Why would anyone want to get out of debt?
Think about it. You borrow money. You can use this money now. Then you can pay it back slowly, over time. Who wouldn’t want this deal?
You might expect a financial planner to say that everyone should deleverage as soon as possible. Although I wouldn’t make such a general statement, it’s generally true – being debt-free is wise.
• Is it because the debt is bad?
No. Debt is neither bad nor good. It is simply a magnifying glass of your financial decisions.
When you buy things that lose value over time (eg, cars, clothes, electronics, vacations), debt increases the cost of those items. With credit card debt, you can end up paying double the listed price!
But when you use debt to buy lucrative assets (eg, woodlots, rental properties, etc.), you immediately begin to grow your wealth. You don’t have to wait years to have the cash on hand to pay cash for those assets.
• Is it because the debt is stupid?
Debt is not “stupid”. If I cut my hand with a power saw and say, “That stupid power saw!” It cut my hand! I’m gonna be the one who looks and looks really stupid! The real problem was operator error.
It’s the same with debt.
• Is it because the debt requires you to pay interest?
May be. It depends on the interest rate. If I can buy a $400,000 house with money that costs me 4% over 30 years, and that house has a good chance of doubling in value over those 30 years, I’ve made a pretty good choice.
But if I repeatedly pay Eddie the loan shark 400% interest for “payday loans” I will soon be broke. (Or Eddie’s boys will break part of my body. Or both.)
It’s expensive and unwise to pay high interest rates either to Eddie or to that credit card in your wallet (or phone). But all of this only points to the real reason why most people need to get out of debt.
Debt prevents us from saving money.
The more financial costs we pay, the less we have to lay off for the future.
I may not know you personally, but I do know this: you want to be financially free. You want to one day get to the place where your financial assets will produce enough income for you to live as you wish. . . where if you work it’s because you want to, not because you have to.
The only way to get to this place is to save some money now. For most, this means saving between 15% and 20% of your income. I say. It’s hard to do. But this is less the case when you don’t have a lot of debt.
Understand that getting out of debt is not a financial plan. It’s only part of a complete financial plan.
The best reason to get out of debt is that it’s an important step to becoming financially free.
“Pay off his debts!” It seems exhausting, like a chore.
“Be financially free!” It sounds like a destination worth visiting, even if pursuing it involves work and a bit of pain.
A few years ago, I wrote an e-book on this topic. It’s called “How to Put Money Worries in Your Rearview Mirror – The Roadmap to Financial Freedom”.
In it, I offer step-by-step instructions to get you from your current location to your desired location – financial freedom.
I would like to send you a free copy. Just email me at firstname.lastname@example.org and then watch your inbox.
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