I am not a fan of debt. Most financial bloggers will agree with me.
Have you ever thought of the things that your debt can be costing you? Here are six things that I came up with in just two minutes time!
- – This is the obvious one. When you have debt, you have to pay it off. This is money that comes right out of your income stream, and because it's for an item you already paid for, you are paying present money for past purchases. There is absolutely no joy in that.
- Opportunity – When you pay money for your debt payments, that takes money away that you could use for other things, including making money! Your $500 debt payment is gone, but a $500 investment in the stock market is an opportunity for future gains. But that's lost when you have the debt payment that comes first.
- Freedom – Every debt payment you make requires a certain level of income. For some people, debt takes any income gap and then some. These are people in extreme debt. But, even those not in extreme debt end up with a correlation between debt and income that sees you relying on your income so that you can pay off your debt. You're still able to make the payments, which is great, but you're in essence stuck doing whatever you're doing to make income for as long as you have debt. Remember the people in extreme debt I talked about earlier this paragraph? The ideal thing is to be on the other extreme, where you have no debt. When you're there, you have freedom without having to worry about the next debt payment.
- Happiness – Debt causes anxiety. Anxiety causes stress. Stress reduces happiness. Therefore debt costs you some level of your happiness.
- Sleep – Have you ever woken up and started thinking about your debt? If you have, then chances are, rolling over and going back to sleep isn't in the cards. There are few things worse than being kept at night…because of debt!
- Your Net Worth – Financial freedom is obtained by increasing your net worth. When you make debt payments, you're taking an asset to pay off a liability. This means that your debt payment realistically results in zero net worth growth. In fact, once your next statement comes in the mail, your interest is a new liability, which actually reduces your net worth!
As you can see, debt is kind of the worst. If you're in debt, then getting out of debt will help you gain back some of the costs above, and I'm sure there are others. If you get out of debt, then stay out of debt so you don't have these costs come up and get you again.
Readers, what other costs are associated with debt?