Live Debt Free

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10 Psychological Benefits of Being Debt-Free

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Debt can control your life. It impacts what you buy, where you can live, your sleep, mental health, and personal relationships.

However, paying off debt has many psychological advantages, including boosting confidence, lower stress levels, better future planning, improved confidence, and emotional resilience to avoid slipping back into debt.

According to a Planning Progress Study by Northwestern Mutual in 2018, a whopping 69% of workers in America felt stressed by financial burdens. So, whether you are almost out of debt or just starting, reducing debt is a realistic goal that can help restore mind and body balance while empowering you financially.

Find out how getting out of debt can affect your mental health by reading about these ten emotional benefits of being debt-free.

1. Lower Stress Levels

It is no surprise that having debt causes high anxiety levels. Debt is considered one of the most stressful life events.

According to the Society of Occupational Medicine’s Life Events Inventory in 2009, which ranked emotional stress across 100 kinds of life events, getting buried in insurmountable debt can make people’s stress levels skyrocket. Men ranked severe debt at 82/100, while women scored 86/100.

That is not good news since 80% of Americans are in debt. That is eight out of every ten people.

According to a 2021 CNBC report, the average American owes a whopping $90,460 in debt.

In addition, the Student Loan Planner survey discovered that 90% of people who took out student loans reported intense anxiety due to the debt. Many reported anxiety levels so high that they had trouble sleeping.

This highlights a complex problem that intersects with economic issues, student loans, soaring inflation, the rising cost of living, and personal spending habits. Collectively, Americans owe a staggering $14 trillion in debt.

Stress, caused by owing money that you cannot repay, can undermine your health. Stress that lasts for a long time is linked to several health problems, such as diabetes, heart disease, stomach problems, autoimmune diseases, and allergies.

Paying off debt can lift a massive weight off your shoulders. It can also relieve a common cause of stress and anxiety. 

2. Psychological Relief

Getting out of debt can have more than a positive effect on your body. It can give you emotional and psychological relief as well. Unfortunately, many people are carrying more than just a mountain of debt.

  • In addition to debt, there are the normal traumas of everyday life like divorce or medical emergencies.
  • Debt wrapped in negative experiences can make cortisol levels spike in your body.
  • This stress hormone can make you feel more anxious, fearful, and uncertain about the future.

Once you purge that old debt, with all its negative associations, from your life, you will likely feel a surge of emotional relief. While money does not necessarily make you happier, cutting out debt and having enough money for a reasonable standard of living can give you a fresh outlook on life.

3. Freedom

You might feel like you are not moving forward when you are deep in debt. If your finances are a mess, it might seem impossible to go abroad, get married, buy a house, start your own business, get a higher degree, or have a baby.

https://www.theartofsimple.net/the-emotional-benefits-to-becoming-debt-free/

Broken finances can complicate relationships and make achieving your other life goals challenging.

Financially stable people might not want to marry someone who has ruined credit, no savings, or tens of thousands of dollars in debt. Launching a business usually takes capital. It costs an average of $250,000 to raise a child from an infant to age 18. The emotional impact is enormous.

Bottom line – having debt can block you from achieving your goals. The faster you find a repayment strategy that works for you, the closer you’ll get to making your dreams a reality.

4. Increased Confidence

We might live in the 21st century, but debt still carries a stigma that can lower your self-esteem.

Financial distress can eat away at your identity. Intense shame over poor finances can make people spend more in an unhealthy attempt to mask the problem.

Maybe you are swiping your card to get a McMansion, nice cars, designer clothes, the best schools, the newest Apple products, or big vacations, but you are living on the edge of credit.

https://www.moneygeek.com/debt/resources/how-debt-can-harm-your-health/

Paying off debt is empowering. It can give you renewed confidence because you practiced discipline, made a budget, kept track of your expenses, worked hard to pay off debt, and came into financial solvency.

5. Better Relationships

It is no secret that many couples fight about money. For example, a 2018 Fidelity Couples Money Study found that 46% of couples in debt felt that finances caused the biggest problem in their relationship. In contrast, only 16% of couples who did not have debt concerns reported that money created challenges in their relationship.

The good news is that paying off debt can ease relationship stressors. If your marriage survives the laborious process of paying off debt, you have likely learned how to communicate well, respect each other, and build a stronger partnership.

One way to get started is to create a safe space to discuss finances with your spouse openly. Talk about debt, lay any resentment, or fears out on the table, draw up a budget together, plan your regular spending, and figure out your future financial goals.

6.    A New Connection Between Spending and Happiness

Once you have paid off debt, you might find that your beliefs about money and happiness change.

Paying off debt and saving money can give you that adrenaline hit you once got from buying a designer handbag or a fast car. In addition, many people find that experiences with friends and family can offer more happiness than swiping a card to make themselves feel better for a few minutes.

Financial freedom can bring a new kind of satisfaction and change your perspective on short-term gratification versus long-term joy.

7.    Broader Horizons

While debt can hold you back in life, becoming debt-free can expand your horizons by giving you the freedom to pursue business opportunities, save up for retirement, buy a house, or do whatever fuels your passion.

When you are no longer diverting a large chunk of your paycheck to pay off debt, your optimism will grow as you’re able to accept new opportunities.

8. Learning How to Make Smart Money Decisions

Most people take on debt like student loans or mortgages to accomplish their primary goals in life. Once you pay off debt, you can exercise caution about any new debt you incur. If you take out a business or home loan, ensure that your debt-to-income ratio is balanced and that you research the most favorable loan rates.

https://www.apa.org/gradpsych/2013/01/debt

You do not need wealth to make wise money decisions. Instead, you need to commit to debt-free living, seek expert advice, and make the hard choices between lifestyle and financial reality.

9. Better Mental Health

For thousands of years, most societies swept mental health issues under the carpet. Today, health experts agree that financial hardship and stress caused by debt can affect mental health.

If you are deep in debt and experiencing mental health problems, you should talk to mental health or financial professionals about the best steps to dig yourself free.

According to a Purdue University study in 2016, lowering debt levels can relieve mental distress and boost happiness levels nearly as much as earning a higher income.

10. The Strength to Escape and Stay Out of Debt

Once you have crawled out of the pit of debt, it’s easy to forget how hard you fought to escape.

Temptation can sit like a little demon on your shoulder. Now that you are debt-free, it is a good idea to stick to a budget that works for you and does not leave you feeling like you cannot spend any money. This can lead to a cycle of feelings of deprivation and overspending. 

Whether you are just starting the race or almost at the finish line, achieving freedom from debt can give you the practical tools and emotional perks you need to control your financial future.

Image credit: [GGuy44]

10 Ways To Keep Your Bills from Exceeding Your Income

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Bills and paying them are a natural part of life now. What is worrisome is when your bills start exceeding your income. You can end up in a hole due to financial choices or circumstances outside your control. Or you could lose your job.

There could be an emergency expense. You could experience lifestyle creep, where your expensive tastes start to exceed your income.

Want to stop living paycheck to paycheck?

Here are 10 ways to be more aware of your bills, how to lower them, and how to gain more money.

1. Assess and Break Down Your Finances

When you are trying to keep your bills from exceeding your income, the first thing to do is sit down and take stock of your financial situation.

  • Examine your net worth. Subtract your debt from your assets to get a good idea of where you stand. Then, figure out your cash flow.
  • This means determining how much money you have coming in each month. Then, compare how much you have going out in bills each month.
  • Once you have figured out how much money you have coming in versus how much money you have going out, breaking these big numbers into different categories can help you control your spending.

For instance, determine how much you spend on food, gas, utilities, rent or mortgage payments, credit card debt, clothing, student loans, car notes, personal loans, insurance, personal care, vacations, and entertainment.

2. Write Down a Budget

It is hard to keep track of your financial health if you are going by memory.

One of the best ways to visualize your spending and saving is to have an online app or physical planner where you write down how you will spend your money.

If you want to increase your spending, you can commit to avoiding personal impulse buying by putting a miscellaneous spending category on the budget. For example, you can buy clothing or tools out of this budgeted section without guilt or overspending if your other expenses are covered.

3. Slash Discretionary Spending

It is easy to go out to eat every week or get caught up in an impulsive Amazon spending habit. If you do not need it to live (rent, mortgage, food, or loans), then cut it out. If you have credit card debt, this is a contractual obligation that you need to pay.

Taking control of your financial wellbeing and reining in your bills requires determination. No excuses. This means that you may want to cook at home when you do not feel like it. Cutting out the fat can mean downsizing, cutting out fancy vacations, or canceling extra subscriptions.

Although it is hard to cut discretionary spending, taking this step is enough for most people to get their budget back on track. Even though it can hurt, cutting out unnecessary expenditures can put more money in the bank and help you sleep better at night. 

4. Prioritize Your Bills

Sometimes, trimming the fat from your expenses is enough to keep your head above water.

If you are trying to maximize your savings, you need to organize your debts. This can mean making hard decisions about which bills to pay first.

  • First, look over your secured debts. These are things like your car loan or mortgage. If you fail to pay these bills, you could lose valuable assets like your house or vehicle.
  • Next, make sure you budget enough to pay for your utilities and insurance each month. You do not want to drive uninsured or have your power cut off.

https://www.wisebread.com/6-steps-to-take-when-you-have-more-bills-than-income

  • Finally, review your unsecured credit card debt. While you want to pay these bills on time to avoid credit issues, you might need to put these payments on the back burner if you cannot keep up with your secured bills.

Keep track of your prioritized bills by using a good spreadsheet. When you have money left after paying essential bills, put that money towards paying down credit card debt. You can also carry forward any savings to your next pay period.  

5. Set Aside Money in Separate Accounts

As you create your budget, put aside money for recurrent bills each month. It helps accumulate cash to pay large, annual, or expected bills in a separate account.

In addition, putting this money into a different account will help keep you from siphoning off money that you need for upcoming bills.

6. Centralize Your Bills

Are you always stacking bills on tables or stuffing them in drawers? It is easy to overlook bills and skip due dates this way.  

One good method to ensure that you do not miss any bills is to organize them in a central spot.  

Organizing your bills all in one place can be as simple as buying a basic letter carrier box. Hang it up and pigeonhole your bills in it when they arrive. You can stick each envelope in a numbered slot.

Putting the due date even a day earlier than the bill’s actual due date can help you pay bills on time.

https://www.youtube.com/watch?v=Py3rkSwsbyw

7. Pare Down Essentials

If you are desperate to escape living paycheck to paycheck and restore equilibrium to your monthly balance, there are extra things that you can do to tighten your belt.

Tweaking your lifestyle at home can help you save some extra money each month.

While you do not need to shiver in the cold darkness, you could reduce your cooling or heating costs. Consider turning up the thermostat when you leave for work in the summer.

Then, you can turn it back down when you come home to feel comfortable. In addition, you can cut down on your utility bill by not blasting cold air on high while you’re not home.

The same thing applies to heating costs. So, grab a sweater or an extra blanket and get cozy.

Even if it is not your favorite way to live, for now, things like reducing your power bill by turning off lights, doing laundry on a cold cycle, taking shorter or cooler showers, and switching off ceiling fans if you are away can all help keep your bills from exceeding your income.  

You can also get your family involved in saving money together by watching TV together in the same room instead of having separate TVs in each room.

See if you can live with basic cable or a streaming service option instead of the more expensive digital TV.

8. Pack a Lunch

One of the fastest ways to keep down bills is by cooking at home. Instead of grabbing lunch on the go or ordering takeout, buy meat, vegetables, fruits, and whole grains. Make your own.

Meal planning can save you money every day. However, you can also create healthier options. For example, take your lunch to the park or create a fun dinner date to spice up an everyday lunch.

You can also avoid spending too much on spontaneous dining with friends and family by avoiding going out at mealtimes. 

If you do not know how to meal prep or want some fresh recipe ideas, many cooking tutorials and tasty meal ideas are available online.

9. Get a Good Deal from Your Billing Company

Save even when you’re paying the bills by asking for options. If you have a good record with the company, their representatives are more likely to work with you if you have fallen on hard times.

Communication is everything.

For example, if you need to push off a bill this month, ask to switch your billing date. Some companies may let you set up a payment plan instead of paying in full. You might even be able to cancel extra features that you do not need but might end up paying for if you don’t ask.

10. Pick Up Extra Work

There is only so much fat that you can trim when it comes down to it.

Sometimes, balancing your bills and income means you might need to start a side hustle or pick up an extra job. Even if you do not plan to have a food service, retail, or hospitality career, seasonal, temp, or part-time work can help pay the bills.

Keep in mind that saving money can put you in a better financial situation for the future. However, just because you might have to make radical changes now doesn’t mean this will last forever.

Image credit: [Aajan]

5 Reasons to Choose Debt Consolidation

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Trying to gain control over debt can feel like a losing battle. However, you might want to consider debt consolidation before you throw in the towel and decide to keep managing your debt the way you are already doing it. 

Debt consolidation can relieve you of the overwhelming management of multiple debts that can be difficult to keep track of all of it. You can work with a financial advisor to determine how best to consolidate your debt, whether through transferring debts to one area or securing a more manageable loan to pay off your debts. 

There are many reasons to choose debt consolidation to improve your finances, which will all come together to reduce the insurmountable stress that having debt causes. 

What Exactly Is Debt Consolidation?

There are two main methods of debt consolidation.

  • First, if you are trying to manage credit card debt from multiple credit cards, you could opt for a transfer balance card (this is the first type). This takes all the credit card debt you have and transfers it to one card that you will pay off with interest. As a result, you will typically get an interest rate lower than most traditional credit cards. 
  • Secondly, the debt consolidation process will review the debts you have and determine an amount that can be loaned to you based on your debt, income, and other information. This loan is then distributed to your debtors to pay them off. You will then make payments with interest towards this loan to pay it off in a certain amount of time. 
  • Finally, you can also manage your debt on your own by using a personal loan to pay off your debts (this is the second type). This will make things easier on you as you’ll have fewer debtors to pay, but you do not automatically have the aid of a financial advisor to ensure your debt consolidation is managed well. You must do all the work yourself. 

Consolidates Multiple Interest Rates

For example, if you have credit card debt, you likely have some steep interest rates that you are up against when trying to pay off your card.

In addition, if you have multiple cards, you might not realize how much extra money you are paying to have a balance on your cards. 

Doing a debt consolidation allows you to pay off those cards in full, so you are only working with one interest rate from your debt consolidation loan. In addition, these interest rates tend to be a lot lower than those interest rates on other types of debt. 

Eliminates Making Multiple Payments

If your calendar is full of dates you need to keep track of to make your debt payments on time, you can reduce that need to track your bank account.

When you undergo debt consolidation via a bank loan, this loan will be transferred to your debtors to eliminate your balance with them.

You then arrange to send a monthly payment to your financial institution. Furthermore, you can have this come out of your bank account automatically, so all you have to do is ensure there is money in there. 

You Avoid Late and Missed Payments

Since you will only have to worry about paying one debt source after debt consolidation, you will not run the risk of late and missed payments adding up. This is especially effective if you ensure you always have the money you need in one of your accounts and set up an automatic withdrawal with your financial institution. 

Late and missed payments get reported on your credit score, making borrowing money in the future challenging. 

Improves Your Credit Score

Missed debt payments can harm your credit score. Your credit score is essential to securing yourself a much simpler financial future. When you have some liability, it shows on your credit score. 

If you eliminate those debts and continue to make your monthly payments on your debt consolidation, this will help improve your credit score.

Your score will reflect that you have eliminated debt and managed the loan well by making on-time payments. 

Potentially Helps You Pay Debt Faster

Depending on the severity of your debt situation, having a debt consolidation loan with a lower interest rate could help you potentially pay off your debt faster.

As we know, interest rates can compound the debt we already have to the point where it can be impossible to get ahead. So, not working against all these rates could reduce the overall amount you have to pay. 

One thing to consider is that you can even pay off your debt consolidation early or make more than one payment if you have some extra money. However, check the terms of your agreement first, as some consolidations might stipulate a fee for paying early. 

For debt consolidation to work to your benefit, you need to practice discipline when avoiding future debt where possible. While most of us will always have some level of debt, irresponsible spending can lead to unnecessary debt. If you go and max out your credit cards again, you will not get the benefits that debt consolidation can have for you.

Image credit: [Peshkova]