Why would anyone want to become debt free?
Think about it. You borrow money. You can now use this money. Then slowly pay it back over time. Who wouldn’t want this deal?
You might expect a financial planner to say that everyone should get out of debt as soon as possible. While I wouldn’t make such a blanket statement, it’s generally true – being debt free is smart.
• Is it because debt is bad?
No. Debt is neither good nor bad. It’s simply a magnifying glass of your financial decisions.
When you buy things that depreciate in 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 sticker price!
But if you use debt to buy money-making assets (e.g. timber lots, rental properties, etc.), you can start growing your wealth right away. You don’t have to wait years before you have the cash in hand to pay for these assets in cash.
• Is it because debt is stupid?
Debt is not “stupid”. If I cut off my hand with a chainsaw and say: “That stupid chainsaw! It cut off my hand!” I’ll be the one who looks and sounds really stupid! The real problem was operator error.
It’s the same with debt.
• Is it because you have to pay interest on debt?
Maybe. 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 decent 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 on “payday loans,” I’ll 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 the credit card in your wallet (or your phone). But all of this only hints at the real reason most people need to get out of debt.
Debt keeps us from saving money.
The more we pay in financing costs, the less we have to lay off for the future.
I may not know you personally, but I do know one thing: you want to be financially free. You want to one day get to the place where your financial wealth generates enough income to live the life you want. . . where you work because you want to, not because you have to.
The only way to get to this place is to save money now. For most, that means saving between 15% and 20% of your income. I know. That’s hard to do. But it’s less so if you don’t have a lot of debt.
Understand that reducing debt is not a financial plan. It is only part of a comprehensive financial plan.
The best reason to get out of debt is that it is an important step in becoming financially free.
“Get Out of Debt!” That sounds exhausting – like a chore.
“Be financially free!” That sounds like a goal worth striving for—even if the pursuit involves some work and a little pain.
A few years ago I wrote an e-book on this very subject. It’s called “How to Put Money Worries in the Rear View Mirror – The Roadmap to Financial Freedom”.
In it, I offer turn-by-turn directions on how to get from where you are to where you want to be — financial freedom.
I would be happy to send you a free copy. Just email me at [email protected] and then watch your email box.
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