One of the most difficult aspects of managing debt is to recognize that the money you owe is not just the price you pay - you are also paying for your future.
Every dollar you spend to solve a debt problem - whether it's a credit line, a loan or a mortgage - comes from your current earnings, but it also affects your future interest potential.
Think about it.
Let's take any plan - you have to pay $1,000 in debt and get funding in August. Rather than cashing in on your debt, you decide to wrap it instead of spending $200 instead of five months.
Now that you have started paying interest on this debt, you can pay more than $1,000 without paying $1,000. Let's say this number, and during the five-month period, the remittance amount is $285 instead of $200, and you only pay once.
So you have $85 now. Today, this sacrifice may be two delicious meals - we can manage without it. However, if this money is invested in the RRSP, it will grow over time, and when you retire, $85 may become $125 [again, these are arbitrary numbers and do not reflect any interest rate forecasts]. Of course, by that time, inflation may be the same cost as your two meals, but it can also be a gift for a granddaughter or a fuel to go out to the country.
Looking at this situation, you can start to see that debt can be better mitigated by one-time payments rather than over time. Keep this in mind when considering sudden revenue growth, such as work bonuses or tax credits.
Orignal From: What is the real debt cost?
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