Is there such a thing as "Debt-Free"?

by Jim Moses, CIRP, LIT
August 2, 2023

In theory, it is possible to be debt-free. Being debt-free means that you do not owe any money to lenders or creditors, so you have no monthly payments or interest charges to pay off. This situation can be achieved by paying off existing debts, avoiding new debt obligations, and living within your means.

However, achieving and maintaining a debt-free status in practice can be challenging. This is because life is unpredictable, and unexpected expenses, such as medical bills or job loss, can quickly accumulate debt.  Additionally, some individuals may choose to take out loans to make significant purchases, such as buying a home or financing a car, which can result in long-term debt.

Moreover, some types of debt, such as student loans or mortgages, can be considered "good debt" because they can lead to investments that can generate returns in the long run. 

While it is possible to be debt-free, it may not be the best financial strategy for everyone. It is essential to weigh the benefits and costs of different types of debts and work towards managing your debts effectively to achieve financial stability and success.

The problem with debt is that it comes with interest payments. Interest payments represent a decrease in your disposable earnings. By budgeting for purchases versus financing purchases, you can avoid the cost of instant gratification.

Taking on debt is to be managed, not necessarily avoided. It requires a combination of strategies and discipline. Here are some ways to minimize your dependence on debt purchasing.

Make a budget: The first step towards becoming debt-free is to make a budget.  A budget will help you understand your income and expenses and identify areas where you can reduce your spending. Creating a budget and sticking to it can help you to live within your financial means.

Prioritize debt repayment: If you have taken on debt, identify which debt has the highest interest rates and prioritize paying those down first.  Every amount you save by reducing interest payments can be spent on other priorities.

Increase your income: Consider ways to increase your income, such as getting a part-time job, selling items you no longer need, or starting a home-based business venture. Any extra income (building savings) can reduce the reliance on finance purchasing.

Cut back on expenses: Look for ways to reduce your discretionary expenditures. Explore the possibility of less expensive niceties, for e.g.  entertainment, travel, clothing, etc.

Consider debt consolidation: If you are playing catch up and have several credit cards and unpaid services (phone, car, house payments), consolidating your debt can usually garner a lower interest rate and shorten the repayment time. Debt consolidation can make it easier to manage your existing debts and free up some funds for other living costs.

Seek professional help: If you are struggling to manage your debts, consider seeking professional help from a credit counsellor, financial advisor or Licensed Insolvency Trustee. 

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