When talking with people about their financial stresses and worries, the one that always seems to be at the top of the list is debt. It’s such a small, simple word, but carries so much emotion and baggage. Knowing that I wanted to write about debt, I did a quick Google search for popular debt quotes. As I looked at the lists of quotes, a common theme stood out to me: debt is bad.
“Never spend your money before you have it.” - Thomas Jefferson
“Rather go to bed supperless, than rise in debt.” - Benjamin Franklin
“Debt is not a tool; it is a method to make banks wealthy, not you. The borrower truly is slave to the lender.” - Dave Ramsey
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Because this traditional view on debt has been repeated time and time again, many people will actively avoid it altogether or look to pay it off at all costs. While it’s important to have a plan for your debt, those who have this all-or-nothing, debt-is-bad mentality will usually end up making irrational decisions that will prevent them from reaching their goals.
I do think it’s important to note that although I’m talking about debt in general terms, not all debt is created equal. Credit card debt and business debt are not the same. A mortgage and student loans are not the same. Each type of debt is different and the debt pay off strategy for each will be different as well.
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Now, I don’t think anyone enjoys being in debt. Some studies have shown that high levels of debt can actually lead to higher blood pressure and cause other health problems. To avoid this kind of stress, it’s important to see debt for what it really is — a tool that works for you, not against you. Without it, our financial lives wouldn’t progress very far.
Few people have enough money to pay cash for life’s big purchases. Saving and scrimping for years on end before being able to buy a house outright doesn’t sound ideal. Your life could be more than halfway over before you could afford the house. Debt is a way to borrow from your future self to get access to opportunities you wouldn’t otherwise have. In this sense, some debt is necessary and even good!
The proper use and handling of debt can turn it into a powerful tool. The goal is not to eliminate debt, but to use it responsibly to advance your position and open opportunities.
When managing your debt, always remember the “why” behind it. Most of life’s biggest decisions come accompanied with a good amount of debt. Remembering why you wanted to become a homeowner or get an education makes it easier to accept that debt is an investment meant to be beneficial to you.
For that reason, don’t be too eager to pay down debt, especially early in life. Aiming to be debt-free is a great goal, but paying down debt too early can limit your options. If all of your excess cash is going towards extra debt payments, you could be neglecting other areas of your financial life that need attention.
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Almost every debt you incur will have a pay off schedule. Believe it or not, minimum payments actually work toward paying down your debt. A monthly mortgage payment isn’t hurting you financially, but not having anything saved for retirement is. Again, the ultimate goal is not to be debt-free, it’s to be financially independent.
Prioritize savings over extra debt payments. Establish a healthy savings rate (my personal preference is 15-20% of gross income) and then feel free to use any excess money to make extra payments. Having a plan for your money should come first, paying off debt second. There’s no bank or lending institution leaning over your shoulder making sure you’re on schedule for retirement.
Keep in mind the purpose behind debt and the positive things it gives you. Debt allows you the opportunity to own a home, get an education, or start a business. Knowing that debt is sometimes necessary and an investment in your future will hopefully make the repayment process worthwhile and not discouraging. Maintaining the proper mindset about debt will help you make smart financial decisions and allow you to use it to your advantage.
Thanks for reading!