Though you can leverage debt to your advantage, the truth is that most Americans have far too much of it. In fact, the average American has $90,460 in debt! That’s much more than the median household income.
Unfortunately, Americans have embraced a consumer culture that says, “buy now, pay later.” You get this message from point-of-sale financing, auto dealers, and even higher education. Financing can make sense sometimes, but not all the time.
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Just because taking on debt is convenient in the moment doesn’t mean you should. And just because you can get away with making only minimum payments doesn’t mean you should either.
If you feel like you can’t get a handle on your debt, get outside help. For example, you can get legal protection against debt collectors by understanding debt collection laws.
In this article, we’ll go over all the financial, mental, and relationship benefits you can look forward to by getting out of debt:
Being debt-free helps you sleep at night. It lets you save, invest, and spend on things that matter to you rather than stressing about how you’ll make your payments.
On top of that, you’ll worry less about financial emergencies. Say you get in an accident that leaves you unable to work for a few months. Having no debt makes it easier to recover without taking on more debt.
Getting out of debt helps your credit score for two main reasons:
1) Part of your credit score is based on your credit utilization — how much of your credit limit you use. The higher your credit utilization, the worse your credit score.
2) Part of your credit score is based on your debt-to-income (DTI) ratio. The higher debt you carry compared to your income, the worse your credit score.
So, getting rid of your debt will boost your credit score, which can help you get better interest rates on future loans, lower your insurance premiums, and give you a better chance at getting the apartment or job you want.
Nothing’s better than the feeling of owning your home or your car. It means you don’t have to worry about things like foreclosure or getting your car repossessed — they’re yours.
Taking on debt is like borrowing from your future self. You may not have to give up much at the moment, but you’re committing to set aside part of your future income each month to repay the debt. This will leave you with less disposable income to spend on what you want and will lower your standard of living.
Without debt, you have more money to invest toward your retirement. You can contribute more to your individual retirement account (IRA), your 401(k), or other investments like real estate.
In the long run, this could be the difference between retiring at 60 and 80. How you want to spend your golden years is up to you.
When you don’t have debt hanging over your head, it’s easier to relax — both in your personal and in your professional life — because you don’t have to think about how you’re going to make your payments all the time.
Having no debt also lets you spend less time working and more time taking care of your mental health through meditation, therapy, and exercise.
Every now and then, it’s nice to spend money on things you actually enjoy — like eating out or going to a sports event. But it’s hard to do this if you have debts to pay.
Getting out of debt helps you not feel guilty for spending money and helps you avoid getting depressed from never doing anything fun.
When your mind isn’t preoccupied with debt, you can be more present with your spouse, children, and friends. You’ll have more time for them, and you won’t feel resentful when friends get to go on a vacation and you can’t.
Getting out of debt shows your kids how to be financially responsible. After all, children learn by example. If they see how you stay on top of your finances, they’re more likely to do the same when they grow up.
Being debt-free also helps you invest more into your children’s college education so they can enjoy a financially stable future.
Lastly, staying out of debt increases your capacity to help others. You’ll have more money to lend to those in need, donate to charity, and spend on gifts. When you’re burdened by debt, it’s harder to be altruistic.
Ultimately, getting out of debt feels like a huge weight being lifted. It can be hard, but it’s well worth it. So, avoid falling into a vicious debt cycle by making some changes today. A little diligence and effort can go a long way.
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