Debt is bad. Interest is worse. Or so they say.
When you start planning for financial independence you might notice that your debt balance is a bigger deal than the interest. Let's take a look.
Let's say that Johnny has consumer debt totaling $90,000. This includes credit card, auto, and student loan debt¹. They have $100,000 in income with $60,000 in expenses (including their $1,000 monthly debt payment). Here's what that forecast looks like. You can also see the full forecast.
You'll notice that Johnny is able to put nearly $40,000 towards paying down debt each year². This lets them pay it off in just 3 years. Over that time, Johnny pays around $13,000 in interest.
The takeaway is that the faster you pay off your debt the less you have to worry about your interest rate.
It's not surprising that paying debt off early yield's great results. You should go ahead and lower the interest on your debts if you can. The trick is not to let that lower interest rate make you feel comfortable letting the debt linger around.
Focus on paying your debt off so that you can put that extra cashflow to work towards your financial independence.
¹ The 2020 average consumer debt from NerdWallet is ≈$90,000.
² FIers assumes an average of 8% interest on consumer debt which is slightly higher than the average calcualted from NerdWallet's 2020 article.