Three years ago, my wife and I made the final payment on a $17,500 student loan bill. It took us one year using post-grad, middle class incomes, and we dedicated 40% of that combined income to debt repayment.
Beyond the initial excitement, debt freedom has had a tremendous impact on the trajectory of our life. Here’s what we’ve learned over these past three years.
Debt repayment provides valuable lessons
I’m thankful for my student loans.
When my wife and I were paying off our debt, we were forced to build good money habits. Overspending wasn’t much of an option if we hoped to climb out of the red. It was too stressful to ignore, and debt was holding us back from achieving our goals like world travel and buying a home with a respectable down payment.
Not only were we forced into good habits, there was an added benefit of discovering that, in our marriage, we didn’t need much stuff to make us happy. We were happiest when spending time together with a quiet night in or when we took a trip out for some cheap tacos and a matinee movie.
Happiness, for us, wasn’t expensive.
As a result, the months following our final debt payment were spent hitting the ground running. After a post-debt spending spree to celebrate, we got to work. We reallocated funds previously spent on debt repayment to investing in our future. We put money into index funds, increased our emergency fund, and started researching affordable and worthwhile options for world travel.
Lastly, with good habits in place, we found we were much less likely to slide back into debt. After three years of building our investments and cash reserves, debt is now a strategic choice for investment opportunities rather than a necessity for a comfortable life.
No more living paycheck to paycheck.
Net worth becomes a useful metric
Net worth is now our most-tracked metric of financial health. While we were in debt, we dreaded seeing the big red bars indicating our below zero financial standing. It was discouraging, so we avoided it.
But after climbing our way out of debt, we were able to analyze our net worth, watch for trends, and celebrate our monthly increases from investments and cash saving wins.
At every point in one’s financial life, net worth is either rising or falling. It’s important to remember that paying off debt is a rising action for net worth, so don’t be afraid to make monthly net worth checks part of a financial strategy early on.
Debt is a tool (that you’re probably not skilled enough to use)
You can only take advantage of debt as a tool once you’ve learned to live without it. If you’re falling victim to credit card debt or buying houses and cars you can’t afford, you’re the tool being used to generate a steady revenue for banks.
By comparison, someone who’s learned to manage debt effectively and not rely on it for basic needs can leverage it to start a business or invest in rental properties.
Credit cards can be incredibly useful if handled properly
When you’re not using credit cards as a means of buying what you can’t afford, they become an invaluable tool for securing inexpensive travel and other handy financial perks.
By aligning our credit card purchases to our budget and paying off our credit card in full each month, we’re able to take advantage of those credit card perks without paying credit card companies a penny in interest.
Money doesn’t have to be stressful
Debt freedom has many benefits, but one of the most important advantages is the alleviation of stress. In fact, contrary to the common marital stereotype, my wife and I don’t fight about money much these days.
Without debt, money troubles can go away entirely, if you so desire. Money becomes a tool to be controlled; it can be given away, used to travel the world, or a means to quit jobs and pursue passions.
Debt can control your life if you let it. It can determine where you live, what job you take, and how you think about finances. But if you find a way to remove it’s negative impact on your life, you’ll gain full control over your money, and by extension, the trajectory of your life.