We want to be debt-free.
Perhaps we are fanatical, crazy and even “Out of balance.” Call it what you want, but being debt-free isn't something most are seriously considering these days (Aside from the cult-like Dave Ramsey following).
In fact, according to CNBC Make It, in 2018 the average American household had $38,000 in personal debt (Cars, Credit Cards, Student Loans, etc) outside of their mortgage.
“Despite recognizing that debt is dangerous waters, Americans are jumping in with both feet and struggling to stay afloat,”Emily Holbrook, director of planning for Northwestern Mutual, per CNBC Make It.
The problem with debt is that many don't recognize it is a problem in the first place.
Millennials get blamed for a lot of things but debt isn't a millennial problem, it is an American adult problem that has been passed on year after year.
And while recognizing that debt is a problem in the first place is a step in the right direction, you should want to be debt free. Here is why:
If anyone needed a wake-up call in life it was me.
I wish that my wake-up call wasn't the death of a parent, I wish I could say it was just a cool blog article about paying off debt that I read that inspired me to take action in my financial life.
Personally, I always do my best to find the positive in a situation, even when it seems impossible, such as losing a parent. I will admit, there wasn't much at the time I could really take out of the whole situation back in 2012.
However, over the years, I was thankful for everything my mom had done for me growing up. I began to reflect on my past and I recognized that like many Gen-y's, I was choosing my social life and expensive shiny things over true happiness and genuine experiences.
My weekends consisted of 24/7 entertainment and there was no regard for the future, especially when it came to debt. Coming up on seven years since my mom's passing, I now know why I want to be debt free.
But first, we must all recongize that debt is a problem in the first place!
6 Problems With Debt
If you don't think debt is a problem, simply go look at savings rates in the United States. Or maybe look at the number of working adults living paycheck to paycheck (Close to 8 in 10).
While not all of these issues can be attributed to solely just debt- wages, expenses, poor spending habits can be blamed too – debt is a big culprit.
Don't take my word for it, just see how millionaires view debt and you will quickly realize they avoid it like the plague. So the first step is first recognizing your debt is a problem – even if it might not appear as so.
1. Interest from debt.
That $25 t-shirt isn't $25 if you throw it on a credit card and let it rack up interest. By in large, understanding how interest works in the first place is just another problem with debt.
Most are never taught the disadvantages (And advantages) of compounding interest. For example, a credit card balance of $2,000 at the national interest rate average of 17% would equate to about $28 per month in interest.
A $25 minimum payment wouldn't even cover the interest. A $50 minimum payment would see more than 50% go to interset.
To really understand why your debt is a problem, use this amortization calculator and input all of your debt (Mortage debt too) and see how much interest you will be shelling out each month!
2. Retirement & savings hindered.
If you're constantly paying your debts, chances are what you're not doing is investing for your future.
Imagine if every dollar that went to credit cards, car payments, and student loans was instead invested then imagine a 7% return on that money!
Yes you need a car and sometimes student loans are a necessary evil, but the quicker you can pay them off (You will have to eventually) the quicker you can just use that money to save for retirement or a home!
Also, “You can't take your money to the grave,” is a common money misconception used to justify debt, but you can leave it behind for your kids and their kids!
Not to mention, retirement doesn't have to wait until 65. There are countless stories on the internet regarding the “Financial Independence” movement sharing how to retire early.
Remember $10 invested is doubled every 10 years!
3. Debt to income ratio.
Debt never seems to be a serious matter until you go to buy a home and you can't get approved for the lending.
Just ask the millennial generation who were told to take out student loans for school, live the high life on credit cards, and then act shocked when they find out they can't afford their dream home!
Their debt to income ratio is all out of whack!
Related: How to Understand Your Debt to Income Ratio
4. Financial stress.
What is more important than money?
Your health and your relationships.
Unfortunately, debt has a weird way of hindering both! The number one cause of stress is America is always related to money. There are several levels of debt, from manageable debt to Ponzi level debt (Where it is nearly impossible to get out of).
But the biggest problem with debt is that thinking about it is just stressful. Not having a plan of action can make debt seem overwhelming, thus causing financial stress.
So learn to pay it off ASAP and set a goal to live a debt free lifestyle!
5. Relationship issues.
As stated above, debt can be problematic on your mental health, but also your relationships! If you're in a serious relationship or married, debt can be a subject of controversy in your relationship!
Perhaps one partner has debt and the other doesn't. Maybe you both have debt and you can't agree on how to go about handling it. Either way, dealing with debt is something you will most likely have to overcome as a couple and as I alluded too earlier…
Debt doesn't just disappear, so why not pay it off early! See how to get on the same page as a couple here.
6. No sense of freedom!
I would love to go on that trip, but we just can't afford it!”
While nobody wants to ever have to say the above statement, sometimes debt spills into areas of our life we would prefer it doesn't. While there can be many causes of debt, such as…
- Buying houses way out of our budget
- Leasing or purchasing brand new cars that are too expensive
- Overspending each month
- Student loans
Debt really impedes the lifestyle we live. Maybe the reason we got into debt is the lifestyle we live (Not to sound contradicting), but the problem with debt is that it controls how we live.
Focusing on becoming debt free is not only important for your health and long term finances but also the lifestyle you live!
Which is why it is time to be debt free!
Why You (And I) Need to Be Debt FREE!
Life is going to happen no matter how financially secure or financially insecure we are.
Just when we think we have it all together it seems like life throws us curveballs. In the spring of 2019, we had our student loan debt pay-down strategy 100% on lock… and then our dog ate cocoa powder and we had to pay $4,300 in veterinary bills.
This certainly threw us in for a loop, but it was refreshing to know we had put ourselves in a situation to say YES instead of always saying no to things because of our debt problem!
We didn't have to finance a veterinary bill or open up a credit card to be able to say yes to performing the necessary work to keep our dog alive.
Our pursuit of debt freedom put us in a financial situation where we had choices! And choices are the number one reason why should want to live a debt free lifestyle!
Final thoughts on being debt free!
I recently had a reader reach out and say how they really respected my stance on different millennial issues and my outlook on life in general.
Most “Millennial Issues,” are just people issues – money, happiness, security, marriage, relationships, you name it.
However, in particular, this reader found it admirable that I was willing to delay gratification on just about everything and how it helped them find the courage to do the same.
And their direct words after that were;
I'm also really impressed with your shifted life perspective – a lot of people don’t get that unless they undergo a major life change/awakening… or a shit ton of therapy haha
For me, perhaps the major life change this reader referenced was my mother's passing. On the other hand, maybe that was just the eye-opener I needed to get my finances in order to live a debt free life!
At the end of the day, the choice is yours! Just make sure you recognize that maybe everything you have been told up until this point wasn't always true and that being debt free might be the happiness source you've been looking for!
Question: What is one reason you want to be debt free?
Josh writes about ways to make money, pay off debt, and improve yourself. After paying off $200,000 in student loans with his wife in less than four years, Josh started Money Life Wax and has been featured on Forbes, Business Insider, Huffington Post and more! In addition to being a life-long entrepreneur, Josh and his wife enjoy spending time with their chocolate lab named Morgan, working out, helping others with their debt and recommend using Personal Capital to track your finances.