Why would anyone want to get out of debt?
Think about it. You borrow money. You can use that money now. Then you can pay it off slowly, over time. Who wouldn’t want that deal?
You might expect a financial planner to say that getting out of debt is what everyone should be doing, ASAP. While 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 drives up 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 profitable assets (eg, logging land, rental real estate, etc.), you can start building your wealth right away. You don’t have to wait years to have the money available to pay cash for those assets.
• Is it because debt is dumb?
Debt is not “dumb”. If I cut my hand on a power saw and say, “That dumb power saw! He cut off my hand!” I’ll be the one who looks and sounds really dumb! The real problem was operator error.
It is the same with debt.
• Is it because the debt forces 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 has a good chance of doubling in value over those 30 years, I have made a very good decision.
But if I repeatedly pay Eddie the loan shark 400% interest on “payday loans,” I’ll 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 hints at the real reason most people need to get out of debt.
Debt prevents us from saving money.
The more we pay in finance charges, the less we have to save for the future.
I may not know you personally, but I know this: you want to be financially free. You want to one day get to a place where your financial assets will 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 there is by saving money now. For most, that means saving 15% to 20% of their income. I know. That’s hard to do. But it is less so when you do not have many debts.
Understand that getting out of debt is not a financial plan. It is only one part of a comprehensive financial plan.
The best reason to get out of debt is because it is an important step toward becoming financially free.
“Get out of debt!” That sounds tiring, like homework.
“Be financially free!” That sounds like a destination worth going to, even if the search involves some work and a bit of pain.
A couple of years ago, I wrote an e-book on this very topic. It’s called “How to Put Money Worries in Your Rear View Mirror: The Roadmap to Financial Freedom.”
In it, I provide detailed instructions on how to get from your current location to your desired location: financial freedom.
I’d love to send you a free copy. Just email me at [email protected] and then watch your email inbox.
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