In today’s America, debt is a normal occurrence. According to a Pew Charitable Trusts study from 2015, roughly eight out of ten Americans are in debt, with an average debt of $67,900 per individual. Americans are still conflicted regarding their loans, according to the study. Nearly 70% of respondents stated they would like not to be in debt, but that it is a requirement – and that loans and credit cards have provided them with more options in life.
These mixed emotions highlight the fact that debt can be both beneficial and detrimental. Good debt may be a valuable financial weapon, encouraging you to pursue something that can help you boost your money in the long term, such as attending college, owning a house, or beginning a company. Bad debt, like credit card debt, on the other hand, burdens you with interest rates by doing little to boost your profits. This, in essence, leaves you more reliant on saving to get through each month, locking you in a never-ending debt loop.
Being trapped in a debt pit locks up your money, preventing you from doing what you want with it. However, it has far-reaching implications that go beyond capital. The persistent burden of debt will harm your job, wellbeing, and relationships over time. In about any aspect, being debt-free will improve your life.
In this Article:
1. More unrestricted income
If you have a lot of debt, your payments on it take up a good part of your profits. Assume you have a $200,000 30-year mortgage at a 4.5 percent interest rate. Per month, the mortgage costs would eat up $1,013 of your salary, with almost half of it going toward debt rather than building equity in the home.
When you can figure out a way to pay off the mortgage faster than later, you’ll get more than $1,000 extra per month. That’s about $12,000 a year you could invest on all the items that are important to you. You could pay for the kitchen remodel you’ve always wanted, put more money into your beloved sport, or take a lavish trip every year.
2. Retire Early
Another option for putting the additional capital you save from paying off the loan is to spend it. If you aren’t paying enough money into your retirement savings now, the extra money might be the difference between retiring at 65 and working into your golden years. If you’ve almost maxed out your 401(k) savings, putting the funds into other assets might help you achieve financial freedom and retire much sooner.
3. There Is Less Risk
One of the worst aspects of debt is the danger it introduces into your life. If you’re still in default and don’t have some emergency reserves, you’re only one financial loss away from ruin. When you lose your work or experience a serious medical emergency, you will be unable to afford your debt payments, which may escalate to:
- Calls from collection companies on a daily basis.
- You may be sued for nonpayment and have your salary garnished.
- Repossession of your vehicle.
- Foreclosure of your house or getting evicted because you can’t afford your rent.
- Being debt-free eliminates all dangers. It offers the budget breathing space so you don’t have to be worried with a single unexpected incident damaging your personal and financial life.
4. An Improved Credit Score
Carrying a lot of debt has a negative impact on your credit score. Your credit score would be affected by how similar your credit cards and loans are to being maxed out. A low credit score will cost you thousands of dollars in interest per year, making it more difficult to get out of debt.
On the other hand, when you pay off your loans, your credit score would increase. As a result, a broad variety of possible advantages could be available:
- Cell phone coverage at a reduced discount.
- Insurance costs are lower.
- Any future loans would have better interest rates.
- Employers also review credit scores to see whether a prospective employee is trustworthy, so you’ll have a better chance to land your dream job.
- Since landlords often do the same, you’ll have a greater chance of locating an apartment.
5. Job Prospects That Are Better
Being in debt will also discourage you from progressing in your career. Money problems will hold you up at night, rendering you less active on your job the next day.
If you’ve gotten to the stage that you’re dealing with debt collectors, the situation is much worse. They’ll most definitely call you at work, disrupting your work and reducing your efficiency. Debt collectors can approach your employer directly in an attempt to locate you, which may be an embarrassing circumstance that strains your relationship with your employer.
Paying off loans, on the other side, increases work satisfaction. If you retain the income you receive rather than trying to waste it all on debt payments, you are far more driven to work harder. If you’ve been trapped in a position you don’t want and you wanted the funds to cover your credit card payments, paying off your debt frees you up to search for a better job that’s more fulfilling.
- Tips for Climbing Out of Debt and Paying Off Your Credit Cards
- Understanding How Debt Management Plans and Credit Counseling Works
6. Feeling Less Stress
Debt is a huge cause of anxiety for many people. You’re always concerned with how you’ll cover your expenses and what will happen if you lose your employment. The relentless burden of needing to work to pay off loans and still feeling bad for even minor treats wears you down.
According to a 2013 Northwestern University survey, young adults (aged 24 to 32) with high debt levels have total stress levels that are around 12% greater than the average. Other experiments also discovered many more powerful results. For example, in the Society of Occupational Medicine’s 2001 Life Events Inventory, which listed 100 life events depending on how traumatic they are, “going into debt beyond means of repayment” came in fifth. It was ranked as becoming more traumatic than losing your work, getting divorced, or being homeless for a brief period of time.
Getting out of debt would feel like a massive weight has been lifted from your shoulders. You don’t feel lost any more, even though you’re stuck in a hamster wheel. You’ll get a better night’s sleep. You will commit more attention to work, relatives, friends, and pastimes you love now that your emotions are no longer trapped into the relentless pattern of thinking about finances.
7. Improved Mental Health
Stress isn’t the only mental health issue associated with debt. People with lots of debt were 13 percent more likely than the average to experience depressive symptoms, according to the Northwestern survey. Adults over 50 had a related impact, according to a 2014 report released in The Journals of Gerontology: Series B. Getting “unsecured debt” (debt not covered by collateral such as a home or a car) was strongly linked to depressive symptoms in this group, and the greater the debt, the stronger the symptoms were likely to be.
Debt may also contribute to suicidal thoughts in serious cases. According to a 2012 Huffington Post article, individuals who are drowning in student loan debt often consider suicide, and a handful have actually committed suicide.
Being debt-free has the fortunate side effect of improving your emotional wellbeing. You’re less likely to feel fear or depression, and you’re more likely to be content with your overall existence. Lower debt levels play about as much a part in people’s total satisfaction as higher wages, according to a 2014 Purdue University survey. It’s a wonderful feeling to realize that you own a car or a home entirely and that no one can take it away from you.
8. Improved Cognitive Function
Debt isn’t just a psychological problem. Your cognitive capacity – your ability for thought and reason – could be damaged. A 2017 meta-study released by Frontiers in Psychology cites a slew of findings that indicate poverty impairs people’s attention span, working memory, and self-control in both real-world and lab conditions.
This is a self-fulfilling problem. Bad cognitive performance will hinder the ability to make rational financial choices, exacerbating your debt issues. Financially depressed individuals were more inclined to prefer modest benefits now than even bigger gains later, according to a study published of Frontiers in Psychology. They were therefore less capable of assessing risks. They became less likely to take risks that could result in long-term benefits while becoming more willing to take chances that could result in long-term losses.
Fortunately, research has shown that paying off debt will help to alleviate these issues. Families with high debt were given a substantial amount of money – equal to many months’ worth of income – to pay it off in a 2017 report at the National University of Singapore. It was discovered that as the participants’ debt was decreased, their cognitive performance improved dramatically. They became less nervous and stronger decision-makers as a consequence of this.
9. Lowered Blood Pressure
Too much debt will cause the blood pressure to rise. In the Northwestern report, individuals with more debt have a 1.3 percent greater diastolic blood pressure than the general population. That does not seem to be anything, but it is sufficient to make a significant difference in your wellbeing. A two-point rise in blood pressure increases the risk of hypertension (dangerously elevated blood pressure) about 17% and the risk of stroke by 15%.
This suggests that paying off your debt could save your life rather than just making you feel better. In a 2016 study on how debt impacts death rates, the Federal Reserve Bank of Atlanta discovered that when people’s credit scores increased, so did their mortality risk. The total risk of death was decreased by 4.38 percent when credit risk (Equifax’s version of the FICO score) was increased by 100 points.
10. Improved Preventative Care
The majority of debt-related health issues are linked to stress in some way. There is, though, one debt-related issue that is merely a question of dollars & sense: not being able to visit the doctor on a regular basis.
People with large credit card debt or medical debt are less likely to visit a doctor or dentist on a daily basis, according to a 2013 report released in the Journal of Health and Social Behaviour. These citizens often missed hospital appointments, even though they were injured, because they couldn’t afford the payments. (Those with “healthy debt,” such as mortgages and car loans, weren’t more likely to miss doctor visits.)
Finally, paying off your debt will improve your wellbeing by encouraging you to see a doctor if you need one.
11. Improved Relationships
Being in debt triggers a slew of negative feelings, including anxiety, sadness, anger, and panic. These emotions are likely to spill over into your job and personal relationships. When you’re concerned about paying the bills, you’re more inclined to yell at your spouse or be irritable with your coworkers. You get enraged at your employer for underpaying you and resentful as your buddies brag about their holidays when you can’t afford one.
Working off your debts would make you a happy person, and would strengthen your relationships. You’ll find more empathy with your partner, baby, friends, and colleagues. If you’re not constantly in a negative mood due to debt pressures, even new people you encounter would respect you better.
12. Stronger Marriage
Money issues, such as debt, imposes a burden on every marriage. And if all parties accept the debt as an issue and are trying to fix it, the tension it creates causes them to be irritable toward one another. It may even have a physical effect on them, draining the vitality from their sex lives.
When one partner works tirelessly to pay off the mortgage and the other spends recklessly and disputes for finances – one of the most common causes of marital strife – are inevitable. Money issues are the third most frequent source of divorce, according to the Institute for Divorce Financial Analysts, behind basic incompatibility and infidelity.
The positive news is that through working on these issues together, your marriage can be strengthened in the process. The experience of surviving a tragedy together will reinforce your relationship, and the task of paying off your debt will cause you to interact more.
13. Being a Much Better Parent
In a lot of ways, paying off debt will help you be a happier parent. First and foremost, it would free up funds that you can use to better provide for your children. You won’t be worried with where the funding would come from whether your son requires braces or your daughter decides to compete in a sport. You can also plan for your children’s future by investing in their higher education, for example.
You’ll feel better about yourself once you’re debt-free. You’ll be more fun to be around once you’re debt-free, because you’ll have more stamina to play tag or assist with homework. Paying down debt would also improve the home life for your children and it will enhance your bond with your partner.
Finally, paying off debt can improve your ability to educate your children about finances. By showing your children how to escape debt in their own lives, you will make them benefit from your failures.
It’s one thing to realize the advantages of being debt-free; it’s another to really work out how to achieve it. Fortunately, there are many options available to assist you. To begin, tally up your debts and set a payment schedule using a debt repayment calculator like Credit Karma. Then, using Tiller, build a household budget that allocates a fixed amount per month towards debt repayment – and make this the first expense you pay each month, before you spend on something else.
Next, think how you can reduce the period it takes to pay down your debt. Think debt snowflaking, which means searching for tiny quantities of money per month to go against the debt. When you have several debts, understand the advantages of a debt restructuring loan to decrease the interest costs and ease your payments. Compare the debt snowball and debt avalanche strategies, which allocate all of your excess cash to a single debt at a time in order to pay it off as quickly as possible.
If you’re in significant debt trouble, consider seeking outside assistance. Check with the creditors and see how you can reduce the amount you owe them. Try consulting with a financial advisor regarding developing a financial restructuring strategy to pay down the debts over time and eliminating fresh ones. Do whatever it takes to have the debt out of your life so you can get back to enjoying your life to the fullest.