“One way to grapple with debt is to ask yourself ‘who benefits from my debt?'” This is the question Mrs. Groovy suggested people ask themselves as they work toward paying off debt, and I thought that the profound statement deserved an entire post, so here it is.
Do You Know Who Benefits From Your Debt?
Honestly, I never really thought about the answer to that question until Mrs. Groovy posed it in the comments section on the post I wrote about America’s rising debt load. But once I really thought about the answer, I found myself getting pretty sick to my stomach. So let’s go over all of the people/organizations who benefit when people carry debt.
Banks, Lenders and Credit Card Companies
This one is obvious but still needs to be pointed out. When you carry debt consistently, you get charged interest, and banks and lenders make money for sitting on their hind quarters, because the loan or credit card you carry your debt on was likely approved long ago.
This is the polar opposite of what happens when you invest your money in, say, an index fund. Whereas investors sit on their duff and watch their net worth grow, as do bankers and lenders, you and me and the rest of the borrowers work our tails off to pay interest to the people that have borrowed us money instead of earning interest for ourselves.
At one point in our debt journey, we were paying over $1200 a month in interest on our large mortgage and our credit cards. That’s a freakin’ house payment in itself!!
So when you carry debt, the lenders are raking in the cash, and you’re working to pay them for the “privilege” of borrowing you money.
Do yourself a favor: Figure out how much interest you paid for your debts last month and divide it by your hourly wage. Then figure out if the ten, twenty, thirty or forty hours a week you had to work to pay JUST the interest on your debts was worth it. I’m betting you’ll say “HECK no!”
This is the big, fat lie that lenders, the government and those who aren’t educated about money like to tell consumers – that they’re doing the economy a favor by taking out debt. The theory behind this belief is that debt allows people to buy more stuff, which helps the economy.
While this may be true in the short term, the fact of the matter is that one can only be approved for so much credit, and once they’re maxed out the spending has to stop. Sure, their high interest payments help keep banks in business but their lack of ability to spend no longer helps retail outlets.
On the other hand, if all of America lived lives free of debt, they’d have an ongoing supply of money each month with which to boost the economy – and they’d free themselves from paycheck-to-paycheck living, and a lack of ability to spend. That would be a true help to the economy as the number of financially struggling people would diminish largely.
And, bonus: debt free businesses would have the need and the financial capacity to hire more workers.
Now let’s talk about who doesn’t benefit from your debt.
You and Your Family
Again, may seem obvious here, but if you’ve ever struggled with debt and the payments that come with it, you know what I’m talking about. Studies show that over half of divorced couples cite money problems as the main reason for the demise of their marriage.
On top of that, debt limits your ability to care for yourself, to care for your family, to make a career change or move to another location, and it limits your ability to help the needy because you are neck deep in payments to lenders.
Friends, I’m not saying this as a criticism. Been there, done that, for nearly twenty years so who am I to judge.
However, we have become a society where debt is normal and frugality is not normal. We’ve become comfortable with paying interest to lenders instead of gaining interest through investments.
We look at wealthy people as though they were touched by the fairy god of wealth and are awed by their “luck”, when the fact of the matter is that over eighty percent of them started from nothing, according to Thomas Stanley of The Millionaire Next Door fame.
Recommended Reading: The Millionaire Next Door: The Surprising Secrets of America’s Wealthy
If you’ve ever read his book, you may be surprised to learn that most millionaires got that way by making a budget, saving and investing consistently and avoiding the purchase of new and shiny stuff. .
“But Laurie, it’s selfish to think only about yourself.” Okay, let’s bust through the deception here. The truth of the matter is that when you are out of debt and financially stable, you’re not just helping yourself – you’re helping the economy and the world as well. Why?
Number one, you are no longer at risk to being a burden on the government welfare system. Number two, you have the financial capability to help the truly needy. ‘Nough said.
Your Own Path to Debt Free
I know this isn’t the “fun” answer. I know that all who are being smothered by debt just want it to go away. They just want the fairy god of wealth, or the lotto, or the slot machine to sprinkle them with luck and then the money problems are all over. But the fact is that it just doesn’t happen that way. Well, there is a one in 292 million chance that it can happen that way, but I’m not willing to wait for those odds, and I hope you aren’t either.
As we’ve worked our own path to debt freedom, I’ll be the first to tell you that it hasn’t always been easy. There’ve been ups, and there’ve been downs. There’ve been UPS, and DOWNS. At one point we had such a big down that our debt load more than doubled from its original number during an 18-month YUGE down.
When that happened, we thought about just filing bankruptcy and getting it over with, but we wanted to work the system and see if it would work, even with a ridiculously high debt-to-income ratio of 65%.
And guess what: the system works. In our case, our “system” consisted of three things: we prayed for wisdom on how to manage our money, we started Dave Ramsey’s Debt Snowball and we chose to simultaneously save a small percentage of our income every month and vow not to touch it. By “small percentage” I’m talking one or two percent at the beginning. It may not seem like much, but when you vow not to touch it, one or two percent adds up.
Recommended Reading: The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness
Those first months were TOUGH months. We were short $1200 a month without OT and my side hustle money as it was, but we worked our tails off and budgeted and spend-tracked like fiends.
Soon, the numbers got smaller and then it wasn’t as tough. Each month that passed made things easier (although some months brought financial unexpecteds that set us back) and easier.
Now our debt is beyond manageable and we expect to be debt free very soon. AND we’ve got money in the bank.
For people who spent nearly twenty married years living paycheck-to-paycheck, I cannot begin to explain what a comfort it is to have money in savings. If you are like we were, you’ll get it.
Recommended Reading: Love Your Life, Not Theirs: 7 Money Habits for Living the Life You Want
The stress goes away when you’re working your plan and have money in the bank to cover emergencies. We don’t think about money all the time like we used to, because we don’t have to think about money all the time. It’s just there…..
Friends, do NOT fall for the lie that your debt is beneficial to you. It’s not. It is robbing you of dreams, of peace, of freedom and of happiness. Make and start your plan for debt freedom and a plush savings account today. You deserve it, and I promise you will benefit from it.
What’s keeping you from making a plan to get out of debt?