Debt has become a part of the American experience. In between credit card balances carried over from month to month, monthly payments on vehicle loans for five years or more, student debts and mortgage that seems like life sentences, the average American is swimming in debts.
According to a 2018 study by a leading financial services company Northwestern Mutual, Americans carry an average of $38,000 in personal debts (excluding mortgages).
One out of ten people believes they will never get out of debts, while two in ten people channel an astounding 50%-100% of their income towards paying their debts.
So, it’s very likely that your cocky neighbor with the shiny new Mercedes is up to his neck in debt.
But is debt now the new normal?
Is debt-free living still possible?
What would it look like to live a life without debt?
Though it seems, for most people, getting into debt is inevitable due to economic, personal and career factors, it’s certainly possible for them to make changes in their financial habits and seek a life free of debt.
While there are several advantages to taking on a loan, it’s all too easy to fall into a debt trap. For instance, credit card debts can keep your finances down with high interest and without adding anything to your income. Thus, you may require more borrowing to get through the month, thereby trapping you in a vicious cycle of indebtedness.
Your life will be better if you’re able to free yourself from the iron shackles of debts.
Have you had enough of stressing over a budget stretched paper-thin by loan repayments, fees, and interests? How about the dread you feel when your phone rings and payment is due?
This post focuses on the many perks of getting your financial house in order and being financially strong to entice you to strive towards living a debt-free life.
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The 7 Benefits of Debt-Free Living:
You’ll Have Most of Your Money for Yourself
It goes without saying that having lots of debt will tie down a greater part of your income or earnings. A credit card balance of $5,000 at 20% will take you years to clear while making a minimum repayment of $200 each month.
Imagine somehow clearing this balance. Overnight, you’ll have an additional $200 to play with monthly. That’s about $2,400 in a year. The money you can put in a couple of investments to fast track your financial freedom; go to that exotic island you’ve always dreamed of, or pay cash for your dream car.
Most importantly, that extra money can go a long way to shore up your retirement account balance. This could be the key to your retiring early rather than working well past the retirement age of 65.
Improved Credit Score
Your credit score is negatively affected by too much debt. And the closer your loans are to the credit limit, the worse your score will be. Having a bad credit score will make you pay much higher interest, thereby perpetuating the cycle of debt.
However, as you pay down your debts, your credit score will soar. A better credit score offers several benefits:
- Increases your chances of landing a better job since some employers appraise a potential employee’s reliability based on their credit scores.
- It makes it easier for you to get a new apartment because landlords also check credit scores.
- You will get lower interest rates on any new loans.
- Better deals on phone contracts.
Carrying a heavy debt burden often means you won’t have any emergency savings for when life happens.
There’s a thin margin of error. You are always one step away from disaster.
A major unplanned medical expense or a job loss may leave you unable to meet up with your payment obligations. This could result in constant harassment by collection agencies, losing your home in a foreclosure, or getting evicted when you can’t pay rent. You may even be sued for non-repayment and have your income garnished or even declare personal bankruptcy.
Having no debt means you won’t be at risk of any of these eventualities. You’ll have more room in your budget, and a single incident would hardly ruin your life.
Reduced Stress Level and Better Health
As you already know, stress can open the floodgates to serious ailments such as heart diseases, obesity, depression, and stroke!
Being always under debt-induced stress can cause health challenges. People with a higher debt burden also report poorer overall health. The constant worrying about meeting all your debt obligations and how to make enough money to get ahead of your debt often take a heavy toll on you.
A 2017 AICP survey found that 56% of Americans with debt feel it has negatively impacted their lives. And 28% said their indebtedness causes lots of stress over simple financial decisions. Furthermore, 21% of respondents blamed their stress over debts for the tension with their partners, while 19% said they have been called or written to by collection agencies.
That means money is the key factor in determining their stress level.
According to an American Psychological Association survey published in 2017, 62% of Americans reported being stressed over money. These stresses could physically manifest in several ways, including cardiovascular disease, gastrointestinal problems, allergies, diabetes and more.
Chronic stress also impairs your immune system, making you susceptible to catching an infection like the flu or the common cold. Furthermore, worrying about your debt makes it difficult for you to sleep well at night, reducing your body’s ability to fight off infections.
However, your health dramatically improves once you clear your debts. You’ll feel better, mentally and physically. With the ease of mind that comes with living debt-free, you’ll sleep better and therefore shore up your immunity.
Another way debt mess with your health is that you tend to visit your doctors less often due to your precarious financial position. Studies have shown that people with lots of debt are less likely to see a doctor and other healthcare providers regularly. They also tend to avoid medical attention even when ill because of their inability to afford the costs.
Being debt-free and consequentially in a better financial position makes it possible for you to afford to see a doctor regularly and possibly avert severe medical conditions. Living debt-free might add some years and improve the quality of your life.
Improved Relationships and Stronger Marriages
Relationships tend to take a beating when money woes kick in. Finger-point and couples turning on each other are some of the inevitable issues that await you.
Money fights rank right up there with infidelity and incompatibility as the leading causes of divorce. Debt often puts enormous strain on a marriage.
Living with considerable debt can leave you marinating in a soup of unsavory emotions.
Debt-induced anxiety, fear, anger, and depression affect your relationship with others. You are more likely to snap at your spouse, children, or colleagues when you are thinking of how to pay outstanding bills.
You may resent others who are more successful financially and may even blame your partner for your woes.
On the other hand, couples with a strong and a mutually negotiated financial plan are less likely to blame one another for unmet financial obligations.
When couples come together and tackle the debt issue successfully, their relationships grow stronger. The teamwork involved in dismantling your seemingly immovable debt burden will make you communicate better.
Living debt-free will make you a happier person. And happy people relate better with others.
You won’t be in a sour mood all the time, and this will make you a much more likable person. You’ll be more empathic with your family and friends. And, of course, the heightened emotions that come from surviving a crisis together will create a more powerful bond.
Financial literacy and accountability tend to rub off on your kids. This means that they have a higher chance of living a financially strong life in adulthood.
Clearing your debts helps you take better care of your kids. The income that is freed up will help provide them with what they need to thrive.
For instance, you can afford a dental procedure for your kid or pay for them to learn to code. You can also begin to save for their future – like putting money aside for their college education.
Debt-free living strengthens your marriage, it provides a more conducive home atmosphere for your children.
Freedom from debt also improves your mood, making you a more pleasant person to be with. You’ll have more time and energy to interact and play with your kids.
The reward of which could be more choices for your kid’s education. Wouldn’t it be pleasing to have your grown-up kids able to take care of themselves?
However, do not expect this to happen by osmosis! Intentionally teaching your kids the basics of money management are highly recommended.
Sorting out the mess in your financial well being gives you more control over your own life! Heavy debts will make you a slave to their payments and to your lender!
Being debt-free could mean making a career change. The small sacrifice you make now will empower you in years to come.
Financial stability gives you more margin. You no longer have to live to the end or beyond your means. You can set a buffer in your personal financial plan for the unexpected.
Starting Your Journey to Debt-Free Living
Do you now see why you need to up your debt-elimination game? If you are not sure of how to start your journey towards debt-free living, there are some resources out there you can use. Whatever strategy you adopt to crush your debt, double down on it and ensure you become debt free in as short a time as possible. You will now be able to start living your life to the fullest.
This post is updated and republished on January 4, 2021