What is it like to be debt-free?
Maybe you’ve been borrowing for so long. You don’t remember what it’s like earning money for yourself. To buy what you want, rather than what others tell you to pay for.
How would it feel like waking up and not worry about money? Believe it or not, that reality may not be that far away.
But is it worth it?
You might have a dozen other questions in your head:
- What does it take to get out of debt?
- How does debt affect my life over the years?
- Why should I get rid of debt asap?
- How long does it take to be debt-free?
The only way to know is to get out of debt. And this is what it feels like.
- What Is It Like to Be Debt-free? 9 Major Benefits
- Money Won’t Solve All Your Problems
- Yes, Debt Can Be Good
- What if Debt Seems Impossible to Pay?
- The Bottom Line
What Is It Like to Be Debt-free? 9 Major Benefits
It’s not easy to get out of debt. So if you’re going to put effort into it, you want to make sure it’s worth it.
In short, being debt-free makes it easier to make money. And it’s not because you have a higher balance, but because of all the changes, you make to get there.
Suppose that after paying for your debt (5-6 figures), your balance is zero. Compare that to another broke person who never borrowed anything. Who is more likely to make money?
A debt-free person is more likely to stay at their income level. But the borrower has the right habits and income streams after paying off debt. That can happen sooner than you think.
Unlike the average person, those who borrowed (and paid off) money will have these privileges:
#1 Earning Motivation
Once you pay off debt, you suddenly start making money faster. Assuming you keep the same earning habits, you’re keeping more of the money you make.
- Work feels more rewarding, so you want to earn more
- More money means more investment/passive income leverage
If you still owe money, then the reward could be avoiding further problems in the future.
Your motivation is the strongest the moment you get out. If you don’t keep growing, you might fall back for the same habits that put you into debt.
#2 More Debt Prevention
It’s not fun to owe money. At some point, this limitation may have stopped you from living on your terms. Possibly causing financial stress and anxiety.
However, those emotions help you prevent further debt. Once you pay it off, you may be more cautious, because you don’t want to go back to that situation. As the saying goes, ‘You Don’t Know What You Have Until It’s Gone.’
For example, you become more mindful about:
- Creating emergency funds
- Tracking expenses
- Paying balances early
- Look for alternatives to borrowing
- Spend more on ‘needs’ than ‘wants’
Notice it says ‘spend more,’ not less. Because spending on the right things can make you more money. Investing is a way of preventing losses.
#3 Feeling Happy & In Control
People hate not feeling in control. When things get confusing, we prefer not to deal with them. Most borrowers don’t (want to) know what they owe.
If you own debt, you might have a $0 balance most of the time. Every dollar you earn must go to someone else, which takes away your financial control/motivation.
So what changes after you pay off debt? You can save more money, which allows you to be more strategic. Make money with money.
You’ll also make better decisions because you’re calmer. What would it look like to wake up in the morning and not stressing about bills? Imagine you didn’t have to budget: you can spend every dollar however you like.
Because financial control eventually leads to freedom. Freedom contributes to your happiness.
#4 Higher Self-Awareness
When shopping, previous borrowers are more likely to estimate what things really cost. Rather than a price tag, you could see the hours you need to work, for example.
If you paid off debt, you’ll have realized that earning matters more than saving. You simply cannot pay $100K+ in debt in 1 year by pinching pennies (although saving is crucial).
But is it worth the hassle just to reach the zero balance?
Example 1: Someone pays off $100K in debt and has a $0 balance
Example 2: Someone never borrowed anything and has a $20K balance
Assuming both took the same time, the first person has earned five times more. Assuming you don’t make the same mistakes, you have more earning potential than someone who never borrowed.
Make no mistake. Your balance has little relevance because it’s a reflection of your earning ability.
If you got rid of debt, you’re ready to grow your savings account.
This doesn’t mean borrowers will never borrow again. But when taking another loan, you’ll pay more attention to the total you’ll pay than the money you get right away.
#5 Focused On Earning, Not Just Saving
Debt is typically the consequence of spending money you don’t have. That’s why saving money is the first tip you’ll hear.
The problem with the saving mentality is the defensive approach. You’re trying not to lose money rather than earning more.
At best, saving money will pay off debts. But when? According to Parkinson’s law, as late as possible.
It’s not rare to find 30-year-olds that still carry student debt from their 20s. Eventually, these debts may force them to postpone retirement.
Savers tend to earn just enough to pay things off, never saving anything ironically.
What if you get out early?
After the debt relief, you save faster. You have no pressure, so you can focus on earning instead. As consequence, saving becomes easier.
#6 More Financially Accountable
It gets even easier when you know your numbers. And debt-free people check them often to anticipate expenses.
Borrowers, however, avoid the accounting because:
a. It’s too confusing for them to know what they owe
b. It’s probably a bad number
The stress they avoid comes multiplied when you eventually do the accounting.
So why do they become more accountable? Financial wellness:
- You feel in control by knowing your numbers
- You avoid stress by dealing with surprise expenses early
- You know your exact balance after finishing work, which helps with motivation
#7 Better Buying Decisions
After paying thousands in debt, you may question whether the next purchase is worth it. After all, you didn’t get out of debt to make the same mistake. You want to be financially free.
Notice the shift. Rather than “Can I afford it?,” the question is: “Is it worth the price?”. Debt-free people don’t spend less, but better.
It’s unlikely that borrowers cut off expenses. For a long time, their balance has been minimal. So if they suddenly save up $1000+, they’ll want to spend it somewhere.
It’s logical to give money a use. But now you have a decision: buy another liability or learn how to invest in yourself.
This way, you put your money to work while keeping a low balance, free of temptations.
Note: For better deals, check our guides to save money on groceries, furniture, cable bills, and more.
#8 Protected Against Debt Traps
It’s not hard to detect money traps. If you ever fell for one, it probably wasn’t because you didn’t know, but because you wanted to believe it as true. When desperate for money, people are more open to opportunities and less preventive.
The moment you pay off debt, that pressure goes away. You can think more logically and avoid those traps:
You borrow more than you can manage and end up overpaying. Missing payments will hurt your score and make it harder to get financial help.
Some guru sells you a work-from-home program as an investment. But there’s no entry barrier nor skills needed (thus, no chance of earning anything). What makes them dangerous is (1) the requirement of upfront investment and (2) the promise of life-changing passive income.
Consumer traps (AKA bait-and-switch):
You order the product you want, but the store doesn’t have it available. They don’t accept refunds, so you can only get value by buying something else from them. Maybe they lured you with a low price, but you’ll pay the average or higher anyway.
- A lender changes the terms after you get the loan
- The final invoice is different from what the salesman promised
- The payment method you use charges unexpected transaction fees
- Your creditor changes the utilization limit without telling you
- A service enrolls you by default in a premium subscription. You can cancel it later, but you cannot register without it
- You thought the 1st-month payment was the actual price (e.g., But requires a yearly contract)
Thankfully, companies are required to check your verify your income. They can’t legally charge you something you can’t pay off.
#9 More Savings For Long-Term Projects
Owing money requires you to make hard immediate decisions. You don’t have much time to think about your savings. All your money goes to monthly payments.
After you get out of debt, you start accumulating money that doesn’t need immediate use. With more time to budget, you can now be strategic and think more long-term.
For example, you can save for those big life goals you always dream of. Maybe funding your retirement accounts. Or invest in your child’s future.
All those goals can motivate you to avoid debt and make more money. And as soon as you start saving up, you’ll find new opportunities to leverage money:
- Start a side hustle around your passion
- Run a successful business
- Invest in the 8 securities
Money Won’t Solve All Your Problems
While getting rid of debt is relieving, financial stress doesn’t stop there. Chances are you’ll still be worrying about money even after. For example:
- You have to change the habits and beliefs that got you in debt, or you’ll be stuck again
- You need to consider the risk of uncertainty. If you’re too optimistic, you may underestimate expenses and lose all your savings
- You’ll need additional income streams to secure your earnings. It may take months before they make any money
- If you don’t build your emergency fund, you’ll have no choice but to borrow again
Nobody borrows money expecting to miss the payment. Due to uncertainty, debt can happen to anyone at any time.
As soon as you pay your debt, this should be your main concern. How can I prevent it from happening again?
Once you’re protected, you could use debt as a tool.
Yes, Debt Can Be Good
Few things are worse than low income and high debt. Not only it forces you to live frugally, but it takes ridiculously long to pay it off. Years, assuming nothing goes wrong.
Luckily, there are constructive ways to improve your finances with debt:
#1 Increase Your Credit Score
It’s easy to lose your score when you miss payments and barely have any history. But would those mistakes matter if you had a reliable history?
As you make more payments, missed payments affect your score less and less.
When your goal is to increase your number of payments, try to reduce the payment amount. Can you break down a $500 bill into five bills of $100? The same money can be five times more effective.
1 missed out of 50 is better than 1 out of 3.
#2 Protect Your Credit
With missed payments, however, it’s better to consolidate your debt. Better to miss one big payment than missing five small bills.
Suppose you owe four payments of $1000, and you only pay one on time (25%). Whether you missed $1 or $3000 doesn’t matter. Only the percentage does.
Let’s say you instead have four payments of $250 and one of $3000. With the same money, you can pay on time 4 out of 5 (80% of the payments).
Just because you can’t pay your debt right now, that doesn’t mean you cannot protect (even raise) your credit score.
Now, consolidating debt may involve refinancing, which increases the loan term and its interest. Only do this if you already have a plan to pay the small debts immediately.
#3 Make Money With Debt
Most people are stuck in debt because they don’t earn fast enough. Sometimes, the interest grows faster than your savings.
HOWEVER, debt can help you build wealth if:
- You’re responsible (e.g., you never borrowed, or you always pay loans on time)
- You’re good at handling financial pressure
- You have a proven income plan
Assuming you have a plan, then the only thing separating you from the money is time.
Not only debt can buy you time, but it also helps you earn faster (loans aren’t taxable). And since you’re working with someone else’s money with a deadline, you’ll be more cautious than if it were yours.
The key is to invest your borrowed money so that your returns exceed the interest that you’ll pay. For example:
- You borrow to buy real estate. You renovate and sell the property after the market appreciates
- You take a personal loan for your online business. You spend money on production/marketing and start getting enough sales to pay it off
- You could swing-trade cryptos or the stock market, depending on your experience
Rather than a burden, debt is now a tool.
#4 Speed Up Your Career Progress
Let’s say want to earn more, and you’re already saving as much as you can. You have a few choices:
a. You can wait and hope for a salary raise
b. You can improve your abilities (or learn new skills)
c. You can get paid for results, not hours, and work longer
If you wait, you’re exposing to more (unexpected) expenses in the future. It’s better to either upgrade your skills or buy more time. If you had no money, wouldn’t it make sense to invest in a high-income skill?
Even when in debt, it’s okay to spend more if that earns you more money later. Your skills pay off forever, especially when in high demand.
You may need a college degree for your career. But when it comes to skills, it’s all about supply and demand. If you can solve a problem for your client, you have a deal.
Improve Time Management
Maybe you’re making good money already, and it’s a matter of time before you pay it off. Assuming you get paid for results (not hourly), time is all you need.
If you’re wondering how to work more, there’s a trick the best performers use: “replacing $10/h tasks.”
It’s easy to get carried away by life’s responsibilities: housework, cooking, accounting. What if you could hire someone to do them for you?
Instead of cleaning the house for an hour, you could work on a project instead. As long as you earn that hour more than the hiring cost, you’re winning time.
Get Better Formation
Many students get into debt to get a degree. So why not create income streams while in college?
If you put your downtime on side hustles, you’ll have enough cash flow by the time you finish studying. Lenders don’t request debt until after the last year.
Note: If you believe college is a waste of time and money, check this guide. You’ll learn how to get the most value if you already enrolled.
What if Debt Seems Impossible to Pay?
For whatever reason, you may owe more than you could ever pay off. No matter how much you save and work, the debt grows faster. Now what?
If you do nothing, it will keep growing. And while it may drop off your credit history in seven years, you’re still owing it.
Unless you want to be in debt forever, you’ll need to take another approach. What do you have to lose?
Accept That Your Current Income Won’t Cut It
Ask anyone on the Internet for advice on how to pay $100K-$1M in debt. You’ll immediately get estimations based on your income and saving habits. The most optimistic people may tell you to “keep saving until it’s paid in 10-20 years.”
Who wants that?
Increase your income, and you’ll be free in 3-5 years, maybe less. The truth is:
- People who earn 10X more than you aren’t working 10X more
- You can make money from home with the right skill (without a degree)
- You can make money while you sleep
Borrowers use to underestimate money-making. Get this right before worrying about debt consolidation, forgiveness, refinancing, or budgeting.
When owing over $1M, saving can only get you so far.
According to Oberlo, the average person spends around +$65K per year. You could live off $1000/mo or $15K per year (poverty line) and save $40K, assuming nothing goes wrong (hello 2020!). How many years do you need to hit $1M?
At best, frugality will save 10-40% of your income and pay off in decades. Focus on earning, however, and you’ll save 5-10 times faster. Which one is worth your time?
Saving is about what’s left in the end. Spending can be a saving strategy. You cannot invest without spending.
But if you need to be frugal, be it with your time, not money.
Quit Looking For Shortcuts
You may think borrowers have an urgent need to pay back. However, most do nothing or wait until it’s too late. Why?
Because they believe they’ll eventually solve their problems somehow. So they don’t need to do anything. But as time passes, blind hope loses credibility.
So they keep looking for shortcuts:
- Refinancing loans to “win time” (and raise fees)
- Looking for a debt-relief service to solve all your problems
- Buying into get-rich-quick schemes
People fall for these scams because they want to believe. Ironically, all these will delay your repayment plan. The fastest way to success is the process itself.
Time Your Payments
There’s two approaches to pay off debt:
a. You pay off every dollar as soon as you earn it
b. You pay the minimum while keeping the rest
Although the first one may sound right, the second option is more likely to pay off faster. Why?
Money makes money. Your savings multiply how much you can earn. If you give it away too early, you’re not giving yourself a chance to invest.
Pay just enough to avoid credit score hits and invest the rest, whether it’s on securities, businesses, or yourself.
The Bottom Line
Debt can limit us from reaching our financial goals. It’s a decision that helps in the short term but burdens you in the long run. If you don’t want to overpay and waste years paying for your past purchases, think twice before borrowing.
If you are in debt already, that’s not necessarily a bad thing. After all, debt can make you money. It’s only bad if you’re falling behind your payments.
Now that you know what it’s like to be debt-free, you can take responsibility. Follow whatever tips you found the most helpful in this guide. And before you know it, you’ll be free again and (hopefully) forever.