paying off debts before saving or investing money Why

paying off debts before saving or investing money makes sense if you understand how the debt system works its magic to keep you stuck in a cycle of debt. let me break it down for you.

the key concept here is velocity. when you owe money to banks, credit card companies, or other lenders, they charge interest on your outstanding balance. this interest can range from 10% to over 30% per annum, depending on the type of loan and your creditworthiness. now, most people think that saving money and investing it will somehow magically pay off their debts faster. but here’s the thing: if you’re paying a high-interest rate on your debt, every dollar you save or invest is essentially worth less due to compound interest.

let me illustrate this with an example:

say you owe $10,000 at 18% APR and you put $1,000 into a savings account earning 2% APY. after one year, your debt will grow by $1,800 (18% of $10,000), while your savings will earn only $20 (2% of $1,000). so, in essence, the bank is making $1,780 from you for every dollar you “save”.

now, let’s talk about rate decay. most people think that paying off debt slowly and steadily will somehow make it go away faster. but what they don’t understand is that high-interest rates are designed to keep you in a perpetual state of debt. as you pay down your balance, the interest charges decrease – but not at a linear rate. using the same example above, if you pay $1,000 towards your debt each month, it will take around 60 months (5 years) to pay off the principal amount of $10,000. however, during this time, you’ll have paid over $6,800 in interest alone.

this is where cash-flow redistribution comes into play. when you owe money to lenders, they’re constantly taking a slice of your income – and not just through interest payments. think about it: every month, you pay a portion of your salary towards minimum payments, taxes, rent/mortgage, utilities, food, transportation, and other expenses. the lender gets their cut, leaving you with less money to put towards savings or investments.

by paying off high-interest debts first, you’re essentially redistributing your cash flow in favor of yourself. every dollar you free up from debt payments is a dollar that can be invested or saved at a rate more favorable than what lenders are offering.

so why do people get stuck in this cycle? it’s because they don’t understand how the system works – or they’re too afraid to take control. let me tell you a secret: most people aren’t bad with money; they’re just poorly educated about personal finance and debt management. by learning the mechanics of high-interest rates, compound interest, and cash-flow redistribution, you can break free from this cycle.

i’ve done it myself, and i can attest to its effectiveness. after reverse-engineering the debt system and applying these principles, i managed to cut my payoff time in half. that’s right – by understanding how the game is played, i was able to pay off $20,000 worth of high-interest debt in just 30 months.

so here’s what you need to do:

1. face reality: accept that paying off debts before saving or investing makes sense if you owe high-interest rates.
2. understand the math: calculate your total interest payments and compare them to the returns on your savings/investments.
3. prioritize debt repayment: attack those high-interest debts with a vengeance, using the snowball method or the debt avalanche strategy – whichever works best for you.
4. redirect your cash flow: every dollar you free up from debt payments is a dollar that can be invested or saved at a rate more favorable than what lenders are offering.

don’t fall for the myth that saving and investing will somehow magically pay off your debts faster. it’s time to take control of your finances, learn how the system works, and redistribute your cash flow in favor of yourself. trust me – once you do, you’ll be amazed at how quickly you can pay off those pesky debts and start building real wealth.