Did you know that a debt-free life is something that Americans feel they will never enjoy? According to an article published on CNBC.com, 21% of Americans believe that they will never pay off their debts. The survey, conducted by Credit Cards, revealed that this statistic is actually higher than the previous year – which showed that only 18% believed the same for themselves. Now, more people admitted that they do not think they can ever get rid of their debts.
In our society, eliminating debt is something that we cannot avoid. After all, credit is so easy to use. We get credit card offers all the time and the rewards program makes it very hard to resist the temptation of using them.
While debt freedom is not a prerequisite to financial success, that does not mean living a debt-free life is not rewarding. Once you taste that life, you will never think about going back to where you came from.
Improvements that will happen if you pay off your debts
When you live a debt-free life, you will feel an improvement in your life in general. These improvements will come in these 5 forms.
Live with less financial anxiety.
Let us start with debt stress. You will not feel stress over something that is non-existent in your life. As long as you have debt in your life, you will always think about it. You will stress over how you will pay it off because there are consequences to not paying debt. The bad thing about this type of stress is that it affects not just your health but also the well-being of those around you. According to an article published on LiveScience.com, parents who have unpaid unsecured debts are more likely to have kids with behavioral difficulties. Apparently, when they have unpaid debts, parents exhibit a stress level that affects their parenting style. This leads to their children having behavioral problems like depression or aggressiveness. When you do not have debts, you will be free from this anxiety. You will feel more in control of your finances.
Freedom to work less.
Another benefit of living a debt-free life is you do not feel pressured to work a lot. You know you can live on less because you only have to pay for your needs. If you are content to live on basic necessities, you can choose any career that will make you happy – even if it is a low-income job. Debt, especially unsecured debts, will make you waste money on interest payments. If you have a high credit card debt, you will be wasting a lot on the high-interest rates and other finance charges. If you do not know how to manage your cards, you could be paying a lot of money towards the interest. All of these could have been extra money that will grow your savings. Instead, it will only make your creditors rich. Removing these debts from your life will allow you to have a lot of extra money left over – which will help you build up your savings or give you the freedom to work less.
Higher chance of retiring early.
Since we mentioned that removing debt will help you get more extra money from your budget, there is a high chance that you can retire early. At least, this is true if you choose to contribute the extra cash in your retirement fund. According to a poll conducted by Gallup.com, 3 out of 10 respondents plan to retire before they are 65 – which is the usual retirement age. Among the current retirees, it is reported that 67% of them actually retired before they were 65. If you want to retire early, you need to get rid of your debts. Otherwise, it will not be easy for you to live on your retirement money.
Focus on saving.
Again, in connection to all the extra money that will be freed because of your debt freedom, you can now focus on your saving goals. You no longer have to worry about where you will get your debt payments because they are already non-existent. You are free to create saving goals and you are now in a better position to turn them into reality. If you need to save up for any home improvements, that is now possible. If you want to buy a new car, that is something that you can already save up for. You can not enjoy a real savings account and you can find fulfillment in watching it grow.
No guilt when investing in yourself.
Finally, a debt-free life will no longer make you feel guilty about spending on yourself. If you want to invest in yourself by buying a gadget that will help you be more productive, that is something that you will not give you a sense of guilt. When you have debt, you will question every purchase because you know that debt payments should be your priority. The longer it takes for you to pay off your debts, the more money will go to your creditors and lenders for profit. This is why you should strive to pay off the debt as soon as possible. It is also the reason why any investment that you will make on yourself will give you a sense of guilt.
How to live debt-free without ruining your credit score
Of course, there is one downside to living a debt-free life. It will make your credit score suffer. After all, you need some credit activity to make sure that your credit score will stay within a good range.
But then again, does that mean you need to be in debt all the time? The answer to that is a resounding NO!
Contrary to what other people may think, you can have a great credit score even if you live a debt-free life. A good credit score means you have to use credit wisely. It tracks how you use credit for purchases and pay it off properly.
You may be thinking, how is it possible to use credit without being in debt? It all boils down to how you will use your credit cards. If you use your credit card responsibly, you can continue using credit without being in danger of debt.
Here are some tips that will make this happen.
- Know the rules. First of all, educate yourself about the rules involving the proper use of credit cards. This is the only way you can be a smart credit card user. You have to understand what a billing cycle or finance charge is and their relationship to your balance. You should ask about the interest rate and how it is calculated. More importantly, you need to inform yourself of the fees and charges that could increase your balance. Knowing the rules will allow you to make the right choices about your credit card purchases.
- Pay within the grace period. This is the key to staying out of debt while you continue using credit. The grace period is the time between the date of purchase and the due date of the billing statement where the same purchase is billed. When you make the payment within that time, you will not pay any interest on that transaction. That is how you can use your card while saving money. If you carry over a balance the next month, that is when the finance charges and other interest payments come into effect.
- Budget your credit card use. To help you pay your balance within the grace period, you have to learn how to include the credit card purchase into your budget plan. For instance, you can allocate $500 to be used on your card. That way, there will always be cash available to pay off your card when the billing comes.
Here is a video from Investopedia that provides various benefits of credit card use – if you know how to use it responsibly to maintain a debt free life.