The Flexibility of Being Debt-Free

Brian Burton

In our previous Atheneum commentaries on debt we’ve covered a myriad of topics including, good vs. bad debt, prioritizing debt payoff, and different mortgage planning strategies.  We hope these commentaries have helped shed light on what we consider one of the most important topics in financial planning – debt analysis.  Today we discuss what for many is an ideal way to live their financial lives: being debt-free.

Before diving into the benefits, let’s first review the differing opinions on what it means to be debt-free.  Many “experts” argue that any debt is a shackle, making no distinction between good debt and bad debt, meaning you cannot truly be debt-free until you owe nothing.  Others, like Dave Ramsey, do make a distinction between good (debt on an appreciating asset) vs. bad debt, and define a debt-free life as one without consumer debt.

We believe both sides make a valid argument; however, everyone’s financial situation is unique and being debt-free can mean something different to everyone.  The bottom line is that eliminating potentially harmful consumer debts such as car payments and high interest credit card payments can be a gigantic step toward achieving financial freedom.

Here are a few of the many potential benefits of living without debt:

  • Reduced Stress – eliminating the fear of how the bills will get paid and how you will ever be able to retire can greatly reduce stress, leading to a healthier and more peaceful life, particularly if debt payments stretch your budget beyond a comfortable level.
  • Increased Savings – without credit card payments and vehicle loan payments, your increased cash flow will allow you to save both in retirement accounts and after-tax accounts, increasing your net worth and your chances for a long and successful retirement.
  • Financial Security – chronic, long-term debt can keep us saddled to things we don’t particularly enjoy. Cutting out these debts may allow you control over things like expenses, personal savings rate, and living situation.
  • Higher Capacity for Risk – when large debts are eliminated, a minimal budget of necessities becomes possible. This provides the flexibility to take on risk associated with starting a business, relocating, or holding out for the ideal job.
  • Investment Opportunities – the best way to grab a great investment opportunity is to always be on the hunt and to always be prepared to act quickly. Without debt payments, you can have the funds available to take advantage of a great opportunity.
  • Possible Early Retirement – most would agree that retiring early sounds like a dream come true, but that dream for many seems like nothing more than a pipedream. It doesn’t have to be – with proper planning and hard work, this dream can become reality, and eliminating debt can be a big jump in that direction.

Gaining freedom and control over our finances is something we all desire.  By paying off debt and preventing future debt accumulation, we have the ability to achieve these luxuries.  If you have any questions about tackling your debts, please don’t hesitate to reach out to us at Ballast.

Atheneum