Many people see debt as a necessary evil, but it still is possible to live—and thrive—without using debt or worrying about your credit scores. The benefits of debt-free living are easy to understand, but it's important to know what challenges you'll face and how to overcome them if you stop playing using credit.
It might appear impossible, but many consumers succeed in living their entire lives without any debt. People of a variety of ages and income levels have made this choice. It's not an easy feat, but if it's something you truly want, don't let naysayers talk you out of it.
Debt-free people exhibit some unusual financial behaviors—everything from not carrying a credit card, to skipping the vacation this year, to buying cars for cash. But debt-free people don't care what others think.
Debt-free people are a rare breed . . . especially in today's world. Just about everyone has bought the lie that financial peace only happens when your FICO score is above average, you've got credit card points out the wazoo, and your mailbox is full of credit card applications.
Is being debt-free the new rich? Yes, as long as you have money and assets, in addition to no debts. Living loan-free is a fantastic way to stay financially secure, and it is possible for anyone. While there are a couple of downsides to being debt-free, they are minimal.
Kevin O'Leary, an investor on “Shark Tank” and personal finance author, said in 2018 that the ideal age to be debt-free is 45. It's at this age, said O'Leary, that you enter the last half of your career and should therefore ramp up your retirement savings in order to ensure a comfortable life in your elderly years.
Our recommendation is to prioritize paying down significant debt while making small contributions to your savings. Once you've paid off your debt, you can then more aggressively build your savings by contributing the full amount you were previously paying each month toward debt.
And yet, over half of Americans surveyed (53%) say that debt reduction is a top priority—while nearly a quarter (23%) say they have no debt. And that percentage may rise.
They don't owe anything to the bank, so every dollar they earn stays with them to spend, save and give! Debt is the biggest obstacle to building wealth.
INCREASED SECURITY. When you have no debt, your credit score and other indicators of financial health, such as debt-to-income ratio (DTI), tend to be very good. This can lead to a higher credit score and be useful in other ways.
While mortgage rates are currently low, they're still higher than interest rates on most types of bonds—including municipal bonds. In this situation, you'd be better off paying down the mortgage. You prioritize peace of mind: Paying off a mortgage can create one less worry and increase flexibility in retirement.
Generally speaking, a good debt-to-income ratio is anything less than or equal to 36%. Meanwhile, any ratio above 43% is considered too high.
What would really happen? The economy would slump. Consumer spending is roughly 70 percent of GDP.. Since, according to the Federal Reserve Bank of St. Louis, the savings rate is currently 3.7 percent, increasing the savings rate—a corollary to paying off debt—would mean a decrease in spending by 26.3 percent.
By age 25, you should have saved at least 0.5X your annual expenses. The more the better. In other words, if you spend $50,000 a year, you should have about $25,000 in savings. If you spend $100,000 a year, you should have at least $50,000 in savings.
You may have heard carrying a balance is beneficial to your credit score, so wouldn't it be better to pay off your debt slowly? The answer in almost all cases is no. Paying off credit card debt as quickly as possible will save you money in interest but also help keep your credit in good shape.
1. Michael Jackson. The King of Pop reportedly died $400 million in debt. Selling more than 61 million albums in the U.S. didn't stop the singer from borrowing, and spending, huge sums of money over his career.
Japan, with its population of 127,185,332, has the highest national debt in the world at 234.18% of its GDP, followed by Greece at 181.78%. Japan's national debt currently sits at ¥1,028 trillion ($9.087 trillion USD).
It can be difficult to get out of debt quickly. The average person should be debt free by the age of 58, unless you choose to extend your payments. Otherwise, you could potentially be making payments for another two decades before you become debt free.
Many people would likely say $30,000 is a considerable amount of money. Paying off that much debt may feel overwhelming, but it is possible. With careful planning and calculated actions, you can slowly work toward paying off your debt.