Why would anyone want to get out of debt?
Think about it. You borrow money. You get to use that money now. Then you get to pay it back slowly, over time. Who wouldn’t want that deal?
You might expect a financial planner to say getting out of debt is what everyone should do, ASAP. Though I wouldn’t make such a blanket statement, it’s generally true—being debt-free is wise.
• Is it because debt is bad?
No. Debt isn’t bad or good. It’s simply a magnifier of your financial decisions.
When you buy things that lose value over time (e.g., cars, clothes, electronics, vacations), debt raises the cost of those items. With credit card debt, you can end up paying double the sticker price!
But when you use debt to buy money-making assets (e.g., timber land, rental real estate, etc.), you get to start growing your wealth immediately. You don’t have to wait years until you have the money in hand to pay cash for those assets.
• Is it because debt is dumb?
Debt isn’t “dumb.” If I cut off my hand with a power saw and say, “That dumb power saw! It cut off my hand!” I’m going to be the one who looks and sounds really dumb! The real problem was operator error.
It’s the same with debt.
• Is it because debt requires you to pay interest?
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 stands 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 this just hints at the real reason most people need to get out of debt.
Debt keeps us from saving money.
The more we pay in finance charges, the less we have to sack away for the future.
I may not know you personally, but I know this: You want to be financially free. You want to get to the place one day where your financial assets produce enough income for you to live the way you want to live . . . where if you work, it’s because you want to, not because you have to.
The only way to get to that place is by saving 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 when you don’t have lots of debt.
Understand that getting out of debt isn’t a financial plan. It’s just one part of a comprehensive financial plan.
The best reason to get out of debt is because it is an important step in becoming financially free.
“Get out of debt!” That sounds grueling—like a chore.
“Be financially free!” That sounds like a destination worth going to—even if the pursuit involves some work and a little pain.
A couple of years ago, I wrote an e-book about this very subject. It’s called “How to Put Money Worries in Your Rear View Mirror – The Financial Freedom Roadmap.”
In it, I offer turn-by-turn directions how to get from your present location to your desired location—financial freedom.
I’d love to send you a free copy. Just email me at email@example.com, and then watch your e-mailbox.
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