11
Mar

A debt-free lifestyle is rare. In fact, a recent study reported that nearly half of Americans have more credit card debt than emergency savings. Why do we live like this? In a culture that shrugs its shoulders at fiscal responsibility, it can be easy to go with the crowd and allow debt to overwhelm you. On the other hand, a little foresight can help you avoid unnecessary burdens that threaten your daily safety. Read on to learn why you should live debt-free. These insights will help you see the light.

  • Credit health. First things first: “debt-free” doesn’t mean “live without debts.” The average person needs help to buy a car or finance a home. This is known as installment debt: a loan with a fixed interest rate that is repaid in a predetermined amount of time. Oppositely, revolving debt (i.e., credit card balances) come with variable interest rates and have no payment end-date. When used correctly, both forms of debt can have a positive effect on your credit score, but be warned: revolving debt is far more volatile than predictable installment loans. A good rule of thumb: Achieve your “debt-free” life by only taking on debts you can afford and paying off credit card balances each month before any interest can accrue. Debt-free means living without unnecessary financial stresses; be sure to rid yourself of lingering worries.
  • Physical health. While you’re busy worrying about your credit health, your physical health may be at risk as well. Stress is a catalyst for many serious conditions: cardiovascular disease, gastrointestinal problems, asthma and depression are just a few of the health risks caused by an unbalanced lifestyle. Don’t allow credit issues to affect your quality of life. Put your health first and learn how to reduce your debt before it envelopes your happiness.
  • Future risks. 48 percent of Americans don’t have enough money in the bank to cover their consumer debt. If you are unfazed by this statistic, it’s time to change your perspective. Security is a valuable asset in any lifestyle, one you cannot achieve without minimizing financial risk. Consider Marco’s predicament:

Marco has $4,800 in credit card debt and only $735 in the bank. A recent car accident has prevented him from working and he is forced to charge all of his living expenses. After paying the minimum on his credit card at the end of the month, his savings are reduced to $381. He worries that he won’t be able to afford next month’s expenses.

This is where the debt-free philosophy is becomes glaringly relevant. By living with lingering credit card debt, Marco has forced himself into a difficult situation, one that is likely to end badly. Marco’s best course of action would have been to reduce his debt while also building an emergency fund, a strategy that would have allowed him to cope with a loss of income. The bottom line: Debt doesn’t deserve a place in your future. Protect your long-term interests by making good decisions today.


Posted in Credit