When it comes to debt, most of us have outstanding balances of one kind or another. Indeed, a whopping 82 percent of Americans are living in the red, according to a 2017Pew Charitable Trusts report — eight in every 10 U.S. adults.
It goes without saying that debt can majorly impact your financial freedom. At one point, Randy Wright, a 27-year-old health policy analyst in Cleveland, was shelling out in excess of $1,000 a month in minimum payments alone on a combination of auto, student and medical debt.
When my wife and I graduated college 4 years ago, we entered the working world with a little over $75,000 in debt. Like many in our generation, that number mostly consisted of student loans and some auto loans. “Normal debt” as our culture has come to call it. But here is the the thing about debt — it’s not normal.
We think it’s normal because banks, auto companies, and retail stores spend money on marketing financing options. We think it’s normal because the people who use debt say the predictable “you’ll always be in debt” line to make themselves feel better. And we think it’s normal, because if you look at the statistics, most people are in debt.
If you look at the reality of living with it though, you’ll see why debt is nothing more than a tool for building stress and materialism in your life.
Unshackling yourself from debt frees up cash that was previously going toward paying down your balances. That means keeping more of your take-home pay. In some cases, it could mean breaking the cycle of living paycheck to paycheck.
Instead of being beholden to creditors, you can use this money to further other financial goals, like building up your emergency fund, kicking up your retirement contributions or whatever else comes to mind, says CVN. Randy is using that $1,000 of newfound cash to increase his 401(k) contributions for the employer match. He’s also planning a Mexican vacation to celebrate her accomplishment.
Shelly Horton and her husband, William, recently crossed the debt-free finish line after paying off $87,000 in student loan debt over a three year period. This means they finally have some real saving power; getting out of debt has unlocked $750 a month that went toward minimum payments.
“We want to have a full emergency fund and start saving for a good down payment on a house,” Shelly, a 23-year-old accounting specialist in Seattle, said. “We’re also putting more toward our retirement accounts.”
Here is what we know about debt:
- You are more likely to spend more money than if you were paying cash.
- Excessive debt can cause psychological stress.
- Monthly payments tie up your monthly budget, reducing your cash flow and options.
- Somebody owns your debt, and can come after you for missing payments.
- You are less likely to think over a purchase, likely purchasing items you don’t need.
- You are more likely to purchase items you can’t afford.
Debt Free Living is Simple Living
Understanding that debt is against simple living is important. How simple your life is will be determined by how many “needs” you have, your freedom to make decisions, and control over your own future. Debt limits all of these factors by either the payment plans that follow a purchase, or the over-consumption that it encourages, states unity.org.
If you are truly looking for a simple life, being debt free should be a one of your goals.
How To Get Out of Debt
Between the burden that our debt placed on our monthly budget, and our goals of wanting to start a family in a couple of years, my wife and I knew that we needed to get out of debt. We wanted to live a simple life, and debt was not a part of that picture.
Immediately following graduation, we began aggressively paying down our debt. It wasn’t “fun“, but it was incredibly satisfying. It took just about 2.5 years, and we were finally debt free. The skills we learned to get out of debt have enabled us to continue on to build our financial net worth and give us more options in life.
Here are the a few steps to follow to eliminate debt:
- Increase The Intensity — Somewhere about a year into paying off our debt, we ratcheted up the intensity. When you start making progress on paying off debt, you realize the freedom that comes with it. With progress under your belt, continue to squeeze money from your budget, and increase your income.
- Stay Debt Free — Way too many people become debt free, then fall back to the usual “I can afford that payment” mentality. You need to continue having a debt free mindset, and not even consider financing as an option for purchases (except a house).
- Plan Your Attack — Organize your financial life by doing a review of what you own, and what you owe. Write down all of your debts and assets to start organizing your attack. Once you have all the information, plan the attack. I recommend the snowball method of paying down your debts from smallest balance to largest. Each time you pay off a debt with extra payments, roll those payments into the next highest.
- Debt-Free Mindset — The first and most important part of getting out of debt is to change your mindset. You need to hate debt. Understand that it is holding you back, and that it is something you don’t want in your life. It’s limiting you.
- Monthly Budget — Your monthly budget tells your money where to go. Budgeting is critical for getting out, and staying out, of debt. By assigning tasks to your money, you are going to be able to more effectively use your resources to pay down debt. For more info on budgeting, visit my post on how to do a simple budget.