Is "paradebt" robbing your financial future?

If you are debt-free, or working toward becoming debt-free, you're probably focused on paying off loans like your credit card bills, auto loans, student loans or maybe even your mortgage. Each of these debts represents money borrowed that has to be repaid, plus interest.

But there's another kind of debt, called "paradebt," that is off the books, so to speak. And while you may not have to pay interest on it, the costs are still very real.

Motley Fool writer Carl Hendley writes about the cost of paradebt in a guest post for Get Rich Slowly: "[Paradebt] is debt that's outside of the traditional 'borrow now and pay back later' variety such as a Visa bill, car payment, or student loan." It's the total effect of all of your nonessential monthly spending. " Sure," writes Hendley, "these are services you can cancel, and yes, these paradebts don't come with an interest rate, but they do come at a cost. Debt is debt."

Defining paradebt

What counts as paradebt? List all of your nonessential expenses, such as club dues, gym memberships, magazine subscriptions, cable TV packages, and all other recurring expenses that aren't necessities. When added up, the total is your paradebt.

This doesn't mean that you have to cancel all your subscriptions, stop going out eat, or quit the gym and become a couch potato. After all, money is a tool that we use to enrich our lives, and a balanced budget allows us to enjoy some of that. But notice if you've listed nonessential expenses that aren't really that important to you. Maybe you pay for a gym membership but you prefer going for a run outdoors. Or maybe you've got subscriptions to publications that largely go unread.

The cost of paradebt

Let's say you have $150 of monthly costs you can trim. Spending $150 a month on those nonessentials for 25 years will cost you more than $198,000 (assuming a 10 percent average rate of return). Sure, you might like your magazine subscriptions and cable package, but is it worth almost $200,000 over your lifetime? Probably not.

So where can you trim back? You may not want to cancel your mobile phone service, but do you really need unlimited text messaging and a premium data plan? Are there cheaper ways to work out besides the private gym membership?

Only you can answer those questions, but it's important to ask them. If you've found some ways to trim the budget, don't let the funds sit in your checking account. Make an automatic transfer to a retirement or online savings account. You didn't miss the extra cash before, so it's best to automate the process to make sure you actually save the money you're saving!

The original article can be found at"Is "paradebt" robbing your financial future?"

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