There are many philosophies around the use of debt in our modern economies. I won’t go into the pros and cons of all of them here.
Right now, I’m chiefly concerned with your physical and emotional well-being.
For many reasons, maintaining debt is the type of chronic stress that most people would do well to avoid.
Does that include all debt? What about mortgages? What about for this or that, or given this set of circumstances? These are all questions I’ll leave for you to figure out on your own, hopefully in conversation with a close friend or adviser.
As a general rule, however, debt should be kept to a minimum for most people, most of the time.
6 Benefits of Being Debt Free
When you pay off debt early, you’ll experience a kind of mental freedom that your life has been lacking, whether you have noticed it or not. It’s a kind of freedom that adds meaningfully to your everyday happiness, and I wish it for more people.
1. Money Problems Stop Waking You Up at Night
No matter what else is happening in your life, most debt payments will come due. Your payment might be a light obligation when things are good, but what about when the unexpected happens? A life without debt is a life with less stress and no more waking up to thoughts of crunching numbers to make it work.
2. Decisions Become Simpler
The hardest choices to make in life are the ones that involve painful trade-offs on both sides. Unfortunately, when you owe large sums of money, financial decisions such as how much to save, how to invest, and whether you can afford a vacation become much more complicated. When you take away the debt, the fog lifts, and those choices get easier because there’s less at stake.
3. Progress Finally Feels Real
There is something to be said about the mental accounting that takes place when you finally owe nothing to no one, financially speaking. When this is true, you will feel at last that you are making progress and not just spinning your wheels, waiting for real life to begin. You will enjoy seeing your savings grow and your investments compound, knowing that every dollar you put away is yours and not just an IOU to some bank. This kind of independence isn’t required for happiness, but it is a genuine source of life satisfaction for many people.
4. Raises in Pay Actually Improve Your Life
One nice thing about living debt-free is that every bump in your income, from either a raise or a side hustle, goes straight to your bottom line. You don’t have to pay off debtors first, but can directly enjoy the fruits of your labor, or invest those fruits to compound over time for greater utility in the future.
5. Risk Becomes Optional
Risk is an inevitable part of life and, in some circumstances, can even be welcome. You might, for example, like to strike out on your own and start a business or take advantage of a riskier opportunity that might not come around very often. High levels of debt put your back up against the wall. You can’t take on more risk because your financial liabilities already represent a large one. Debt-free living affords you the freedom to take more chances with less stress about things turning out exactly right. You have a buffer that gives you more room to play.
6. A Greater Feeling of Control Over Your Future
When you’re carrying debt, the number of choices available to you in the game of life is limited. It’s like being overweight and wanting to move faster or go further, but being weighed down by the accumulation of prior choices. This is why I keep coming back to this idea of freedom. Paying off your debt gives you financial flexibility, which is just another word for freedom to make choices rather than have them imposed on you by circumstances.
Debt is not necessarily bad in every case. Our family, for example, has a mortgage. The amount of our loan, however, in comparison to our income, is much smaller than that of most American families. We’ve chosen to live in an older, smaller home so that we can enjoy many of the other benefits listed above—benefits we think more directly influence our day-to-day happiness than the size of our house.
Everyone I know who has paid down debt has been happy to have done so, while the examples of taking on too much debt and coming to regret it are numerous. Consider which side of the balance sheet you want to live on and how good it might feel to be finally free.