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 5 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). 1 in 10 people believes they will never get out of debts. While 2 in10 people channel an astounding 50%-100% of their income towards paying their debts.
Though it seems, for most people, due to economic, personal and career factors, getting into debt is inevitable. However, it’s certainly possible for them to make changes in their financial habit 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 interests 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.
This vicious cycle makes it impossible for you to have enough money to achieve your money goals. Not only that, being always under the stress of a debt burden can affect your relationships, health, and work.
Your life will definitely be better if you’re able to free yourself from the iron shackles of debts.
If you have had enough of stressing over a budget stretched paper thin by loan repayments, fees, and interests; or the dread you feel when your phone rings and payment is due.
Here are some benefits to entice you to strive towards living a debt-free life.
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 interests 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 the reliability of a potential employee based on their credit scores.
- Makes it easier for you to get a new apartment because landlords also check credit scores.
- 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 garnisheed or even declare 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 Levels
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.
Getting out of debt is a huge relief. Like rolling the weight of the world off your shoulders. You no longer toss and turn at night, wondering how you’ll ever meet up with your repayments. You’ll sleep better at night and relate better with your family and friends. You’ll have time to do the things you love and ultimately live a better life.
Being constantly under debt-induced stress can also cause health challenges. People with a higher debt burden also report poorer overall health.
According to an American Psychological Association survey published in 2017, 62% of Americans reported being stressed over money, and these stresses could physically manifest in several ways which include cardiovascular disease, gastrointestinal problems, allergies, diabetes and more.
Chronic stress also impairs your immune system, making your 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 therefore further 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 health care 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 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.
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.
Money fights rank right up there with infidelity and incompatibility as the leading causes of divorce. Debt often puts enormous strain on a marriage. The stress may make both couples cranky and irritable. It may also cause reduced intimacy which further drives them apart.
It becomes worse when one partner is assiduously working towards eliminating the debt while the other is spending like a rock star.
However, 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. And of course, the heightened emotions that come from surviving a crisis together will create a more powerful bond.
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. Also, you can begin to save for their future – like putting money aside for their college education.
And because being debt free strengthens your marriage, it provides a more conducive home atmosphere for your children. Freedom from debt also improves your mood, and this makes you a more pleasant person to be with. You’ll have more time and energy to interact and play with your kids.
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 your become debt free in as short a time as possible. You will now be able to start living your life to the fullest.