MYTH:

Debt is a tool. When used wisely, it leverages capital to help build prosperity faster

TRUTH:

Getting out of debt and staying out of debt is one of the most important keys to building wealth. The wealthy don’t use debt – that’s how they became wealthy.

Your income is your most powerful wealth-building tool. Most people make 2-4 million dollars during our working life and spend most of it on payments. Debt drains your cash flow by sending all of your paycheck to other people. Debt also increases financial risk; if you get in trouble and suddenly can’t pay your payments, you will have a mess on your hands. Your creditors might even sue you or start taking things like your car and your paycheck if you don’t pay them.

Debt increases mental and relational stress. The number one cause of divorce in the US is money problems, and one of the biggest causes of money problems is too much debt! Because payments sap your income away every month, this also limits your freedom and choices. It’s hard to make a career change or go back to school or quit your job to stay home with your kids if you are burdened with payments.

Debt cripples your ability to save and invest. Imagine how much your retirement accounts or your kid’s college saving could be growing if you were sending all those debt payments there instead! For example, the average car payment in this country is around $475 a month. If you invest that amount every month instead of sending to the bank over your working lifetime, you would have over 5 million dollar at retirement age. That’s the power of compound interest and growth versus paying interest to a bank and making them rich(er).

Debt clouds your ability to make wise purchasing decisions. Because it allows you to buy something quickly when you haven’t saved the money to buy it, you are less likely to do research and find a good price because it’s not really your money that you’re spending. When you don’t pay for things directly, including using a credit card, you don’t emotionally register the financial pain of that purchase and are more likely to overspend.

Being debt free creates a freedom and peace in your life that results in better relationships, more success in your career and other benefits that come from a less stressful financial world.