Debt is used for a variety of purposes. Debt can help you earn money or pursue your passions when used responsibly. However, debt can also be a barrier to your financial freedom. Advocates for a debt-free lifestyle contend that eliminating debt can lead to a better quality of life.
Personal Well-Being
Falling into debt means more bills, reminders or collections notices from creditors. These constant reminders or collection attempts can lead to emotional strain. Too much stress can lead to illness. Improve your emotional well-being by eliminating your debt. Also, having debt means something else other than you controls your time. According to personal finance expert Dave Ramsey, getting rid of debt completely may be difficult without the help of a second job or longer work weeks. Without debt, there is no need to compromise your free time or become overworked.
Improving Relationships
Being debt-free can mean improved personal relationships. Whether your debt is based on helping a family member take on debt or based on your family's expenses, too much debt often means relationship problems. Helping a family member or friend take on debt can mean becoming a co-borrower on a loan. When your family member or friend is unable to repay the debt, you are left with additional debt and possibly resentment over paying a bill that doesn't belong to you. Debt can also put a strain on your relationship with your spouse as stress begins to build up and your opinions about necessary versus unnecessary expenses clash.
Credit Boost
Eliminating debt offers you more control over your credit score. With more available credit on your credit cards, you can control how low your credit utilization ratio remains each month and keep activity consistent. A credit utilization ratio is the amount you charge relative to your available credit. For example, if your card has a $100 limit and you charge $90, your credit utilization ratio is 90 percent. High credit utilization ratios lower you credit score. Consistent use of your credit card and paying off your balance on time each month is helpful in building your score. Without adequate credit available, you will not be able to keep using your cards.
More Money to Invest
A major benefit of eliminating debt is having more money to save and invest. The money you spent each month to get rid of your debt can now be applied to making more money for your family or towards retirement. As you accumulate more money from your investments, you can begin taking control over your leisure time and focus on improving your relationships.
No debt also means that as you grow your investments, you may be able to secure any new debt you incur. Securing your debt means there is an asset to back up the cost of the debt. If you fall behind on your new loan or credit card payments, you can use your savings or investments to repay the debt.
0 comments:
Post a Comment