There are plenty of benefits to staying debt-free, including less stress, no monthly payments to make, no missed or late payments and penalty interest, and better control over one’s finances.
People with multiple loans and cards often put off until the last minute because debt is a huge drain on their finances. This often results in late or missed payments and penalty interest which makes borrowing even more expensive. Piling debt and financial insecurity make people anxious and stressed. This is especially true in times of hardship when family members get ill, marriages fail, and jobs are gone due to recession and financial crisis. Worrying about piling debt is a major cause of stress, with harassing calls from banks and debt collectors, legal action, and threat of foreclosure. People who are debt-free feel less stressed out and are happier. They are free to focus on other long- and short-term goals such as buying a house, going on vacation, saving for retirement, etc.
The opposite of stress is denial, and warning signs include ignoring it, opening new card accounts, and paying only the minimum. The problem is that late fees and penalty charges keep piling up, and anxiety and depression eventually set in.
Fewer Bills to Pay
Living debt-free means fewer bills to pay and worry about. You only have bills like cell phone service, internet, TV, insurance, and utilities (gas, water, electricity, etc.) Living expenses add up but don’t go with interest charges, penalty fees, and minimum payments.
Not Having to Worry about Credit History and Score
Late payments often result in a tarnished credit score, making it more difficult to qualify for financial products with competitive rates and favorable terms. People with fair and bad credit are often forced to apply for payday loans and secured and department store credit cards that go with higher interest rates.
Invest and Increase Earnings
Being debt-free means more money to invest and increase your income. There are plenty of financial solutions to look into, depending on your risk tolerance. Safe investment instruments include money market and savings accounts, treasury securities, certificates of deposit, bond funds, money market funds, and others. Examples of high-risk investments are initial public offerings, options, real estate investment trusts, and foreign emerging markets, to name a few. Currency trading and high yield bonds are instruments that can double your profits over a short period.
People who are debt-free have a better control of their finances, budget, and financial future. They are less likely to fall in difficult and complex financial situations such as losing their car or home. When you have a car or mortgage loan, your financial institution owns your vehicle or property. Once you pay off your loan, you own you home, belongings, and other assets, and no one can take them (at least legally).
Why Financial Literacy Matters
Money wise people are goal-oriented and more confident. They use self-control to save toward goals that are relevant and achievable. Financially literate people know how to live within their means to avoid debt and take control of and manage their financial affairs. They also have a better standard of living and more money to invest and spend.
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