The idea of debt free living nowadays may seem like a lofty ambition. Between dealing with credit card debt, student loans, and a whole host of other things, there are countless ways to start piling on debt. Having said that, it’s not impossible. If you’re dedicated, patient, and put together a debt management plan that works for your situation, you may be able to get yourself to a comfortable place when it comes to your debt load.
With that in mind, we’re going to take a look at some of the potential benefits of living debt free and some tips for paying off debt.
What are the Benefits of Debt Free Living?
Before you start to lay out your financial plans for the future, it’s a good idea to understand why you’re setting the goals that you’ve chosen to strive for. This same principle can apply to your efforts in paying off debt. So, here are some of the reasons that paying off debt can be beneficial.
1. The Money you Have is Yours
A simplified way of looking at debt is to see it as money that will eventually be going to creditors to pay off what you owe. For example, if you’re paying off an auto loan, and you have outstanding debt on your online line of credit, while you’re paying off student loans, you know that a chunk of your paycheck is ultimately going to go towards paying off debts.
When you have no debt to worry about, this changes. All your income can ultimately go towards what you choose to spend it on. You can focus more on things like saving, investing your money, and more.
2. You Won’t Have to Worry About Interest
One of the biggest benefits of paying off debt is that you’ll get all the interest you would have been paying on your credit accounts off your plate. And the more debt you would have, the more interest you would be required to pay overall.
The path to getting interest off your plate may look different for everyone. But generally, when it comes to tackling it, start with your overall interest payments. You may want to identify where you’re taking the biggest hit. For example, if you’re consistently paying interest on your credit card, this may be something you want to focus on paying more towards. While certain long-term loans like student loans will often have relatively low interest rates, the same can’t be said for credit card debt.
3. It can Teach you the Importance of Fiscal Responsibility
If you’ve always lived your life by the seat of your pants when it comes to your finances, putting together a plan for paying off debt might shake up your world in a significant way. How? Well, when you make the decision to take more control over your financial situation, it forces you to look closer at your wants vs. needs, how much you’re spending, how much you have coming in, where your money is going, and much more. This can be a big change for anyone who’s not used to taking inventory of these things.
To do this, you’ll need to apply a fairly substantial shift to your overall mindset when it comes to your finances. It’s okay if you experience some growing pains and bumps along the way. The key is to take those in stride, keep your eye on the prize, and take baby steps towards instituting better financial habits into your life.
4. You can Put your Money to Better Use
Like we said earlier, when you don’t have to worry about the cost of debt every month, you can start to focus this money on other areas. The good thing is, if you’ve already been getting by while incorporating your debt payments into your budget, you should have some practice in going without that money and still living your life. So, instead of using this extra room in your budget to spend frivolously, put it to good use by putting it towards investments and/or savings.
4 Ways to Help you Plan for Paying Off Debt
Now that we’ve touched on some of the reasons why you might want to get rid of the debt in your life, it’s time to look at how you can go about accomplishing this. Whether or not you’re trying to pay off all your debt, or just rid yourself of some of the short-term accounts that are eating their way through your bank account, these four tips can hopefully give you a hand.
1. Start Dealing with the Debt that’s Currently on your Plate
If you want to experience debt free living, you’ll need a plan for paying off debt! Start by going over all the relevant numbers that are going to come into play in this equation. Ask yourself:
- How much total debt am I carrying?
- How much interest am I paying?
- How much money am I bringing in?
- What accounts am I paying the most interest on?
Once you have a clear idea of what your situation is, you can start to figure out what your priorities are and start to figure out how you’re going to go about paying off debt.
2. Keep Track of your Finances with a Budget
Not only is it important to know what your income and debt looks like, it’s also important to be aware of all your expenses. Inputting all this information into a budget is going to be one of the best ways to gain insights into your financial situation and organize your spending.
There are all sorts of budgeting methods out there, so you’ll need to make an effort to find something that works for you. You can consider things like:
And don’t forget, while you want to stay diligent and incorporate smart financial habits into your life, try to leave yourself a bit of room for fun. Ultimately, it’s these moments of enjoyment that can be the key to staying motivated throughout your journey.
3. Create Different Categories for your Financial Goals
One of the key tenets to debt free living is to save before you spend. If you’re trying to keep debt out of your life, you’ll need to stay disciplined when it comes to setting goals and following through with them.
One thing you can do to help you accomplish this is to organize your savings goals and usual expenses into specific categories. These could include categories for things like transportation, medical expenses, home repairs, general emergency expenses, and more. These can vary based on your personal situation.
4. Always Pay Off your Credit Cards Right Away
Just because your aim may be to go through life debt free doesn’t mean you have to give up using credit cards. In fact, using a credit card can be one way to have an impact on your credit – although you should always pay off your cards on time to avoid having a negative impact on your score – and to earn rewards like cash back or travel points.
So, how can you still use your credit cards without having to deal with the negative aspects of taking on debt? Well, the most obvious thing to do is to set reminders for yourself to pay off the entirety of your credit card bill before the end of every billing cycle. In this scenario, you shouldn’t be satisfied with only meeting your required minimum payment. Anything less than making your payments in full and you could find yourself needing to deal with steep interest rates.
If you want to be even safer than simply setting reminders, you can take it one step further and pay off any purchase you make on your credit card immediately after the purchase is made. This way, you won’t need to remind yourself to make payments on time since you won’t be carrying debt for any period of time. In either case, the key thing to remember is to never make a purchase on your credit card that you can’t afford to pay off right away.
Having said all this, if you need credit card debt help, then it may be a good idea to stop using them altogether until you’ve managed to pay off your outstanding debt.
Improve your Financial Habits
In the end, the process of paying off debt is going to look different for everyone. Even the ultimate outcome is going to vary from person to person. When you finally do manage to clear the slate, what this means for you may be different from what it can mean for someone else.
Ultimately, make sure to always remind yourself of why you’re doing this in the first place. It may take sacrifice, diligence, patience, and hard work, but in the end, working towards a better financial future is always a goal worth striving for!
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