In terms of the mechanics of making this happen, here are some practical tips on getting extra money to pay off your debt, as well as an example of how its done.

For more wealth building awesomeness, read these:

Getting ahead on $600 per month

Don’t Forget The Basics

Save, Invest And Reinvest To Build Wealth

Personal Finance Advice from 1758

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James Hendrickson is an internet entrepreneur, blogging junky, hunter and personal finance geek. When he’s not lurking in coffee shops in Portland, Oregon, you’ll find him in the Pacific Northwest’s great outdoors. James has a masters degree in Sociology from the University of Maryland at College Park and a Bachelors degree on Sociology from Earlham College. He loves individual stocks, bonds and precious metals.

MANAGE YOUR MONEY TOGETHER

Here are some simple guidelines for DINKS to build wealth:

1) Collaborate: Meet regularly to talk about money, set goals together, track and monitor them.

2) Understand and respect your partner. Take time to understand your partners values about money.

3) Watch the numbers. Get a budget, monitor your spending and track your net worth.

4) Max your retirement. Maximize contributions to your tax deferred retirement accounts.

5) Invest in stock. Stocks perform better than bonds or cash.

6) Avoid high interest debt. Credit cards and title loans are financial cancer.

7) Diversify. Don't put all your eggs in one basket.

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