Of the Forbes 400 richest Americans, 70% say the best way to build wealth is to stay debt free. Wish I’d realized that earlier in life. Here are 18 reasons why people fight sacrificially to make themselves debt free. Whether your goal is to be debt-free including or excluding your mortgage, these are the most common reasons we hear.
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Most Americans live their lives on borrowed money… or you could say, borrowed time. The constantly spend a bit more than they make, resulting in growing debt.
This means you’re not only saddled with debt, but also with added interest you have to pay on your debt. This decreases the amount of money you have available for future needs. And believe it or not, it decreases your net worth.
Time to stop this craziness. Quit spending more than you earn. Stop borrowing for depreciating items like cars, appliances, vacations, and toys. This doesn’t help your cause at all.
Deciding to hit the pause button and become debt free can transform your life. The side effects are beyond wonderful. There are many great reasons to become debt free and here are 18 of them. But first, a personal story…
Personal Crisis Amid the Global Financial Crisis
It was January of 2010, during the fallout from the financial crisis. Fear ran amuck. In the car world of metro Detroit (where we lived at the time), no one knew from day to day whether they’d still have their job that day.
Nearly everyone we knew was “underwater” on their house – meaning that you couldn’t even sell it for what you owed. You’d have to bring money to closing to sell your home. That’s how badly the housing market had crashed.
My husband worked in automotive and my business struggled because many of my clients depended on automotive. We had one daughter in college and another just two years from college.
At this point, someone challenged us to add all our debt together to find out how bad the bad news was. As is always the case, the journey of a thousand miles begins with the first step. Our first step was honestly confronting the truth.
A Shocking Realization About Our Debt…
We were in for quite a shock. It’s ridiculously easy to look at various debts as individual silos and not bother to add up all the numbers. We were doing that, in essence sticking our heads in the sand. “This one’s only x amount, that one’s only y. Not so bad, really.” Except that it was far worse than we’d led ourselves to believe.
Though in word we were committed to debt-free living, “somehow” we’d slipped into spending habits that exceeded our income. And now had a whopping $66,000 mountain of debt, including some major home expenses such as a roof and furnace.
This debt snowball calculator can help with debt payoff strategies and provide motivation for the day you’ll be debt-free. Living without debt is far more relaxing than living with a pile of it. Here are some of the great reasons people cite for living a debt free lifestyle.
18 Great Reasons Why Being Debt Free Is Important
Whether your goal is to reduce all debt except your mortgage or to reduce all your debt including your mortgage… being debt free is important. It definitely has its perks.
Here are 18 of the most commonly cited benefits, in no particular order.
1. Being debt-free greatly relieves worry and stress.
None of us can predict the future. But we can still prepare for it. All surprises (even a Chinese coronavirus) go down better when you’ve established a debt free lifestyle and intentionally live beneath your means. It gives you wiggle room and means you won’t sink like the Titanic when the bottom drops out.
Why spend sleepless nights when the alternative is so simple? If you don’t want to worry about losing a job, a key client, or whatever source of income, dig out from under that pile of debt now.
When we had our $66,000 of debt (on top of our mortgage), we were “robbing Peter to pay Paul” every month, trying to meet all our obligations. This anxiety was compounded by the global financial crisis and very real risk of my husband losing his job. Once we paid off all that debt, the worry vanished.
2. Being debt-free steers you clear of creditors’ clutches.
Banks and creditors have all kinds of tools to control you. The best way to stay out of their clutches, and avoid their tricks, is to resist the urge to spend and stick to a budget. Without debt.
3. Being debt-free increases your spendable income.
Without debt, you can spend money the way you see fit, not the way some institution tells me to. You see, every time you borrow money, you commit future income to make those so-called easy payments. As a result, you have less money available next year to spend on whatever you want or need. You’re also paying more for everything you buy, because now you pay the purchase price + interest.
4. Being debt-free can facilitate working for pleasure, not to pay a monthly stack of bills.
Sure, it costs money to live even if you’re debt-free. But it’s more fun to work because (and when) you want to, not because you have to generate a wad of cash to pay expensive bills.
5. Being debt-free improves your marriage.
Statistically, 70% of marriages ending in divorce say a major reasons for the divorce was arguments about money. Getting rid of debt removes this major sticking point. Once couples start getting out of debt and regain control of their finances, their arguments over money decrease dramatically. The money conversations become more… conversational. This will extend to more peace and confidence for children in your home also.
6. Being debt-free provides a good example to your children.
How you handle debt is how your children will handle debt. Your children’s habits are largely formed by the time they’re nine years old, according to author Tom Corley in his 2016 book, Change Your Habits, Change Your Life. Do they see you make car payments or pay cash for your cars? Are you teaching them by example to save money ahead of time for your vacation, or charge it and pay later?
Be an example to your kids. Guide them toward financial freedom. You possess the power to break the cycle of debt in your family this year. They are watching you and will imitate you. If you’re still trying to get out of debt, let them see your sacrificial efforts and tell them that it’s for their future and their security. Be the adult in the room. Your kids will thank you later.
7. Being debt-free reduces your risk of financial failure.
Bankruptcy only strikes people who have debt. There’s an element of risk every time you borrow money. But life has enough risks without adding the risk of not being able to pay your debts.
8. Being debt-free improves predictability in life.
There’s nothing quite like the predictability of having all your bills paid and enough money left over to make sure you never have to face foreclosure, unpaid bills, or an uncertain future. Most people, given the choice, would trade their wild spending ways for the “boredom” of knowing their needs were provided for.
9. Being debt-free increases my ability to spend money on things I enjoy, not pay creditors cash I can never enjoy.
Imagine the spending power you’ll have when you’re not paying 5, 15 or 30 cents of every dollar you earn to a creditor of one sort or another. Finally, you get to call the shots on where your money goes.
10. Being debt-free allows me to donate more to worthy causes.
When I was in debt, I gave tons of money to credit companies I hated, with little left over for causes I loved. Without debt, I can donate my money to my favorite charities.
11. Being debt-free allows you to provide memorable family get-togethers in special places.
Allows me to provide for great family times instead of paying the surcharge to those who could care less about my family.
12. Being debt-free allows you to control your life and destiny, provides a sense of freedom.
Be the captain of your own ship, not a slave to financial masters. To have the freedom to decide when to work and how to work, instead of obeying various work masters just so I can pay my financial masters.
Thousands of years ago, King Solomon said, “Just as the rich rule over the poor, so the borrower is slave to the lender.” Borrowers really are slaves to their lenders. Sound extreme? Try skipping making your house payment for a few months. Or your car payment. And see how that goes. The true owners (the lenders) will come and claim their goods.
You don’t truly own anything you still owe on. And you won’t till the debt is paid in full. In Solomon’s day they could throw you in prison if you didn’t (or couldn’t) pay your debts. Today, you just lose your stuff. Don’t be a slave in a free country. Own your stuff. You won’t believe how freeing it is.
13. Being debt-free enables you to retire early, become financially independent sooner.
Dream of retiring early? You won’t be able to if you owe every Tom, Dick, and Harry a wad of money.
Financial independence is achieved when your monthly passive income is greater than your monthly expenses. Without debt and its interest, your monthly expenses are lower. So you need less passive income to reach financial independence.
14. Being debt-free allows you to travel the world.
Given the choice of traveling the world or paying creditors every month, traveling the world is far more fun and personally enriching.
15. Being debt-free lets you create a personal and family culture marked by frugality, wealth, and independence.
Is your family’s narrative ruled by debt and the constant need to earn more because you’re trying to keep up with the Jones’? Isn’t it time to change the narrative to one of living below your means, creating wealth, and becoming financially independent? It’s far more valuable than you might think.
16. Being debt-free gives incredible peace of mind.
Knowing that you have a cushion gives valuable peace of mind. With sleep-filled nights and lower blood pressure.
17. Being debt-free gives the ultimate in flexibility.
Once you’re debt free, you can make choices that were never before available to you. Whatever your priorities are, you’re now free to pursue them. For real.
18. Being debt-free eliminates guilt about overspending.
We all get carried away at times. Especially with Christmas shopping. Then in January when that bill hits, stuff hits the fan. Great guilt and big money fights. The same can be true at the car lot. You can end up owing tens of thousands of dollars for a vehicle you can’t afford. If you don’t borrow the money you won’t feel guilty about it later.
What are YOUR reasons for getting out of debt?
Everyone has their own reasons and motivations. You have to know your “why” – or you won’t make the sacrifices to take the needed action.
Please share your reasons for becoming debt free. We’ll update this blogpost with your reasons (anonymously, of course) for becoming debt free. What has been your best tool for becoming debt free?