Paying off debt feels good; you don't have to worry about making payments or owing someone money. Your financial decisions can be completely your own and based on your own goals. It may make life and managing your money easier; living day-to-day is less stressful and saving for the future is possible.
Once debt is paid off, your self-confidence can make a fast turnaround. Some individuals even share their debt stories out of a renewed sense of confidence, according to Dlugozima. “You become more open about it because you've gotten through the other side,” said Dlugozima. “It's empowering.”
Less Stress and More Happiness
Not to mention the extra money you're paying in interest that you could be putting to better use. When you pay off all your debt or even one credit card, you will be happier because of less debt-related stress. Think about how much you dwell on not having enough money while you have debt.
What It Feels Like To Be Debt-Free. Paying off your debt is incredibly freeing. It eliminates all of the worries and side effects that debt can bring. And it gives you a sense of security that comes with the fact that you don't owe anyone anything; your choices can be completely your own.
INCREASED SAVINGS
That's right, a debt-free lifestyle makes it easier to save! While it can be hard to become debt free immediately, just lowering your interest rates on credit cards, or auto loans can help you start saving. Those savings can go straight into your savings account, or help you pay down debt even faster.
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.
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.
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.
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.
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.
Likewise, millennial consumers (ages 25 to 40) have an average of $27,251 in non-mortgage debt, presumably across credit cards, auto loans, personal loans and student loans.
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.
Senator Elizabeth Warren popularized the so-called "50/20/30 budget rule" (sometimes labeled "50-30-20") in her book, All Your Worth: The Ultimate Lifetime Money Plan. The basic rule is to divide up after-tax income and allocate it to spend: 50% on needs, 30% on wants, and socking away 20% to savings.
How much money does the average American owe? According to a 2020 Experian study, the average American carries $92,727 in consumer debt. Consumer debt includes a variety of personal credit accounts, such as credit cards, auto loans, mortgages, personal loans, and student loans.
35—49 year olds = $135,841
Credit card debt is the next main source of debt, followed by education and auto loans.
The first big reason is because wealthier people, in general, tend to have much higher mortgage debt than those with lower incomes. And since they are in a better position to get approved for mortgage loans, they are more likely to own a home.
Even though household net worth is on the rise in America (at $141 trillion in the summer of 2021)—so is debt. The total personal debt in the U.S. is at an all-time high of $14.96 trillion. The average American debt (per U.S. adult) is $58,604 and 77% of American households have at least some type of debt.
From ages 25-34, the median wage is $60,000 and will increase to a median wage of $90,000 by ages 45-59. Compare that with a major in the health field, which has a median wage of $53,000 at ages 25-34 and grows to a median wage of $72,000 by ages 45-59.
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.
Saving 15% of income per year (including any employer contributions) is an appropriate savings level for many people. Having one to one-and-a-half times your income saved for retirement by age 35 is an attainable target for someone who starts saving at age 25.