Is it possible to be debt free in this era of credit economy? The answer can be both ‘yes’ and ‘no’. If you believe that you can be debt free, I will say it is possible. On the other hand, if you think that living debt free life is impossible, then it may be really impossible. However, the essence of this article is to help people that desire debt free living to see clearly how they can easily reach the goal. At the same time, maybe this article will be an eye opener to the category of people who believe that it is impossible to be debt free. Perhaps they can see that their opinion is wrong and start taking steps on how they can be debt free indeed.
How did I come about this topic? To be candid, I didn’t plan to write this article but the conversation I had with a colleague of mine recently led to this article you are reading. How did it start? I will give you the brief story without bothering you with the details. Also, pardon me for not mentioning the name of the person involved. Peradventure he reads this article; I don’t want him to feel bad about it. I was actually working in a client’s office when a middle age man who happened to be a staff in my client’s company approached me. I called him a colleague because we relate with each other at that level. He asked me if I had completed a particular registration that was mandated by the State where we both live. I answered in the affirmative. He said that I should be able to sign as a guarantor for the loan he planned to obtain from the State. One of the requirements is that the guarantor must not only be resident in the State but must have a proof of his residence by providing resident registration certificate. Can you guess what my response was? I didn’t need to think twice before I told him that I could not be his guarantor. His reaction revealed that he was not expecting me to decline his request. He asked, why? I simply told him that, personally, I don’t borrow. So, if I don’t borrow, it will be wrong for me to make myself a guarantor for a loan I did not take. In fact, he exclaimed that it is impossible for anybody to live without borrowing. It was difficult for him to believe me. I took my time to explain to him why I don’t borrow. It is just a decision. It is not that I have more money than he has. For him to understand me, I took him through how I have managed to live a debt free life hitherto. So, before I tell you the steps you can take to be debt free, I will like to share part of what I did that has made it possible for me to be debt free. Possibly, my story can help other people.
I worked as a Finance Manager. This was a position some people think should give me access to loans and advances from the company where I worked then. Of course, it was a usual practice for employees to request for loans and salary advances. By the virtue of my position, all such papers must pass through me. So, I knew how much each employee owed. So, their assumption is that, if the company could grant them a loan of $3,000, I must be having nothing less than $5,000 as a loan in my account. Surprisingly, I didn’t borrow a dime. How was it possible? Did I have access to free money? The answer is capital ‘No’. In fact, some of them earned more than I do. The difference between us was just our mentality which ultimately defined our lifestyles. I remembered vividly that some of the loans they collected then went into the purchase of cars and home furniture. Please a point of correction! The company did not give them the loans directly. What the company did was to guarantee their loans which they obtained from our bankers then. The company ensured that their salaries were paid into the bank where they obtained the loans. The bank would then deduct a certain amount to cover monthly repayment of the principal and the accrued interest as agreed in the terms of the loan. I remembered that my subordinate equally took the loan. So, when these people including my subordinate were already car owners, I was yet to buy a car of my own. Please note that it wasn’t that I had any official car either. However, they were making the monthly repayments through their nose. The net salary could no longer take them home any more as the interest on the loan was killing. Most of the time, they ended up collecting salary advance. This soon became a recurring issue.
Do you know what I did during that period? I put myself in their shoes. I was deducting equivalent amount they were paying monthly toward the repayment of their loans from my salary too. But instead of paying back loan, in my own case, I was investing the money in the capital market. I would research performing stocks and invest the money. My net salary was enough for me as I didn’t have to buy fuel nor had any cause to spend money on car repairs. To cut the story short, my investment performed excellently and I was able to buy my own car by cash about one year after. By that time, their own cars were already getting old and they still had up to two years to pay off their loans. In fact, that act of delayed gratification made a lot of difference in my finance. However, you should agree with me that it was not that easy. It required sacrifice and determination on my part. You can just imagine how you could feel when your subordinate entered his car at the close of the work while you stand by the road side to take a cab. My colleagues called me series of names but today, it is now a story. The joy of living debt free life was enough to keep me going.
How to live a debt free life
Having read my story, I will say it was just a part of the whole story. Except you are able to read between the lines, you may still not know what it takes to live a debt free life. It doesn’t matter whether you are already in debt, if your desire is to be debt free; it is not an impossible task. When there is a will, there will be always a way. Below are some of the steps you may take to start enjoying debt free living:
If you want to be debt free, you should learn how to be patient. If you cannot afford to buy a thing today, that does not mean you will not buy it tomorrow. Delay is not denial. I will still refer you to my story above. It wasn’t that I did not need a car then. But if I insisted on getting it when my colleagues were buying their own, there was no way I wouldn’t end up in debt too. Patience is a virtue. If you are patient, you will realise that you will not be tempted to put your hands in something that does not belong to you. As a Finance Manager, this virtue actually helped me. I was not in any day tempted in thinking of siphoning company’s funds. I must confess that our system was not that perfect. In fact I learnt a lesson from myself. You don’t need a perfect system; you only need people who are trustworthy and reliable. If you are surrounded with dubious people, no matter how perfect a system may be, they will find a way around it to exploit any slight loophole. So, being patient will not only help you in living debt free life, it will also help you in other aspects of your life.
Be confident about yourself
Do you know that debts can be a manifestation of lack of self-confidence? If you need to buy expensive things in order to appear good to others, it may be that you don’t have self-esteem. To be debt free, you need to confident about yourself. Opinions of others don’t count. I told you that I was called series of names but I did not allow that to determine my action. People will like you to behave their own ways. Don’t allow their opinion to affect you. After all, everybody is entitled to their opinion. If you are confident about yourself, you will be pleased with what you have per time.
Have a goal
Your goal should be specific and realistic. Don’t build castle in the air. Don’t set a goal you know you cannot achieve. When setting a goal, you need to take your income level into consideration. For instance, if you plan to buy a car next year, you need to determine the cost of the car and the amount of savings you need to make towards that. If your savings will not be enough, it is either you increase your monthly savings or you extend the time.
Live on Budget
Do you know how to draw up a budget? If you desire to be debt free, you need to learn how to prepare a budget. In your budget, you will list all your income and sum them up. You will then list all your expenses beginning from the ones that are necessary. Such expenses will include what you spend on foods, utility and mortgage repayments. Of course, your expenses are not expected to be more than your income. If your expenses are more than what you earn, it is a sign that you may end up in debt. Therefore, you need to review the budget and remove items that are not necessary. It is important that your budget accommodates savings. It is your saving that will serve as lifeline for you in case of emergencies.
Don’t be extravagant
When it comes to spending, you need to be thrift. Live a simple life. Don’t live a flamboyant life that is very expensive to maintain. For example, the type of car you ride, the environment you live and the kind of school you send your children to will determine how much you need to cough out. There are certain types of car that even if you give me free, it may be difficult and too expensive for me to maintain. In such a case, it may be better for me to sell the car and buy one that will be cheaper for me to maintain. Debt free living demands that you cut your clothes according to your size. Men are in sizes. Therefore, you should know your size per time. For instance, as a single, you may not need a very big apartment. But as your family size increases, you can then move to a bigger apartment.
Don’t compare yourself
Don’t fall a victim of “my friends are doing it, so I must do it” syndrome. You have your own life to live. What applies to your friends may not apply to you. Your friends may have a good reason for doing what they do. What is good for them may not be good for you. Your friend may be riding an expensive car because he is earning a very fat salary. If your salary is just half of what he earns and you want to ride the same car with him, you will be putting too much pressure on your finance.
Be ready to make sacrifice
Living debt free demands some form of sacrifice. For instance, I could have used the money I was investing to buy frivolous things. I could have thrown a big birthday party. Even though I had the means, I knew that if I did so, I might not reach my goal.
Of course, everybody deserves good life. I am not teaching you to live as a miser. You have only one life to live. If your income is too low to live the kind of life your dream for yourself, you need to enhance your worth. You may need to develop yourself so that you can secure a more lucrative job. You may decide to start a side business that will not affect your existing job. If possible, you may combine two or three jobs. Through this, you will be able to earn more income. This is a better approach. In fact the reason why some people are in debt is that they want to live the life they think they deserve, whereas their income cannot support such a lifestyle. Instead of accumulating debts, seek to earn more. This will help you to be debt free
Don’t buy on credit
If you want to be debt free, you should avoid buying on credit. It is not uncommon to see someone very close to you trying to sell something to you on credit. They will even persuade you to buy it even though you tell them that you don’t have the money to pay for it. They may tell you to pay anytime you have the money. They are not helping you at all. They are simply dragging you into debt. The best approach to this type of situation is to tell them to keep the item. You can give them a date when to bring it. It should be the date that you are sure you will have cash to pay. One thing I observe about buying things on credit is that, in most cases, the items are usually very expensive. They must have factored the interest element into the price.
If you look at the list of your expenses, you will realise the ones that take the chunk of the total expenses. What of if you are able to reduce such expenses by ten per cent? For instance, even though cost of feeding is considered as very necessary. That does not mean you cannot do anything about it. If you are used to eating outside like buying food from restaurants, you may decide to be buying the ingredient by yourself and do your own cooking. In fact, this alone will save you some costs.
Please, don’t do anything that can jeopardise your health. You need to eat and sleep well. If you lose your health because you are trying to make more money or you want to save costs, the money will not be enough to buy back your health. Health is wealth. You can even enrol in health insurance. This kind of expense is worthwhile in the long run.
Don’t carry balance on your card
Some people will advise you not to use credit card if you want to be debt free. Their point is that, why should you even need to hold a credit card when you don’t intend to borrow? If you look at it in that angle, they may be right. But the truth is that you need to have credit history for other purposes. If you want to buy insurance, rent an apartment or you want to change a job, an inquiry may be placed on your credit in other to ascertain your credit worthiness. Without a credit card, there is no way you can build your credit history. Instead of running away from credit cards, you can get one and ensure you use it responsibly. You can use the credit card to make few purchases and ensure you always pay off the balance before the end of the month. Please, it doesn’t matter whether you pay off the total card balance; it is not good to max out your credit limit. Some people will say that, in as much they pay off their card balance, then they can use the card to make purchase anyhow. If you max out your card, it will hurt your credit. If you use your card responsibly, you can easily build your credit. This can make you to qualify for cheap auto insurance quotes.
Debt free living for people in debts
If you are already in debt, all hope is not lost. I want you to know that living debt free is still possible. Some of the points mentioned above are still applicable to you. In addition to that, you may consider taking the following steps in paying off the debt:
- Negotiate interest rate: The reason why many people have not been able to pay off their debts is because of the high interest they pay on their loans. By the time the interest is deducted, they have just little amount left going into the repayment of the principal. Therefore, the loan which is supposed to be repaid within one year may extend to over three years. So, if you can negotiate the interest rate with your lender, a little reduction in the interest rate will go a long way. You will be able to pump most of the repayment into the payment of the principal. This will help you shorten the duration of the loan.
Read Also: See How High Interest Rate Is Killing You
- Do credit card balance transfer: Do you have more than one credit card balance? If the interest rates that you pay on the card balances are on the high side, you can shop around for balance transfer credit cards. There are many balance transfer credit cards with 0% intro APR. This means that you will not need to pay interest on the loan during the 0% introduction interest rate period. So, whatever payment you make during this period will be channelled towards the repayment of the principal. It is safer to pay off debt balance during the 0% introduction rate. After this period, the interest rate that will be applicable to the remaining balance may be too high.
- Sell unused items: If you look round your house, you will discover that there are certain items which are just occupying space. If you want to enjoy debt free living, there is nothing wrong in selling such items to help you raise some funds. You can use such funds in paying off part of the debt. At times, what is a waste to you may be a treasure to other people. Therefore, don’t leave any stone untouched.
- Don’t lavish your windfalls: Sometimes, we experience some windfalls. It may be in form of tax refunds, bonus from work place or gifts from relations or friends. Instead of lavishing such windfalls, you can use it in paying off your debts. This will definitely fast track your journey towards a debt free living.
Benefits of Debt Free Living
It is only that we can’t do without mentioning some few benefits which living debt free can offer. The truth is that, the benefits of debt free living is not quantifiable. People measure many things in term of dollars but there are many things money cannot actually buy. Let’s look at few of the benefits below:
- Peace: Have you ever been harassed by your creditor or a debt collector before? even if you are not harassed, you will agree with me that the calls from collectors is not the type of any call you will like to receive. It is disturbing. It is true that you can give your collector the time to call you. But I don’t think that anybody will enjoy such call. If you have never been in such situation, you may not totally understand how it feels. But for people who have been in debt and was able to pay off the debt, they will understand the peace that accompanies debt free living.
- Freedom: People talk about financial freedom. Anybody that is in debt cannot claim to be to totally free. If you default in paying off the debt, your properties may be taken over by the lender especially when you make such property a collateral. A debtor is at the mercy of the creditor.
- Opportunity to invest: Living debt free affords you the opportunity to invest your fund. Just like my case when I was investing my money in stocks while my colleagues were struggling to pay off their debts. When you are debt free, you can take more risk. In investing, we understand that the higher the risk, the higher the likely returns. It is almost impossible to save or invest while in debt. If you have any debt hanging on your neck, your priority will be how you can quickly pay off the debt. Someone living debt free life is on a better side to plan for the future. You will be able to save for children’s school fee and plan for your retirement. Instead of paying interest to service a debt, the money could be used to pay for life insurance premium. Life insurance is actually what anyone should consider as part of his financial planning.
- Flexibility: While someone living debt free may be able to exploit many opportunities that come his way, people with debt may be restricted in some circumstances. For instance, it may be difficult for someone having debts to relocate to a different country. Also, debt free living will allow you to do anything you like to do with your finance. If you like, you can go on vacation when you feel like.
In conclusion, debt free living is actually possible. But if living debt free is your desire, it is better not to go into debt at all. However, if you are already indebted, you can be out of debt through determination.