Debt is a financial product that is so widely available to almost everyone in America that it is difficult to find anyone who lives without debt. However, despite the common and accepted practice of using debt to fund daily life, some people around us have chosen to take on the cultural norm and kick debt out of their lives. For those who have braved the debt-free journey, a long list of benefits is waiting on the other side. In this post, we share 10 benefits of being debt free and why we think it is worth the effort.
10 Benefits of Living Debt-Free
1. No More (money) Emergencies
The first benefit of being debt-free is that you quit having emergencies. Things that used to be a (money) emergency lose their bite when you have cash in the bank to pay for them. What used to trigger the panic meter becomes a mere inconvenience instead of an emergency.
Is it really an emergency when your roof springs a lead if you have money set aside for home repairs? A benefit of being debt-free is that you can have funds set aside for “emergencies” turning them into inconveniences instead.
2. Peace of Mind
Being debt-free is worth it because it gives you financial peace of mind. Debt equals risk and when risks are reduced the anxiety level reduces as well. Most people experience anxiety around money because they don’t really know where their money is going or if they’ll have enough when they need it. What if I told you that you could know with almost certainty that when your car breaks down, you’ll have enough money to pay for the repairs in cash? Or that if your home’s roof springs a leak, you can handle the new roof without using credit? I bet your anxiety level would be reduced. A well-planned and executed zero-based budget allows you to know where your money is, where it is going, and how much you need to save to keep “Murphy’s law” from your front door.
3. Control Over Your Future
It is hard to think about a future that you control if you are always giving away your hard-earned money for debt payments. When you organize your money ahead of time and on purpose (using a budget), you can save for the future and for short-term goals like that new outdoor patio set. Debt equals risk and is the opposite of financial freedom. Using a budget helps you pay off debt and have the things you want from life and financial freedom as well. It is the best of both worlds!
4. Maximize Your Income
Another benefit of being debt-free is maximizing your income. When you pay cash for purchases you avoid paying interest rates on a loan. If you borrow $10,000 for a car. Over the next 4 years, you will pay back the original $10,000 plus $1,000 in interest. When you took the bank loan, you had $10,000. When you finished paying the bank loan off you paid a total of $11,000. So after 4 years, you had lost $1,000. A benefit of being debt-free is having more money to point toward your goals and dreams instead of giving it away to a banker. It is a myth that debt helps you build wealth. Debt prevents you from building wealth.
5. Guilt-Free Spending
Have you ever bought that thing you wanted and felt guilty afterward? Of course, you have. We all have. But when you live debt-free and use a zero-based budget for your personal finances you can plan for the thing you want in advance and when you buy it…no guilt! That is because the expense fits within your pre-planned, on-purpose, budget. Being debt-free and using a zero-based budget to organize your income and control your spending allows you to spend on budgeted items guilt-free.
6. Buy things with Cash
No more borrowing right? This means big purchases too. Once you are debt-free you are able to save money at a faster pace. Before you know if, the idea of replacing the family mini-van or your daily driver with cash is not as far away as you once thought. We all know that feeling in the back of your mind when you pull out the credit card to buy something and you know it is only making your debt burden increase. Being debt-free means paying cash and paying cash is a great feeling.
7. Retire with Dignity
Youth doesn’t last forever and the day that you would like to be able to retire will arrive sooner than you think. When you live debt-free and use a monthly zero-based budget to organize your finances you are able to make room for consistent investment and planning over the long term. Investing and saving small amounts over the long term leads to good results. A monthly zero-based budget makes debt-free living possible by properly organizing your income.
8. You can be Generous
I don’t know anyone that would not like to be more generous. It just feels good to be able to give gifts and blessings to your family and even people you don’t know. But when you are carrying debt this is much more difficult to do. Think about your life debt-free. How much money would you be able to save and use to bless others? It isn’t hard to imagine an increased ability to be generous. In our opinion at Budget Coach USA, the ability to be generous to others and the access to resources in a time of a neighbor’s need is one of the top benefits of being debt free.
9. Improved Self Control
No question about it; when you successfully travel a debt-free journey you look back and realize that you have grown and changed. Gone are the days when you lacked enough self-control to say no to an unwise purchase. Gone are the days when you pulled out the credit card to buy a lawnmower because you couldn’t bring yourself to save enough money in advance. Say hello to self-control. Self-control in your finances has more benefits than just being debt-free. Other areas of your life such as diet and exercise often benefit as well. If you are debt-free, chances are you used a lot of self-control to get there. That is a good thing!
10. No More Comparisons
An interesting thing happens when you achieve a debt-free life. The very journey to debt-free living establishes a willingness to live, at least in the area of handling money, counter-culturally. When this happens you tend to quit comparing yourself to others. More than 70% of US households are living paycheck to paycheck. Understanding this fact you begin to realize that the shiny outer shell of new cars and big houses is many times supported on the back of risky debt. Once you arrive in this place, comparison gives way to confidence. The neighbor’s cars and house may look nice but it is built on a shaky foundation. A benefit of being debt-free is no more need to compare!
7 Steps to Financial Wellness
- Save a starter emergency fund of $1,000 as fast as you can.
- Pay off your debt. Start by listing all of your debts except for your mortgage. Put them in order by balance from smallest to largest—regardless of interest rate. Pay minimum payments on everything but the little one. Focus on that one until it is gone. Then take that payment and put it toward the second-smallest debt, making minimum payments on the rest. That’s what’s called the debt snowball method, and you’ll use it to knock out your debts one by one until you are debt-free except for the house.
- Save a full emergency fund of 3 to 6 months of household expenses
- INVEST 15% of your gross income toward retirement.
- CONTRIBUTE to children’s college education fund.
- PAY off the house early.
- Build wealth and be generous.
Note: Steps 4,5 & 6 are worked on at the same time.
