The Power of a Debt Free Life

After reading this great post about being debt free over at Hope to Prosper, it reminded me of one of the most powerful forces that affect our financial future: Exponential Growth. When we live with debt, we are at the mercy of this force. When we are debt free and save money each month, we put this force to work for us.

Photo by The Cleveland Kid

I wrote about this last year, and explained how the power of exponential growth can work for us or against us. When we are in debt, the interest is added to the debt, making us poorer. When we have savings, the interest compounds to make us rich.

I agree with Bret that for most Americans being in debt is natural. We get student loans. We get credit cards. We get a loan for a car. And we get a mortgage. How many people do you know who have a house but don’t have a mortgage?

Part of the reason that America is a nation of debtors is that we are told that debt is good. Companies that make money from us by selling us loans have come up with great lies that make debt sound good:

  • Get a student loan so you can get a degree and get a better job.
  • Get a credit card so you can build your credit history.
  • Get a car loan because the rates are low.
  • Get a mortgage because you’ll save money on taxes.

I think that is just crazy! Yet people believe it. I think it is particularly easy to fall into the debt cycle because it becomes a habit. We get a credit card while we are in college. We get student loans while we are still in school. This sets us up to be used to having debt and it doesn’t bother us.

This ends up making us mentally weaker. Whenever we want something, we just buy it on credit. It’s like a kid with a giant bag of cookies. He can eat as many as he wants. And it turns out to be way too many.

Instead of buying things on credit, there is another way to do it: by saving up. It doesn’t sound like fun, but I believe it is the difference between being in debt and being financially free. If we can control our desires enough to actually save up for what we want to buy, it will teach us to refocus our energy into money generating activities. And it will reduce the desire for us to buy everything that we see.

Our financial destiny is our own choice. It is so easy to say that we are affected by external factors like the economy, but we can always make better choices to improve our future. Choosing to go debt free is one of the best decisions that we can make.

2 thoughts on “The Power of a Debt Free Life

  1. Bret @ Hope to Prosper

    Thanks for the mention and the link.

    I think people are finally catching on to the debt trap. Marketeers are having a harder time convincing people to sign up for loans and credit cards. At the same time, people like Dave Ramsey are helping people who are already in debt to get out for good.

    A couple of years ago, the personal savings rate in America was -1%. Now, it is hovering around 6%. Also, the percentage of personal debt has dropped dramatically, for the first time in American history. I hope this trend continues for a long time.

Leave a Reply

Your email address will not be published.