Maybe you’re like a lot of people – you make a decent living and you pretty much extend yourself as far as possible. You pay your bills on time (usually), but you have a lot of debt in a number of things, including credit cards, a car loan, maybe some student loans, a private loan, or a mortgage. In my experience, that describes a lot of people, most of whom do not see a problem with it.
Maybe you feel this way because that’s all you’ve ever known (i.e., because that’s what’s in your money blueprint). Well, in my opinion, it’s no way to live. And I will tell you why.
4 Reasons Why Debt is Bad
1. You are a slave to your debt
Proverbs 22:7 says “The rich rule over the poor, and the borrower is a slave to the lender.” Think about this sentence. Even if you’re not a Bible person, the sentence is relevant to you if you handle money or have any debt. Whoever you owe money to controls how you spend your money. The rich lend to the poor. The rich control the payment schedules and the interest rates.
Think about the percentage of your income that goes toward debt – don’t leave anything out. Your mortgage, car payments, credit cards, student loans, and anything else. How do you feel about that debt? How do you feel about the people to whom you owe the debt? What about what you want to do with your money – Savings? Investments? Retirement? Vacations? Your kids’ college education? Donating? This is all dependent on you paying your debt first.
If you’ve been in debt, you know what it feels like to owe someone money. Whether it’s your brother, the credit card company, or Sallie Mae, it doesn’t matter – it’s not a good feeling.
Now, imagine what it would feel like if you had zero payments. Zero. Payments. Cutting financial ties from the lender gives you your freedom back. It’s empowering.
2. Debt assumes things will stay the same in the future (high risk)
By getting into debt now, you assume that you’ll be able to pay off your debt in the future. That means, you assume you’ll still be able to afford your debt as time goes on. Essentially, you’re betting that your future stays the same. The longer the debt extends, the further out you’re predicting your future earnings. This is pretty risky! Who knows what will happen. God forbid you’re injured – then what? Do you ever hear the people calling into Dave Ramsey and Suze Orman who’ve had horrible things happen to them? If they just had an adequate financial foundation, they’d be okay even though something bad happened. It’s impossible to predict the future, so your risk meter has to be pretty high if you’re taking on a lot of debt.
3. You repay more than you borrow (interest)
When you’re in debt, you almost always repay it with interest. So, you’re spending a lot more money than you would have if you paid cash. And forget about investing if you can’t guarantee a better return than you’re interest rate costs you on your debt.
For example, If you have a car loan with an 18% interest rate, you are better off paying off the car loan unless you can be sure your investments will yield at least an 18% rate of return. It doesn’t make sense to invest at a 10% rate of return if you’re paying 18% interest on your car loan.
4. The debt mindset kills you over time
Being in debt limits your choices because you can’t use your money how you want to. If you think debt is an option, you will always be in debt. So, throughout your life, you’ll be limiting yourself to whatever fits in after you’ve paid your debt payments. And just like you can snowball out of debt, you can snowball right into debt. What starts out as a little credit card debt quickly become $15,000 then $25,000. Add a mortgage and a couple kids. School, car payments, and vacations. It spirals fast. Before you know it, you’ve extended yourself as far out as possible, and you’re miserable. If one thing goes wrong, you are really in serious trouble. It’s no way to live!
It’s the main reason I’ve never even considered getting a credit card – I have the mindset that credit cards are not an option. From a very young age I was told credit cards get you into unnecessary debt (my grandpa said “it’s like taking out a mortgage on your clothes”). This is part of my money blueprint, thankfully. And because of it, I have never had a credit card, and I never will. (Unfortunately, student loans were not part of this discussion and therefore, not part of my money blueprint – you can see where that landed me!)
If debt is an option for you, you will continue to stay in debt. It’s really a tough way to live, draining you emotionally and having negative effects on your relationships (it’s well known that money is one of the main reasons for divorce).
The Good News: You Don’t Have To Like Debt Either!
The good news is that you don’t have to live this way. You can take control of your financial life and get out of debt forever. It takes action and commitment, and most importantly, it takes an anti-debt mindset. But it’s worth it. It brings feelings of relief, opportunity, and freedom.
If you’re not convinced, listen to one episode of The Dave Ramsey Show. At the end of the show, a couple comes on the air and shares their story about becoming debt free and what it means to them (followed by the famous “debt free scream”). The happiness, relief, and freedom described by these people is a perfect example of what is possible with the debt-free mindset. And notice how things in other areas of their lives improve, too. It’s amazing.
What do you think about debt?
What other reasons do you have to support why debt is bad?