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Recently, my family became completely debt free.
No student loans, credit card debt, personal loans, car payments and, yes … no mortgage.
After 7 years of educating myself, diligent planning and partnership with my wife, we officially do not owe a single dollar to anyone. (We do have a late fee for Moana at the library. Does that count?)
We’re incredibly excited about our young family’s future and the opportunities that our debt freedom has opened up for us.
The Path Less Traveled
I realize that I’m privileged to be in this situation. Not everyone has the same income, the same expenses or even the same relationship with their spouse. Each person has their own financial story and their own reasons for the money they owe.
At the same time, something has to be done. Our country is drowning in debt.
According to CNBC in 2016, credit card debt in our country now exceeds $1 Trillion (yeah, that’s a “T”). The average US consumer with credit card debt has a balance of $16,060.78 and pays $1,332.80 in interest annually.
The student loan situation is even worse.
Fortune recently reported that “114,000 Americans who were 50 and older had their Social Security benefits reduced to offset defaulted student loans…”. Evidently, that number has increased 440% since 2002.
You read that right. People are keeping their student loans so long that they are now missing out on their social security benefits in retirement. With the cost of college consistently rising above the inflation rate, the number of people in this difficult situation will continue to soar over the next decade.
Why Choose Debt Freedom
In my articles and on my podcast, I often focus on how people can get out of debt. Tactics like living on a monthly budget, spending less than we earn and building up an emergency fund are incredibly helpful when we’re starting out on our debt free journey.
Sometimes, tactics aren’t enough. I’ve found people are more motivated by the end goal or the stories of what debt freedom can provide.
People seem to crave the “Why” over the “How”.
In an effort to combat the debt in our country and provide a jolt of motivation, I’ve come up with 5 benefits of becoming debt free that I’ve personally found.
As the sole breadwinner and father of two children under 6 years old, I have often felt stressed out at my job. If I upset the wrong person and my career ends abruptly, the family situation we’ve worked so hard to create could crumble.
Each time I was able to pay off a debt, that stress level decreased significantly. With the most recent debt payoff being our mortgage, my anxiety and stress had a dramatic drop. I could say to myself, “Even if I lose my job, no one can take away our house.” It’s been a calming mantra for me lately.
Reduced Cost of Living
As our families grow so do our “needs” (AKA wants).
The house “needs” to grow in size and the car does too! Sometimes it feels like we just can’t earn enough.
If we learn to control our spending and eventually remove debt from our lives, we don’t need to chase the almighty dollar as much. It now costs us less to live!
More Money to Invest
The “interest rate” can seem like a swear word when you’re in debt. Once it’s all paid off and you start using interest in your favor, you learn to love it.
Let’s say I’ve been paying 7% interest on my student loans for the last 5 years and I finally pay them off. Now, I can take the money I’ve been paying on the debt and place it in a low-cost S&P 500 index fund and earn 7% interest per year.
We can either pay the interest or earn the interest. Let’s choose the latter.
When Nicole and I first got together in 2010, we had a combined net worth of -$50,000. (Yes, that’s a negative symbol.) Lots of debt from Andy 🤦♂️
Here’s how we clawed our way into positive territory and beyond.https://t.co/rGwUisJtPR
— Andy Hill (@AndyHillMKM) February 16, 2018
Opportunities Open Up
When you’re not so strapped with debt payments, your mind opens up to the possibilities of what your best life could be.
When we paid off all of our consumer debt, we had enough flexibility in our budget for my wife to stay at home with our kids. This would not have been a possibility if we were still carrying around the $50,000 of debt we had when we started our marriage. For the last 3 years, she’s enjoyed raising our little ones at home and being a major part of their lives.
When you reduce your living expenses, you don’t need as much money to retire.
I’ve had the chance to interview multiple early retirees in the 30’s and 40’s. They invested and eliminated debt early in their lives and now have enough income to live without full-time employment.
Before eliminating my debt, early retirement was not even on my radar. I enjoy my day job and the benefits that come from it. That being said, it wouldn’t be horrible to have a back up plan.
Who knows? Maybe I could stay home with my wife too and write about personal finance in my spare time.
What would complete debt freedom mean to you?
Please let me know in the comments below!