Benefits of being debt free
For those that have been reading my blog for some time now, I announced we became debt-free last January 2024. It got me thinking and reflecting over the last year, what are some of the benefits of being debt free?
Today’s post highlights those benefits from my perspective. I welcome your thoughts as well.
Hopefully this post helps you on your journey…
Benefits of being debt free
To back-up, here is that debt free post:
After years, decades in fact, of paying off our mortgage; moving a couple of times to upsize then downsize to where we are now, even while interest rates were low (!) my wife and I finally reached debt freedom over 12 months ago from the time of this post.
At the time, the feeling of making that final mortgage payment after years of mortgage payments was rather liberating.
A heavy weight was removed off my shoulders.
In fact, I still feel that way all these months later….
Benefits of being debt free
Large or small debt can eat away at you, emotionally and financially. I hear that from readers from time to time.
I’ve stated this on my site for many years now, but I find emotions might run higher and hotter when it comes to personal finance and investing over pure math. Sometimes the best financial decisions are the feel-good decisions even though the math might not make sense. I’ve always preferred making rational decisions and moving on with my life over the anxiety of trying to make the perfect decision.
High amounts of sustained debt are likely to cause some people a lot of stress – as you try to figure out how you can pay other people first. That said, once debt is more manageable or better yet gone, living debt free can deliver profound benefits.
Here are a few positive changes that I believe being debt free can bring:
1. Tangible financial benefits:
- Less monthly bills. No credit card debt, no car payments, no mortgage payments, no problems. Less bills simplifies your financial life and leaves:
- More money in the bank. No payments to others keeps more money in the bank/reserved for us, so that we have:
- More financial flexibility: Debt is an anchor to financial flexibility. You pay other people first. Money sent to other people means less financial flexibility for me – what I could be doing with any money instead. I could save more, invest more or spend more or all of these things as I wish.
- More money in the bank. No payments to others keeps more money in the bank/reserved for us, so that we have:
2. Psychological and health benefits:
The feeling you have being debt free is harder to quantify but nonetheless rewarding. I’ve used this quote before and it now applies to me/us: from Morgan Housel’s book The Psychology of Money.
One of Housel’s confessions from his book:
“We own our house without a mortgage, which is the worst financial decision we’ve ever made but the best money decision we’ve ever made.” “On paper (paying off a mortgage with rates so low), it’s defenseless. But it works for us.”
Here are some non-financial benefits:
- With financial flexibility comes empowerment: With our current paycheques and/or investments working for us, we feel empowered to make better decisions: to save, to invest or to spend money on things we value. Feeling empowered leads to:
- Better financial choices. I’ve hardly been financially perfect over the years but I do believe I am making smarter financial decisions with time. No debt can have a compounding effect that can include positive energy and motiviation which can also bring about:
- Less stress and better overall wellness. No debt has provided us an opportunity to consider work on our own terms, a form of financial independence and freedom that considers less full-time hours, more time and energy to do other things; more life-work balance and not the other way around.
- Better financial choices. I’ve hardly been financially perfect over the years but I do believe I am making smarter financial decisions with time. No debt can have a compounding effect that can include positive energy and motiviation which can also bring about:
I’m sure I’ve left some things off this list but I think you get the idea.
Getting out of debt and staying out of debt might be an important goal in your own financial journey based on your situation. It has certainly been a goal of ours.
Mark
Related Reading:
Ideas on how to get to debt free?
In no particular order of importance, although some steps before others may be required:
- Make a list / define your debt – collect all relevant debt details: who you owe, amounts, interest rates, and payment terms.
- Create a budget (if not already done) – update your budget with all expenses and debts; list all income sources and define any budget goals.
- Choose a debt payoff technique like a. debt snowball (i.e., focus on smallest balance first to build on more momentum over time) or b. debt avalanche method (i.e., focus on the highest interest-rate/debt burden first).
- Explore debt consolidation – consider consolidating your debts into a single loan with a lower interest rate and streamlined terms; simplifiying your payment obligations.
- Once all debt payments are manageable then consider having an emergency fund.
- Explore ways to increase your income over time: more income could accelerate debt payments.
- Explore ways to reduce your lifestyle: cutting back could accelerate debt reduction.
- Celebrate your wins – as some debt is killed off. Personal finance is a journey and not a destination.
Mark
My name is Mark Seed – the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I’m looking to start semi-retirement soon, sooner than most. Find out what I did and how I realized Financial Independence to tailor your own path. Join the newsletter read by thousands. Always free.
