The Deal with Debt

Unfortunately, we are taught throughout school that debt is a part of our lives and we have to use debt to become successful in life. Debt will literally eat away at your investment returns so long as you have it. How nice would it be to live a life without payments? I’m not sure if you have then, but I know I’ll be jumping for joy once I get rid of my student loans.

In school, we’re taught to go to college, take out student loans, and pay those loans off once you get out. It doesn’t stop there, though. You’re incentivized to buy a new car and, heck, you can afford it now with your new big kid salary! For just a low APR, you can get yourself a new car for a couple hundred dollars a month. It doesn’t stop there! The American Dream requires you to buy a home, which will earn you another 30 years of interest payments if you go with a normal fixed rate 30-year mortgage. These tools will take 3-10+ percent interest from your yearly, depending on your credit score – which in itself is an incentive to borrow.Debt

These debt tools aren’t making you any money. In fact, they are making someone else money. Your debt is paying someone else’s paycheck. I went back and checked a student loan I had been paying since I left college. In total, I’ve paid around $15,000 while only close to $5,000 has actually make it down to the principle. So, I’ve paid an extra $10,000 so far to go to school. If I instead could have invested that $10,000 in the S&P 500 based on prior performance, I would have made $174,494 after 30 years, not putting in a single dollar extra. But this can’t happen because I used it on my student loans.

Now imagine if you woke up tomorrow and you no longer had to pay off your student loans, car loan, mortgages, etc. You would feel great knowing that all you had to do was paying your bills. Think of all the money you would have free to invest, travel, or commit to hobbies. I’m not sure about you, but I’d love to be sitting on a beach somewhere with a drink in my hands, but I have debt to pay.

Freedom

Bottom Line

You have to understand that debt has become a big part of our lives now. You have to figure out how to get the upper hand on this debt, so you don’t become a slave to it. The student debt has truly hampered my generation’s ability to invest in assets that can affect our financial health positively. Once we figure out how to pay it off, we will finally have some freedom. I Mean, how much better would you feel knowing that, aside from your bills, all the money you had coming in was yours (and Uncle Sam’s, of course). Just some food for thought.

If you like this, you should also check out the book The Total Money Makeover, and learn how you can learn a strategy to get out of debt.

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