Debt Free Life is a life insurance policy that pays off debts using the policy’s cash value. Instead of borrowing money from a typical lender, you can pay off obligations one by one using proceeds from your life insurance policy. Your loans will be paid off in full in an average of nine years or less.
What does it mean to be debt free?
To begin with, being debt free entails having few to no bad obligations and an average amount of good debts. You don’t have to be debt-free to have a mortgage, bills, or a car payment. It indicates that you have a moderate level of debt and are aware of your borrowing and DTI.
Is it possible to live a debt free life?
Some argue that living with debt payments is a positive thing, and that it is sometimes required. For example, if you require a car to commute to work every day, you may need to take out a car loan. Taking out student loans can assist you in obtaining a higher education. You can also be a borrower who uses debt to improve your credit score or earn other credit card perks provided you manage your money well.
While the decision to take on debt differs from person to person, there are numerous advantages to paying it down. We believe you would be considerably better off focusing on debt repayment and canceling accounts with your creditors. The following are four unexpected advantages of being debt-free.
Saving money
Some loans, such as vehicle loans, have set interest rates. You have a clear idea of how much you must repay each month. You can make additional payments, but the total amount due at the conclusion of the loan is set. You have a set amount of money that you owe.
There are various types of loans that have variable interest rates. Credit cards are a good example of this. Compounding interest on credit cards means that your lender will charge you interest on top of prior interest charges. The money you spend on interest over time might amount to thousands of dollars.
Paying off your debts will save you money in the long term since compound interest will be reduced.
Experiencing less stress
Being debt-free gives you a great deal of peace of mind. There’s no need to be concerned about your credit report or bank account. You also won’t have to worry about debt collectors calling you. The financial freedom that comes with being debt-free can be extremely beneficial to your mental health.
Start saving money
You may start saving money and working toward your financial objectives once you’ve paid off your debt. Perhaps you’d prefer to take a break from work. Perhaps you and your spouse would like to go on a unique 20th wedding anniversary trip. Being debt-free makes it easier to achieve your objectives, whatever they may be.
More importantly, being debt-free allows you to save for a rainy day or an emergency. As a general guideline, these funds should be sufficient to cover at least six months’ worth of living expenditures.
Having one of these funds on hand gives you peace of mind, knowing that even if you lose your job or suffer a medical emergency, you will be able to cover your bills.
Potentially improving your credit score
Your credit score is influenced by a number of criteria, including your credit utilization rate, total open credit accounts, and accessible credit. All of these variables will improve as you begin to pay off your debt. As a result, your credit score improves.
A better credit score entitles you to higher borrowing limits and lower interest rates. Getting out of debt and improving your credit score can help you in the future when you need to use credit, such as when you’re buying a house.
How do I start a debt free life?
You may be in a much better position to qualify for a reduced interest rate if you have maintained a strong relationship for a few years. As you pay off that debt over the course of the year, this can help you save money on interest payments.
Use your tax refund check to pay down debt
While it’s tempting to spend your tax refund on a high-ticket item or a trip, it’s a better financial move to pay off part, or all, of your debt. Consider the benefits of a single lump sum debt payoff method in terms of lowering your monthly payments. Instead of enjoying the short-term delight of a purchase, you’ll reap the benefits of a lower debt load over the course of the year and for years to come.
Sell items for cash
Make a list of items you might be able to sell on eBay, Craigslist, or at a garage sale. You can quickly reduce your debt burden by raising some extra income by selling stuff you no longer need or are willing to part with and utilizing the money to pay off debt.
Consider cashing in your life insurance
Cashing in your life insurance policy could be a good debt-reduction option because it allows you to pay off higher sums of debt more rapidly. If you’re drowning in debt and don’t have any beneficiaries who would benefit from your life insurance policy such as a spouse or children it might be a good idea to use those funds to pay off debt.
If you have a term life insurance coverage, this technique isn’t applicable. It only works if you have a complete life insurance policy with a cash value. It’s also worth noting that, even if you have beneficiaries, you might be able to use some of the cash value of your whole life policy to pay off debt while still leaving some life insurance earnings to your loved ones.
At what age should you be debt free?
Women may have less money to employ to actively attack their debt if they save more in their earlier years.
However, taking a holistic picture of your finances, saving in tiny increments over time, and being cautious about how you leverage credit can help offset this (as opposed to relying on cash assets).
“Consumer debt is the foundation of our entire society,” argues Sanborn Lawrence. While you should avoid high-interest credit card debt, it’s fine to utilize debt on purpose, such as taking out a mortgage, taking out student loans, or financing a car to go to and from work.
Don’t get too caught up in the comparison game when it comes to the best age to be debt-free, advises Sanborn Lawrence. A good objective is to be debt-free by the time you reach retirement age, which can be 65 or earlier if desired. If you want to do something else, like take a sabbatical or start a business, make sure your debt isn’t getting in the way.
If you want to carry debt past retirement age (such as a mortgage), consult a financial adviser to ensure you have adequate income to cover the costs and to understand how this debt will effect your successors.
Is it smart to pay off all debt?
- Over time, you can lower the amount of interest you pay. If you have high-interest credit card debt, this is very beneficial.
- Once your debt is paid off, you may devote your full attention to saving and other financial objectives.
When you put $5,000 on a credit card with 17% interest and just pay the minimum payment every month, you’ll wind up paying much more than the original purchase price + $850 in interest (17 percent ). In reality, assuming a 4% minimum payment, you’ll spend nearly ten years paying off that loan, totaling $2,627 in interest.
Debt is not only a financial hardship, but it can also affect your credit score and your mental health. If you have other financial goals in mind, especially ones that will necessitate strong credit, such as buying a home, it may be advisable to prioritize debt repayment.
Some people choose to start with the accounts with the highest interest rates, while others prefer to start with the accounts with the smallest balances (to eliminate them faster and feel more productive). Make a couple of alternative payback plans to see which one works best for you, and then stick with it. After you’ve paid off your debt, you can put your monthly contributions into a savings account.
Is being debt free the new rich?
Is debt-free living the new rich? Yes, as long as you have sufficient funds and assets, as well as no debts. Living without debt is a terrific way to maintain financial stability, and it is doable for everybody.
There are a few drawbacks to being debt-free, but they are minor. Being debt-free is, for the most part, a huge benefit.
You may do that by working hard to pay off debts and then gradually increasing your income and assets over time.
Keep in mind that becoming debt-free is only half of the solution. To be called affluent, you must have a high net worth, which you can achieve with some time and effort.
How can I stay debt free forever?
6 Tips for Living a Debt-Free Lifestyle
- Create a sizable savings account. It’s difficult to build a large savings account, but it’s the most crucial approach to keep out of debt.
Is it better to be debt free or have savings?
For many Americans, the problem is that their debts are so large in comparison to their monthly income that paying them off will take years. While it may be tempting to put off saving while you pay off your debts, this is rarely a viable alternative. Even families with significant debt want to be able to buy a home, have a kid, pay for education, or care for ailing relatives all of which necessitate significant savings.
The trick is to establish the right balance for you and your family, come up with a strategy, and stick to it. Our advice is to pay down big debt first, then make small payments to your savings account. After you’ve paid off your debt, you may focus on building your savings by contributing the full amount you were paying toward debt each month.
Why does paying off debt feel good?
Debt has a universally bad stigma attached to it, and it has the potential to erode one’s self-esteem.
In fact, the humiliation that comes with debt can lead to people masking their difficulties in harmful ways.
“You can keep your wonderful house and your nice goods,” Dlugozima added. “However, the financial walls are falling behind it.”
Your self-confidence might quickly improve once your debt is paid off. According to Dlugozima, some people tell their debt stories in order to regain their confidence.
“Because you’ve made it through the other side, you become more open about it,” Dlugozima explained. “It’s energizing.”