Loans are popular these days. Many of my friends graduated college with student loans. In high school, I worked with people who took out loans for everyday expenses. Most of my family members have car loans. For some reason or another, people assume that living in debt is the only option to live – or that it is a better way to live.

Loans are common – so much so, that you may be confused and think it’s okay to live with debt.

It couldn’t be anything further from the truth. I’ve been living debt free for 26 years. Well, eight years in adulthood debt free. In the past eight years, I haven’t made a lot of money. I’m decades away from becoming a millionaire, but the one thing going for me is the lack of debt – and it has taught me the true value of living debt free.

Benefits of Living Debt Free

Investing More Money Earlier

When I went to graduate school, I was faced with two options:

  1. Take out student loans and go to school full-time, graduating in two years OR
  2. Work part-time, go to school part-time and graduate debt free (1 year later)

I chose option 2. And here’s a big reason why. Going to school one extra year would ultimately save me $40k in student loans. Even if I were to graduate, get a decent job paying $40k per year after school, I wouldn’t have been able to pay off those loans in the same time as the other option.

This directly influenced my ability to invest as a young adult. Instead of having to worry about paying off my student loans, I was debt free and able to invest any extra money that I earned. As much as I can see, this provides two direct benefits:

  1. Allows you to save more money for retirement since compound interest works in your favor
  2. Lessens the burden to obtain high returns on your investments; To give you an idea of how it works, someone saving $6,000 per year for 35 years would need to get about 8% average return on their investments to have $1 million by retirement, while a person starting only 5 years later would need to get about 10% average return on their investments to get the same money in retirement. That’s a 2% difference (every year)! An experienced investor will tell you how difficult that will be.

Before you go into debt, you may want to ask yourself, “Is it really worth delaying your savings or investments?”

More Flexibility

Another benefit of living debt free is the flexibility that it offers. One of my friends is currently paying $800 per month on his student loans. I’m paying $0. That means I have $800 more than he does to do whatever I want. Simply put, having no debt means that your monthly expenses are lower and that gives you options.

Having lower expenses is more than paying less each month. It’s about what you can do with your money.

It could mean that you could quit your job or follow your dreams because you don’t have as high of expenses each month.

It could mean that you can afford to stay home with your kids while your spouse works.

It could mean that you can take that trip you always wanted to.

Having no debt could mean a lot of things.

What’s more important to you: getting what you want now or waiting a little longer to get what you want and maintaining the flexibility? I am a fan of flexibility. You never know when certain circumstances will come and make you choose a different life track.

Able to Do Fun Things

For those people who have debt and have become serious about getting it down to nothing as soon as possible, they are forced to take serious cutbacks. They may be forced to sacrifice nice vacations or buying a new car until they are debt free. Instead of having to direct all of your extra cash towards debt (because it haunts you), living debt free gives you the option of being able to give in to your heart’s desires.

If you are thinking about taking out a loan, you may want to consider if it will be worth it. There certainly are times when it can be beneficial, but the important thing is to recognize the implications of the decision you are making.