Debt! It’s as American as apple pie. Why would anyone want to ditch debt?
Growing up I believed that borrowing money was the only way to pay for big-ticket items like homes and cars. I never considered there was another way. I just assumed I’d always have debt.
And I’m not alone. According to research from Experian and Credit.com, 73 percent of American consumers are expected to die with debt. The average leftover balance in the study was $62,000 with the most common being credit card debt.
Debt seems to be the norm but have you ever considered how different your life could be if you decided to ditch that debt?
I’ve shared our personal journey to financial freedom throughout this series. Without rehashing the same story, I want to share a little more about what it’s like to live without debt.
I’m republishing this post in December. The days are short and the nights are long this time of year in Minnesota. Still, I get to sneak outside for a walk in the woods almost daily because I have control over my schedule.
It was below zero the last couple of days and I got to stay in and enjoy my cozy home and avoid icy roads and sidewalks. My husband, Jeremiah, has a “real” job that he enjoys going to. And even though he goes to the office five days a week, he still has time to pursue a rich life outside of work, traveling, cycling, and practicing Brazilian Jiu Jujitsu.
Without debt, we get to live life on our terms. Our health and our marriage are our top priorities. We enjoy our daily lives and not just weekends. We have very little stress and we do things because we want to, not out of fear. We’re excited about our future and new opportunities. And I firmly believe we wouldn’t be here if we still had debt.
Plenty of people will argue in favor of debt. They say the interest rates are low and you’ll come out ahead if you use that money to invest instead of pay off your mortgage. That’s true as I write this today, but the markets can be volatile and this isn’t always the case.
No matter what anyone says in defense of debt, being debt-free is about more than your bottom line. It’s about feeling free and at peace with your life. It’s about having the time and resources to focus on what’s most important to you. Having lived both with and without debt, I can tell you that living debt-free is the only life for me.
LEARNING ABOUT MONEY
To this day, personal finance isn’t taught in most schools. So where are we supposed to learn about money?
Most of us first learn how to manage our finances from our families of origin. Considering that nearly 80 percent of U.S. workers are living paycheck to paycheck, that’s probably not the best source. Don’t get me wrong, many people are doing the best they can. And there are plenty of families that are great with money. But I also know a lot of people who have bad financial habits or just ignore the topic altogether.
I get it. I grew up in a household where the topic was taboo. I can’t tell you how many times I was told, “there are four things you never talk about: sex, money, politics, and religion.” I had no clue how my parents handled money because it wasn’t discussed. In my husband’s family of origin, he recalls moving a lot because bills didn’t get paid.
Our saving grace was my grandfather, Andrew. I have fond memories of staying with my grandparents when I was young. Every night I’d sit in the dining room with my vanilla ice cream and chocolate syrup and watch Grandpa do the books. He taught me that money was a tool. I saw tracking and budgeting as a positive and fun experience. And he taught me that if you can’t pay cash, you can’t afford it.
As we get older, we learn more about personal finance from our friends and colleagues. Most of this advice was pretty bad but there were a few nuggets of wisdom I’ll never forget. “Always lease cars because then you’ll never have expensive repairs,” was terrible advice. “Increase your 401k contributions with every raise,” are words to live by.
Next, we learn from (so-called) experts. I don’t know about you, but when I was in my teens and early twenties, I assumed that adults knew what they’re talking about. It wasn’t until I was in my thirties when I realized that many of them don’t.
When I went to college, the university’s financial aid counselor “taught” me about student loans. Do you know what the experts told me about that? “Take out as much as you can get because you don’t have to start paying it back until you graduate. Your payments would only be $X,XXX, but you’ll be making $XX,XXX by then so you won’t even notice.” I don’t think I need to tell you what this bad advice has done to this country.
All these years later I still hear terrible advice from so-called experts. Like the financial advisor that told a friend to roll their upside-down car loan into their mortgage refinance. Or financial advisor who told someone to take out an interest-only personal line of credit to deal with their budget shortfall. And then when it came due, he advised they take out another.
While we’re on the topic of “experts,” be wary of who you’re taking advice from. When I’m looking for help, I look for people who are living the way I want to live. If anyone is handling my money, I expect they have the same values and diligence I posses. And this doesn’t just apply to finances. There’s a lot of bad information about everything from diets to relationships.
With that in mind, I recommend is studying and learning on your own.
I like books. There’s a saying that reading three books on any topic makes you an expert. While reading three personal finance books won’t put you in charge of the Federal Reserve, it will put you leaps ahead of many of the so-called experts we just discussed. In addition to books, there’s YouTube, podcasts, seminars, and online courses.
The first personal finance book I bought for myself was The Automatic Millionaire by David Bach. Not long after, my husband received the book, Financial Peace, from his uncle. Inspired by Jer’s newfound enthusiasm, I listened to the audiobook, The Total Money Makeover. And our obsession with personal finance was born. I read everything I could get my hands on.
Some notable titles include:
- Rich Dad Poor Dad
- The Next Millionaire Next Door
- Thou Shall Prosper
- You Are a Badass at Making Money
- Your Money or Your Life
There’s still so much for me to learn, but I know enough that I’m dangerous and financially free.
OUR JOURNEY TO FINANCIAL FREEDOM
In 2014, Jer and I found financial freedom when we decided to ditch debt and pay off our mortgage early. I didn’t have this blog then, so many people mistakenly assumed that we came from wealthy families or received some sort of windfall.
In this series, I’m sharing how we made that happen in less than three years, on a rather unimpressive income. The first step was figuring out where our money was going. Next, we took control of our finances by learning to budget. While we had been saving as long as we’d been earning, we learned how to save more and better in the third step. Which lead us to step four and our journey to ditch debt!
WHY DITCH DEBT
Jer and I have lived with and without debt. Having experienced both, it’s very unlikely that we’ll take on any future debt. And the reason is simple. Debt robs your freedom.
I love how Chris Guillebeau explained it in an interview. In discussing his lifestyle and journey to visit every country in the world he said, “Many people trade their dream for a car payment.” And I couldn’t agree more. How many women could pursue their dream of being a stay at home mom if they’d downgrade their lifestyle? How many people who hate their careers would be free to pursue something they love if they’d ditch their debt?
But nothing in our lives is that black and white. I don’t think Jer and I would be where we are today without borrowing money to buy our home. I have a friend who owns a multimillion-dollar business that likely wouldn’t exist had he not had access to credit. And I doubt we’d have the same level of prosperity in this country without the availability of cheap debt.
I’ve also seen debt destroy lives. I spent years coaching and consulting small businesses and in my experience, there were two reasons businesses failed. The first was partnerships that went south. And the other reason was finances, mismanaging debt and taxes.
When you carry debt, you increase your risk. I spoke to someone the other day who told me about a cabin he has owned for 30 years. He said he should have paid it off, but made the mistake of refinancing it in 2007, right before losing his job in 2008. He said that one bad financial decision has felt like a burden over the last ten years.
I feel like we’ve been trained to see debt as a lifestyle, rather than a tool. We’re trained to look at monthly payments instead of the overall total cost. Go shop for any big-ticket item, like a car, and you’ll probably hear the salesperson tout the low monthly payment. With this mentality, many people fall into the lifestyle creep where they slowly increase their monthly payments as their monthly income increases. Eventually, the unexpected happens, like the 2007 mortgage crisis, and many people hit rock bottom.
Rather than taking advice from financial aid officers, used car salesmen, and mortgage brokers, maybe we should listen to actual billionaires. Warren Buffett says, “I’ve seen more people fail because of liquor and leverage — leverage being borrowed money. You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing.”
HOW TO DITCH YOUR DEBT
Every personal finance expert has a different stance on how to ditch debt. And what’s my opinion? As with most things, I say, do what works best for you. How you decide to get rid of debt has a lot to do with who you are and how you’re wired. It’s also going to depend on your income, expenses, the amount and type of debt, your age, savings, and family situation.
If I needed to ditch debt, I’d pay off the most expensive debt (highest interest rate) first by automating as much as I could. That tactic wouldn’t work as well for Jer. He’s more motivated by seeing progress with small wins. He would see the most success by paying off the smallest debt first.
Whichever method you choose, here are additional tips could be useful for everyone.
KNOW YOUR WHY
If we don’t have a compelling reason to do something that’s difficult, we won’t stick with it. Why do you want to ditch your debt?
Maybe you want to change careers and follow your dreams. Perhaps more than anything you want your children to have a better future. You might be dreaming of less stress and peace in your marriage. Maybe it’s all of the above. Whatever it is, define your why and review it often.
GO ALL IN
Once you know your why, create a plan and go all in. You’ll want to know how much you need to pay off and how long it will take. You need to have a budget and you’ll want to maximize that budget to put everything you can spare toward ditching your debt.
You’ll be amazed by how quickly you build momentum. When my husband and I committed to paying off our mortgage, we created a plan that would have us completely debt-free in five years. But once we went all in, we were completely debt-free in two and a half years.
TRACK YOUR PROGRESS AND CELEBRATE SMALL WINS
Part of creating your plan is setting benchmarks. Ask yourself where you need to be at the end of each quarter or year to meet your goal. Then track your progress and make it visual.
During our last year of paying down our mortgage, Jer started to experience frugality fatigue. To try and salvage our efforts, I created a graph that showed how much we had left to pay and colored in our progress each month. This was just what he needed to give purpose to his sacrifice.
Make sure and celebrate your progress along the way. How you celebrate is going to depend on your situation. If you are deeply in debt, find free and inexpensive ways to celebrate meeting your targets. Plan a trip to a local museum on their monthly free day, make a special dessert, or go for a romantic picnic in the park. There is no shortage of free and cheap ways to celebrate.
If you’re on the last step of paying off your mortgage, feel free to reward yourself with a small getaway when you meet your annual goal. Taking control of your family’s future is a big deal. You deserve a celebration here and there.
Deciding to ditch our debt was one of the best decisions we’ve made. There is nothing we could ever purchase that would feel as good as financial freedom feels. In addition to freedom, we’ve enjoyed improvements to our physical and emotional health. We have less stress in our relationship. And we’ve been able to take risks with our careers that have brought a sense of fulfillment.
It’s not always easy. You’ll get tired. You might have people in your life who make fun of you. But having done the work, I can say without a doubt that every sacrifice we made was worth it. If you decide to take this journey, I’m here to support you along the way.
Check out these other posts from this series to learn everything you need to know to go from surviving to thriving.
Step One – Figure Out Where Your Money Is Going
Step Two – Creating a Budget That Works For You
Step Three – Saving For Financial Freedom
Step Four – Ditch Your Debt
Step Five – Build Wealth on Any Income
Step Six – Achieving Your Goals As A Couple
Editor’s Note: This post was originally published in June of 2017. It has been completely revamped for accuracy, comprehensiveness, and readability. Please enjoy and feel free to share this newly revised content.