Debt Free Living

A Mountain of Debt

Many Americans are struggling to control their debt and manage their money. Consider the following statistics:

• Although 40 percent of credit card users pay off their balance in full each month, 60 percent carry a balance of between $12,000 and $14,000.
• Of the 70 percent of homeowners who currently have a mortgage, 22 percent also carry either a second mortgage or a home equity loan.
• The average American spends roughly 10 percent more than he/she earns per year.
• The percentage of people in the United States seeking the help of a credit counselor doubled from 1990 to 2000.
• Almost 90 percent of couples who divorce say arguments over finances lead were a significant factor in the end of their marriage.

Life Without Debt

The term “debt free living” is somewhat open to interpretation. For some people, debt free living simply means life without any credit card debt. For others, it’s about having no mortgage, car payments, student loans, or debt of any kind.

What inspires people to choose a life without debt? The answer to this question is often deeply personal, but most will cite one or more of the following factors:

• Lessons learned during a previous bankruptcy or financial troubles
• The example set by family members or trusted friends
• The desire to accumulate the savings needed for an early retirement or other financial goals
• A belief that you simply don’t “need” anything you can’t afford to buy outright

The Path to Financial Freedom

If you’re interested in adopting a philosophy of debt free living, you’ll need pay off old debts and stop incurring new debt. Although this sounds like a fairly simple plan, it will require you to control your impulses, save religiously, and live moderately. It’s a commitment that only you can decide you’re willing to make.

To learn more about how you can free yourself of unwanted debt, check out the following helpful resources:

• Is Debt Free Living for You?
• Eight Rules for Debt Free Living
• Seven Ways to Radically Cut Your Debt
• Living a Debt Free and Prosperous Life
• Debt Free Living: LoveToKnow Credit Cards' Interview with CPA Lisa Drake

The Downfall of Debt Free Living

While wanting to live within your means is certainly a noble goal, it’s worth pointing out that a strict philosophy of debt free living does have its disadvantages.

Remember, not all debt is bad. Using your credit card to pay for a European vacation when you can barely afford to buy groceries is a bad idea. However, taking out a student loan to get the education you need to advance in your career can be a smart move. Evaluate the potential benefits before deciding if the debt is worth the expense.

Some types of loans can be used as sound financial planning tools. Pay cash for a $200,000 house that increases in value by $10,000 and you’ve made a five percent return on your investment. However, if you take out a mortgage with a $40,000 down payment to buy a house that increases in value by the same amount, you’ll make a 25 percent return on the same investment. In addition, things like student loan interest, mortgage interest, and property taxes offer great tax deductions on April 15.

Another disadvantage to debt free living is that you’re often not building a credit history. If you have no credit card cards, no car payments, and no history of successfully repaying any type of debt, you’ll make it very difficult to obtain credit in the future if you ever find yourself in need of a loan.

What’s the bottom line? As with many other things in life, moderation is the key to successful money management.

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