Debt in America: Why We Should Aim to Be Debt-Free

Debt is one of those things that's OK until it isn't. You can skate by for a while on minimum payments or introductory terms -- perhaps even convincing yourself that it's sustainable -- but then that balloon payment pops up, or your income is disrupted, or interest simply gets out of hand.

The Great Recession reacquainted the public consciousness with the dangers of debt and the folly of a hope-for-the-best approach to personal finance. And while credit card debt trends showed that we learned our lesson in the immediate, anemic aftermath, a recent reversal in course and our overall body of work has to make you wonder: Did anything stick? Just consider the current state of affairs:

Why be debt-free?

1. It's cheaper: Debt obviously comes at a significant cost, and the more you rely on it, the more expensive it becomes. The same principles of compound interest that enable early savers to accumulate a great deal of long-term wealth work against you when you're constantly playing from behind. Finance charges incur finance charges, minimum payments rise, and things can quickly become unsustainable.
2. It's less stressful: Americans are becoming increasingly stressed, according to the American Psychological Association, and the effects can be corrosive to our mental, physical, and financial health. The primary causes of this stress: 1) money, 2) work, and 3) the economy. Having to scratch and claw to make monthly debt payments exacerbates this high-stress state of affairs, potentially resulting in physical and mental illnesses that can drive up costs and make it even more difficult to get back in the black.
3. You'll have a better retirement: The sooner you can divert funds away from debt payments and into a retirement account, the better. Time is your biggest ally when it comes to retirement planning. It enables you to benefit as much as possible from compound interest and reduces the need to take unnecessary investment risks as you get closer to the age at which you'd like to exit the workforce. It's human nature to prioritize the tangible now over the distant future, but if you can empathize with your future self and consider the quality of life you'd like to have, you'll be less likely to rob from yourself in the short term.
4. Debt dictates lifestyle: Taking on a significant amount of debt can limit the options available to you in various aspects of life, from the types of jobs you can afford to accept to the way you can spend leisure time to your ability to leave a dysfunctional relationship.

True debt freedom instead entails wielding leverage with responsibility and purpose, rather than out of necessity or rashness. Stay tuned for tomorrow's follow-up article on how you can become debt-free -- and stay that way.