Have you ever felt like you're caught in a rat race? No matter how hard you try, no matter how hard you try, you'll never be completely free from your financial obligations. As soon as money enters your account, it goes away to pay bills, living expenses, and debts.
Adopting a debt-free lifestyle may be your solution. A debt-free lifestyle often requires sacrifice, but the reward is the ability to stop living paycheck to paycheck.
Below, we outline some of the big benefits you can reap by changing the way you think about money and adopting a new debt-free lifestyle.
Most Canadians are in debt
Hundreds of years ago, the idea of a debt-free lifestyle wasn't radical. That was the standard.
Sure, people may have borrowed small amounts of money from banks or family members to buy necessities, but these were usually short-term loans that were quickly paid back.
Because lending money was much more risky, and it was much easier for the borrower to simply run away and not pay back. Loans were usually offered only to members of established communities or from wealthy families with property that could be used as collateral.
However, thanks to the Internet and today's modern interconnected society, almost anyone can borrow money or apply for a line of credit.
Equifax reports that consumer debt in Canada will exceed $2.4 trillion near the end of 2023.
Consumer debt includes:
- mortgage debt
- student loan debt
- credit card debt
- car loan
- personal loan
- Retail debt (such as buy now, pay later programs)
Statistics Canada recently reported that the average Canadian household carries $1.79 in debt for every dollar of disposable income, indicating an increasing reliance on debt to cover living expenses .
Advantages of living debt-free
Some argue that in today's society it is impossible to live completely debt-free, especially since everything is so expensive.
It would be disingenuous to say that you can accomplish that simply by thoroughly reevaluating your spending habits. But it's possible if you're willing to sit down, look at your spending habits with an honest, non-judgmental eye, and commit to making changes.
The reality is that many people live beyond their budget. Do you really need a $1,000 iPhone? You can use his $100 cheap smartphone from Walmart to make calls and send text messages. Does he have to pay $20 per day on his credit card to buy coffee and breakfast during his commute? You can also make coffee at home and have a quick breakfast before you leave.
The question is, are you willing to sacrifice yourself to not spend more than you earn?
Even if you don't choose to live completely debt-free, learning how to reduce debt and manage your spending habits can benefit you in a variety of ways, including:
1. Reduce stress
I think almost everyone reading this article has felt stressed about money at least once. This stress is usually caused by the feeling of not having enough money to cover expenses and bills. Are you worried about what will happen to your credit score if you miss a credit card payment or default on your car loan?
Living debt-free means you have fewer financial obligations to worry about and less time worrying about how to pay your bills on time.
2. Financial security and savings
Angus Reid's recent research reveals that most renters and homeowners are unable to cope with a sudden $1,000 expense due to a lack of financial cushion or emergency savings. .
Adopting a debt-free lifestyle means you have less money draining away, allowing you to save and invest more, increasing your financial security and giving you a better cushion when unexpected things happen in life. Masu.
3. Greater freedom to do what you love
How many people do you know who hate their job but keep working for the money so they can keep driving nice cars, keep buying expensive things, or go out to restaurants all the time?
Now, how many people come to mind who would be much happier in another job that might pay less, but is much more fulfilling? They just don't want to sacrifice the extra money (and purchasing power).
4. Improve your credit score
One of the easiest ways to improve your credit score is to reduce your debt-to-income ratio. Paying off credit cards, personal loans, car loans, and retail debt will improve both your credit report and score.
The higher your credit score, the less you will have to worry about borrowing money for important purposes in life, like buying a home or applying for a small business loan.
5. Healthier relationships
Many relationships are completely destroyed by stressful money situations. Financial difficulties can disrupt a good relationship, and both parties may struggle to maintain it and may end up blaming each other for the situation.
By taking a more conservative approach to your finances and spending less, you and your loved ones will be better prepared to weather the financial storm when it comes.
6. Gratitude and sustainability
Perhaps the most underrated benefit of living debt-free is that it changes your values.
One of the biggest causes of “bad debt” is our consumer mindset. If something breaks, we don't try to repair it, we just replace it. Because of this, we care less about what we have and are more likely to waste things.
Sustainability and debt-free living often go hand in hand. People who aren't crazy enough to replace everything and go into debt are more likely to buy what they have, whether that means taking better care of their electronics or buying only groceries that can be eaten within their deadlines. You are more likely to appreciate and value what you have.
get out of debt
Transitioning to a debt-free lifestyle usually doesn't happen overnight, unless you win the lottery. For most people, it's a slow transition, starting with prioritizing debt and paying it off as quickly as possible. This is done in conjunction with adopting more responsible spending habits and reducing consumer purchases.
Don't know where to start? Keep reading for some of the best tips to get out of debt faster.
Christopher Liew is a CFA certified and former financial advisor. He writes personal finance tips for thousands of Canadian daily readers on his Wealth Awesome website.
Have a personal finance question, tip or story idea? Email us at dotcom@bellmedia.ca.
