Updated on 09.16.14

Debt Freedom: A Personal Finance Startegy

Trent Hamm

cutting loose by SqueakyMarmot on Flickr!I hear from a lot of readers who avidly follow Dave Ramsey. Many of them have taken his Financial Peace course, some got on board with his Total Money Makeover, and others avidly follow his radio show. Virtually all of them are strongly committed to complete debt freedom as a goal and they’re throwing everything but the kitchen sink at that goal.

And I think that’s awesome. Here’s why.

First, it’s a goal-oriented personal finance strategy. People following Dave’s plan have a very clear goal in mind – debt freedom. That’s the big goal they’re moving towards and it’s always in sight. Not only that, it automatically comes with short-term goals embedded inside in the form of the debt snowball – each month, you’re making it your goal to come up with a nice big extra debt payment.

Second, it’s very psychologically powerful. The entire plan has you paying off debts in a pretty regular order, and each one of those debts provides a great positive psychological boost. “The car? It’s paid off.” “My student loan? It’s gone.” It feels good to be able to say these things.

Third, complete freedom from debt is a very healthy personal finance state to be in. Debt freedom gives you the maximum possible freedom to do whatever you want with your income. You’re no longer beholden to mortgages or loans – your choices with your income (once you’ve paid basic bills and bought food) are entirely up to you. You have the freedom to make radical career changes, start investing rapidly for a big dream you’ve always had, or take advantage anything else that might come along.

But there’s a problem with this flowery picture. Whenever you start talking about absolute debt freedom, though, you introduce some more difficult questions along the way. When does this goal take priority over saving for retirement? When does it take priority over investing for other goals? Sometimes, debt freedom isn’t the most financially lucrative choice.

Right now, my wife and I are trying to make some difficult choices about where our financial path should lead. After our recent success in eliminating debt, we have just a single student loan and our mortgage to contend with, with the student loan locked in at a higher rate (but with a much smaller balance). Our shared goal is to eliminate that student loan, but after that, we’re not sure.

Our goal is not debt freedom, though there is appeal to it. Our goal is to eventually buy a piece of land in a very rural area, build a nice house on it, and basically have a very small-scale farm. We want a very large garden and have discussed raising chickens and possibly a few other animals on that land.

Our home mortgage is locked in at just below 6%. Following the strict debt freedom path, we should pay off our home mortgage as quickly as possible, then start saving for the “farm.” This effectively means that we’d be earning a guaranteed 5.875% return on our investment in our mortgage.

Alternately, as soon as we’re debt free besides our mortgage, we could begin investing. Investing gives us the possibility of a return much higher than 5.875% on our money, but there are no guarantees and we’d also have to pay taxes on the gains, meaning we’d have to earn 7.5% (at least) on our investments to match the value of putting the money into our home mortgage (which is essentially a tax-free “investment”). It also gives us the flexibility to do other things along the way.

So, which is it? Both paths have powerful arguments, but for us it mostly comes down to risk: are we willing to tolerate some risk along the way on our path towards this dream home of ours? This is something we’re still piecing through.

The real point here is that while debt freedom is an admirable and powerful goal, make sure that it doesn’t actually work against other goals you might have. When you start to see some real success in eliminating your debts, spend some time asking yourself what you really want. You may simply want the psychic feeling of debt freedom, in which case continuing to rail against your debt is clearly the best idea. On the other hand, you may want other things, such as a new house, an new career, or a well-cushioned retirement, in which case investing once you’ve got the debt under control may be the best idea for you.

No matter what, though, debt repayment is never a mistake. It will always improve your financial situation and it will always reduce your personal risk. The real underlying principle here is spending less than you earn – the one thing that you can do to ensure long-term financial success – and debt repayment basically forces you into that philosophy.

If you’re deeply involved in a debt repayment plan, spend some time figuring out your big goals besides being free of debt. It may turn out that at a certain point it’s more sensible for you to do something different with your money, but always remember that the fact that you’ve reached this point and are making this decision is a great success. You’re already moving away from the traps of debt and overspending.

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  1. writer dad says:

    I love the your endgame isn’t to be debt free, but rather self sufficient. Good on you.

  2. Karen says:

    Great article! I have also struggled with the notion of paying off my mortgage especially since my current home isn’t the place I want to live forever. To obtain my goal, I put the extra money towards the down payment. And now were moving into new home and I’m at the age where I am willing to take some risk for a significant reward. If I don’t take it in my 30’s when will I take it??

  3. Sean says:

    “debt freedom is an admirable and powerful goal, make sure that it doesn’t actually work against other goals you might have”

    If debt freedom works against other long term goals, then your priority level for the other goals are unrealistic for your income situation.

    Debt happens when you want more than you can afford, but you go get it anyway. Therefore saying you are okay carrying debt, as long as you get what you want in life, is, basically, selfish, short sighted, and petty. I think it can be argued that accepting some level of debt is the same thing as accepting that some part of your personality is impatient and childish because it wants what it wants “right now” and that’s okay.

    Popular culture more or less tries to sell people on the idea that it’s okay to have some flaws, so why bother trying to fix them? Therefore people grow increasingly comfortable with some level of debt (and other bad behavior) because they don’t feel any pressure to try to improve themselves in all areas – just maybe a select few “popular” aspects.

    For me, the battle between what I want and what I can reasonably have is one I fight every day with myself – and I think it has made me a better person. The only debt my wife and I have left is our mortgage, and we pay extra every month. We also have designed the budget so we can max our IRAs each year. Entertainment, fun, big goals, etc. come after those things are taken care of in the budget. The simple reason is – you can’t go wrong with retirement savings and paying down your house debt. If the other goals don’t happen, we’ll still have a solid retirement and a paid for house. Everything else is gravy and should be treated as such, IMO.

    What’s the point of trying to raise your own food and be as self-sufficient as possible on a small farm if the bank can come and take it all away from you in a heartbeat? Then what do you have? Debt – especially debt on your residence – leaves you with your very survival hanging by *their* thread. You can never be self-sufficient as long as there is debt.

  4. At first I wasn’t sure, but I think you have a pretty good plan. If you save for the land and building the home you really want then you could even rent out your current home and let someone else finish paying off your mortgage.

    Our plan is to get rid of our debt now. We already have some money going into state retirement and we plan to supplement that once the debt is paid off. I don’t feel so bad about taking a break from it since we are still contributing in a way. After we are able to fully fund retirement accounts each year, I think our next step is to get into a bigger house. Being a family of 5 now, we are running out of room. I also grew up in the country and I hate being able to see at least 5 houses in every direction I look.

    Don’t raise chickens though… poor birdies!!

  5. George says:

    Honestly, your plan is actually pretty close to what Dave Ramsey preaches. The Ramsey “baby steps” are, in order:

    1) $1000 EF
    2) Pay off all non-mortgage debt
    3) 3-6 month EF
    4) Retirement savings
    5) College fund
    6) Pay off home early
    7) Build wealth and give

    Ramsey definitely advocates total debt freedom, but it doesn’t make sense to accelerate mortgage payments before you’ve put aside money for retirement and (if applicable) education savings for your children.

    We’re not following Ramsey’s plan exactly either – rather than working on everything step-by-step, we’re working on a number of steps at the same time. Right now, we’re adding to our emergency fund (it’s at $4500 right now, our goal is $20k within 18mos), saving the maximum allowed in our retirement accounts, putting $200/mo into each of our children’s college funds, and paying $250/mo extra to our mortgage.

    Everything, though, follows from the most basic of personal finance rules: you MUST spend less than you earn. We thankfully have a decent household income, but we’re making progress on our goals by NOT spending at nearly the same rate as other people in the same position.

  6. George says:

    Oh, one other thing: my wife and I are 30 right now, and one of our long-term goals is to burn the mortgage by our 40th birthdays.

  7. Susy says:

    Mr Chiots and I are in the same place. We currently trying to pay off our mortgage within the next 4 years (10 years after we purchase our home). We plan on living here for a long time, perhaps forever. We save a decent amount for retirement and plan on kicking that up once the mortgage is gone. We decided paying off the mortgage was good for us in a peace of mind sense. We own our own business (2ndMileProductions.com) and even though business is going really well right now, it might not in the future. So we would like to not have the mortgage payment hanging over our heads.

  8. bleh bleh says:

    I became debt free at age 34. I am 36 now. It has been the best two financial years of my life.

  9. Anthony says:

    Don’t forget to include the home mortgage interest tax deduction in your calculations. For the 28% tax bracket, your mortgage interest rate would be closer to 4.23% (e.g. [0.05875 * (1 – 0.28)]).

  10. Fellowes says:

    You raise a point here that I have though a lot about over the past few months. Focusing all your energy on getting rid of debt, whether it be the ‘bad debt’ of credit cards or the ‘good debt’ or a mortgage or student loan, can completely burn a person out psychologically. That is what happened to me during the early part of the summer.

    Nearly all my debt is at 0% so in theory any extra money I put toward the debt is retirement money I am throwing away. I absolutely agree with that on paper but in order to think clearly about the future and feel good about it I still need to put more of a substantial hit on my debt. I will soon have a second income that will ALL go toward my debt so I am confident that in 12-18 months I can resume my retirement savings, investing and even enjoy things like a vacation, alebit while paying down my debt.

    Like most things in life, it is all about tradeoffs and one should never underestimate the pyschological benefit and sense of freedom associated with being debt free. Great post though and very though provoking for me personally.

  11. Anni says:

    Self-sufficiency has long been my goal, but my situation is slightly different in that I currently have no mortgage. At the present time I am evaluating the possibility of turning my home into a two family dwelling in the next couple years, which would allow for the refining of future goals based on the income flow from an apartment.

  12. southcampus says:

    I too cannot wait till the mortgage is paid off hopefully in the next 5 years or less and until then I plan on maximizing the Roth IRA and then tackling the student loans. I just like the feeling of having my home all paid off. I too struggled with the retirement vs mortgage payoff but am deciding to pay the mortgage off first.

  13. With income tax rates going up soon (Dems in action) and “means testing” likely to be introduced to save Social Security, there are future tax benefits to be achieved from paying off the mortgage.

  14. MVP says:

    @Jen, Comment #3, what’s wrong with raising chickens? They’re lots of fun, little work, and lay nutritious and great-tasting eggs! Plus, they’re great for the kids. Also Trent, we have just 2 hens in our 1/4-acre yard in a small-town neighborhood. Many cities, including Seattle, Portland and other larger metro areas, allow up to 3 or so hens (roosters often make too much noise). You don’t necessarily have to wait till you have a farm.

    But I vote you start looking toward your dream of the small farm, if that’s where you really want to be. Just follow Dave’s principles of getting a 15-year mortgage of no more than 25% of your take-home pay. If you can’t afford that right now, keep working toward that goal. That’s living within your means.

  15. Bill says:

    As I said on the other thread, retirement savings are immune from private creditors.

    Disability is unfortunately a fact of life, even for those of you in your 20s reading this.

    I’d much rather have a retirement fund that I had fully funded over several years and hundreds of thousands of dollars in debt than little to no retirement savings with no debt.

  16. KC says:

    In many ways I’ve followed Ramsey’s plan although I was never in a great deal of debt. But more importantly I’ve been very careful about how I spend my money and we live well beneath our means. To me this has been as important as being debt free except for the mortgage. But as for paying off the mortgage I’m not convinced that’s what we want to do right now. We actually have the money to pay it off, but I’d have nothing else in the bank – obviously I shouldn’t do that.

    I think the best plan for us is to continue to pay a little extra each month and have it paid off early. But I do derive a certain satisfaction from haing a lot of money in the bank (and non-retirement investments). I like knowing I can go buy a car (or two) on any given day if I have to. That gives me a lot more sense of security than paying off that one final (low interest) debt that is my home.

    Being totally debt free can be a bit overated. Sure you are almost completely disaster proof. But at 35 I don’t feel the burning desire to have my home paid for. I don’t think I’d derive that much satisafaction from being the outright owner.

  17. clint says:

    There is no beating being out of debt. You would have to look long and hard to find a “Safe” 7% plus retirement or any other savings plan.

    Debt is not just bad it is Evil. All debt!!! Get out and stay out. If you are out of debt you can do anything we need to. If you are in you are chained to it forever.

    Clint Lawton


  18. Karen says:

    Clint-All debt is evil? I have to disagree. Nine years ago I took out a mortgage to buy my first home. It is now worth 80% more than what I paid for it. If I didn’t take out the mortgage I would be still living in an one bedroom apartment saving my money to buy a home outright?!? Debt is simply a tool. Used wisely a lot of good can come from it and used poorly well and bad things happen. But evil-no way!

  19. Joe Chin says:

    Anthony’s point about the tax-deductible nature of your mortgage debt is very important. There are many reasons not to pay of your mortgage if you have a low fixed interest rate: 1) Not paying it off gives you cash on hand. 2) Once you pay it off, you can’t get the money back if you need it, unless you take out another loan, which will most likely be at a higher and possibly adjustable rate. 3) Over the long run, most index funds (even in taxable accounts) will give a better return than the ~4% (tax-adjusted) rate you get from paying off your mortgage. So, your priorities should really be: 1) Pay off non-deductible debts and invest in retirement accounts SIMULTANEOUSLY. Time value of retirement investments is that important. 2) Invest in your state’s 529 plan for your kids’ college, if you think they’re going. 3)Invest in your company’s ESPP if it offers a good discount. 4) Do some long-term taxable investing so that you can retire early some day. 5) Forget about paying off your mortgage unless it’s a fairly high tax rate and/or adjustable.

  20. Joe Chin says:

    Oops, just noticed somebody else said about the same thing (Dave Ramsey’s advice). Interesting that I’ve never heard of Ramsey, but I think the wisdom of the WWW is pretty much in line with what I said.

  21. Ken Deboy says:

    I agree partially with Bill – I’d rather have a substantial retirement savings with some debt than be debt free with no retirement savings.
    Here is something else to consider since you’re planning on moving in a couple of years. If you put all you’re money against your mortgage, you won’t have anything saved for a down payment on your new place. This will force you to sell your current home before you move. The problems with that plan are 1. What if a good deal on a place you really like comes along, and 2. Where will you live, store your stuff, etc while in between homes?
    I think being debt free is a good idea generally, but the idea is that it increases your financial options and well being. Taking it to an extreme that limits your financial options is, IMO, taking it a little too far.


  22. Dani says:

    I agree completely that figuring out your goals and how they mesh with debt reduction is key. Real-time case in point: a few days ago, I asked to make the switch from full-time to part-time at my job, effectively reducing our income by 1/3. We still have debt to pay off (student loans, mortgage, and car), but the decrease in debt-reduction was well-worth it to us, because this switch will allow me to focus on activities firmly in line with our values and goals. I would have quit altogether – but I’m lucky enough to love my day job!

  23. Griffin says:

    “You’d have to try hard to find a “safe” 7% return”

    Actually most people overlook a common 100%+ return: matching retirement funding (IRA and 401k). People don’t bother to fund their retirement at least to the maximum match amount, but will still focus on debt that doesn’t accumulate interest charges or fees (like medical and some others).

    I would recommend paying paying off your interest-producing cards and small loans before investing for retirement (if you get a match). Once you do that (at least a bit), move on to other things.

    All “debt management” writers advocate paying off your debt — no surprise there. But SOME Dave Ramsey fans seem to think that he invented debt repayment or was the first advocate of living debt-free, which is not so.

    Oddly, I don’t think credit cards (or other debt) are evil. Cards don’t force you to waste money, people do that on their own. This whole “cards are EVIL!” Idea is insane, and I really don’t understand it.

    I have ONE card with a $300 limit on it. I use it to pay for books at the beginning of the semester and for various items throughout the year — but I pay it off! I also know that if something happens at the wrong time, like I lose my job or my business stops producing — I know that I can handle the interest plus charges on a $300 card. By knowing that $300 is a good limit for me, I don’t use five or six cards and juggle the bills. I stick to one and pay no interest on the balance (paid in full).

    Meanwhile, I do have other bills that are Not credit cards that I am slowly paying off. But they take secondary priority to the card (which will slap me with interest + Fees if I miss a payment). It’s all about finding the priorities that work for you!

  24. Louise says:

    For me the goal was financial freedom, something I achieved at 40. I’ve never had a lot of personal debts, my credit card balance is never more than $1000, and the interest I pay is tax deductible because I use it for business expenses. I’ve never had a car loan, always bought older style mechanically sound bombs for cash and my HECS (university) debt was very small.

    Even though I now make my income from investment properties, I’m still in debt, but that’s deliberate. I chose to put my money into investment properties. Some are fully paid off but many still have mortgages. Because I was able to get a good interest rate, and because of tax implications it’s worth my while to keep the mortgages going rather than pay them off as soon as possible.

    Occasionally (and I do stress occasionally) complete debt freedom can give people tunnel vision. They don’t see the opportunities for investment and they don’t always see the opportunities for leaving a job they hate. I have friends who are so determined to pay off debts that they are staying in jobs they hate in order to do it. Their reasoning is that once their personal debts and mortgage are paid off, then they can get on with their lives. However this will take until they are 45-50 by which time they will have developed no other skills and have missed many opportunities along the way.

    Take time to evaluate all areas of your life (something Trent and his wife obviously have done) and not get fixated on only debt repayment to the detriment of everything else.

  25. almost there says:

    Complete debt freedom vs cost of using debt and inflation. I have two cash advances with over $30K on 2 credit cards. I would rather pay the minimum of 2.99% interest till balances are paid off rather than applying income to the debt. With inflation and savings rates being higher it makes sense. Also it is unsecured debt, so the lender can never take anything away from us as opposed to a house loan or car loan. Example: If my spouse or me were to die one or the other of the debts would go unpaid and the CC company would be told to get stuffed. BTW, I retire at age 50 shortly with those as my major debt and will not have to work again if I live modestly.

  26. TheFrugalPlace says:

    I also second the recommendation to raise chickens. We have about 20 at the moment here on our rural little “farm.” They lay excellent eggs. And, they just hatched 3 chicks this week as well so we are on our way to having new chickens to add to the flock.

  27. Quatrefoil says:

    I’m not sure that aiming to be debt free if you don’t yet own your home is a great idea. At the moment, I’m paying high rent. I could continue to pay high rent and save up enough money to buy a home outright in about 20 years, or I could choose to take on a huge debt in the form of a mortgage. I’m not sure which is better financially, but there’s a lot of security in owning a home.

  28. <>
    That is what everyone has in his mind, but the problem is that sometimes it is too late due to lack of planning. Hence, you should have a proper plan that helps you to be debt free and you can start investing at its earliest.

  29. almost there says:

    correction: ..pay the minimum 2% on cards that have a maximum 2.99% interest until balances are paid off.

  30. reulte says:

    Sean (#3) and Clint (#17) . . . I think you’re both going a little overboard with the ‘all debt is evil’ and “your priority levels for your other goals is unrealistic …”.

    You’re both forgetting that there are some goals which are so time-constraining, that debt may be the only option and I find Sean’s comment of “If the other goals don’t happen . . . Everything else is gravy . . .” somewhat childish. Staying out of debt is not even in the top seven of my lifetime goals. (Of course, neither is going into debt).

    No — ‘other things’ are not all gravy. My father died a few years ago — I took several months off work so he could spend that time with me and his only grandchild. THAT was worth going into debt. And it certainly could not have been put off until I was debt-free. I spend a lot of time with my son (I’m a single mom) when I could be earning overtime. Giving up those experiences is not worth paying off my evil debts any earlier.

    Debt is, as mentioned before, a tool. Some people shouldn’t go into debt, but that is not because debt has any inherent qualities which make it evil; it only makes it a very dangerous tool.

  31. There is quite a bit of risk involved in finances that most people don’t ever talk about. If you buy a house, there is the risk that the value may drop and you end up owing more than what the house is worth. If you own a house in certain sections of Detroit this has already happened and it doesn’t look like the market will return any time in the foreseeable future.

    On the other hand, if you rent a place and put all your money into savings, there is a risk that inflation will drive the value of your savings down.

    Diversification is the key–which is hard to understand for people who like to pick on thing (being debt free, having a lot of money set aside for retirement, etc.) and just stick with that.

  32. getagrip says:

    I think complete debt freedom is a reasonable goal and should be pursued, but shouldn’t be the only consideration in forming your goals. The problem often isn’t debt in itself, it’s that people are in debt because they have reached for material things with no meaning other than to have stuff to horde. New car, big house, new furniture, new toys or clothes, all purchased with little thought about how long it would take to pay back or if there’s a real value to their lives.

    However, there are experiences and opportunities in life that you may not or simply can’t get more than one crack at sometimes.

    What if you’re child has a natural athletic or scholastic ability for something they really love? Is extending your years of debt for coaching, traveling teams, accelerated programs, etc. good for supporting that?

    What if an ailing parent needs support? Is adding an addition to your home or shifting to work part time and going into debt good for that?

    What if you have a relative or friend cross country or in another country and you know this may be your last chance to see them? Is it worth it then?

    There are plenty of ways of achieving goals similar to the above without paupering yourself and it would be great if you had an emergency or vacation or other fund category that could cover all of your goals. But sometimes, if you’re only focus is eliminating debt at all costs, these other dreams and goals will never see the light of day, because the window of opportunity has passed by the time you’ve saved enough to pay for them.

  33. Kevin says:

    I think complete debt freedom is a nice financial goal to have and our family shares that goal. We are debt free except our mortgage right now (I’m 33, wife is 27). We could stay in our current home for another 4-5 years and probably pay it off, but that would probably drive us both crazy…growing family combined with a 800 sq ft/2 br house and a small kitchen.

    So we are going purchase a larger home next spring/summer that will hopefully be the home we stay in for a long time. I have a “flexible goal” to pay off that house by the time I’m 45, or about 11 years into the mortgage. But we won’t sacrifice retirement savings or other interim goals to get there. It truly is a balance and a constant struggle to find it.

    Trent – your farm idea sounds fantastic by the way. My wife and I have talked about that lifestyle also, but I think both of us are more “city” people and would miss being able to walk to our favorite coffee shop or restaurant.

  34. Dave says:

    Almost there–

    I would double check your statements

    “Also it is unsecured debt, so the lender can never take anything away from us as opposed to a house loan or car loan. Example: If my spouse or me were to die one or the other of the debts would go unpaid and the CC company would be told to get stuffed.”

    If you don’t pay your CC bill, they will sue you and will get a judgement against you that you WILL have to pay which could result in either wage garnishment or you selling an asset (such as your car or home). Of course, you may be able to declare bankruptcy to avoid that but I don’t think you are advocating that route.

    Also, if you or your spouse dies, the respective estate would be liable to repay the CC balance. Perhaps you have low enough assets that there would nothing left there but just because the person dies does not mean the debts are automatically erased.

    its an unsecured debt because the lender does not have a lien on a specific asset to protect their interest. It doesn’t mean they have no recourse to get repaid which some folks may gather from your post.

    Personally, I think you are playing with fire. Too many things outside of your control could happen — what if your CC company decides to unilaterally raise your interest rate to 18% or higher (BofA has done this)? Unlike a home loan, I suspect if you read the fine print on those agreements, there are ways for the bnak to change the rate or terms on you (universal default clauses,etc).

  35. M says:

    I think debt freedom should be everyones goal. We have a mortgage on a very nice home, we put down quite a bit from the sale of our last home which was almost paid off by really buckling down. Mortgage debt IMHO is not good debt, when I’m paying $800 a month in interest and $200 on house, I will never get that money back in tax deductions. I am 45 and want my house paid off before I retire, if it’s paid off in 8 years (my goal) I will save almost $60,000 in interest. We continue to put money in our retirment funds, but look forward to retiring early (hopefully) and do something we enjoy, which yes means getting different jobs at a much lower salary. If I pay the minimum or just add to it we will be paying on it for more then 8 years, and they bank will make a killing.

  36. John Mark Ockerbloom says:

    “What’s the point of trying to raise your own food and be as self-sufficient as possible on a small farm if the bank can come and take it all away from you in a heartbeat?”

    But they can’t. The bank is as much bound by the mortgage contract as I am, which means that as long as I keep up the promised payments, insurance, and property integrity, they can’t take the property or ask for their money back. Even if they’d really like to (for instance, if interest rates go a lot higher than they were when I locked in a fixed rate).

    Sure, there are imaginable scenarios where I could no longer keep up the payments. But if I have a decent savings cushion (which I can build up if I don’t think I have to put every spare dollar into extra debt payments), I can keep up payments for millions of heartbeats to come even if I lose all other income, which gives me breathing room to find a solution to a financial crisis. I do carry a risk, but it’s not as bad as the quote above makes it out to be.

    Moreover, it’s not as if my alternatives are risk-free either. Evictions, property tax increases, natural disasters, eminent domain, economic collapse, neighborhood or environmental deterioration, or even my own health problems could cause me to lose my home, whether I rent it, own it with a mortgage, or own it lien-free.

    It can make a lot of sense to avoid or minimize debt in many situations. But believing that it’s *always* a mistake to contract debt is letting your fears, rather than your reason, make your decisions for you.

  37. plonkee says:

    I’m thinking that if your only goal is debt freedom then you haven’t thought this through properly at all. Debt freedom is at best a marker on the way towards your real goals, which might be living in the country with chickens, or travelling round the world, or whatever.

    Work out what your real goals are, and then how best to get there. That may well involve being debt free soon, and will almost certainly require being debt free eventually, but life isn’t only about the money.

  38. Finn says:

    Put bluntly, the zero-debt mentality is for those that need the rules because they aren’t able to handle debt. I don’t mean this as a bad thing, either – if you have run up consumer debt, etc. then it is far better for you individually to simply not use debt. Know yourself.

    However, I do take exception to those that are in that position attempting to push it on other people. Not using debt is sub-optimal. There are plenty of times and opportunities where debt is superior. A recent example for me was when I went car shopping. I had the cash to buy the car in my account – but in the end, the best option for me was to take a car with 0% financing. And so, that’s what I did. The cash now sits in my investment account.

    This is the difference in attitudes – I didn’t have debt because (as per #3) I couldn’t afford it, but because it was optimal. Those that are unable to save the money in the first place shouldn’t take on the debt, yes; those that can, should be willing to.

    It is similar with buying a home. If you value having your own home, you’d have to wait a very long time to save the money, simply due to the rent-mortgage gap being low. As mentioned before, there is a limited amount of time. More to the point, over a good 30 years, you’ll end up ahead (so far, all the time) by borrowing.

    Likewise, in the States (and with some trickery in Canada), you are better having a mortgage and an investment portfolio than no mortgage. This assumes you have income already, mind you, although if you have an investment portfolio the same size as your mortgage (or larger), I believe you can deduct income that way… (?)

  39. Patrick says:

    I would lean towards paying off the house and all bills in its entirety becoming debt free.

    You would not barrow from your house at 6% to invest would you?

    By keeping the mortgage and investing, you are effectively doing the same thing. Plus tons of security come along with a paid off house.

  40. Monica says:

    We’ve just made our last payment on the last credit card. We’re debt free. Now what? There is so much stuff that we’ve done without and I would like to start having it. I would just like some new furniture! We may have to wait a bit before socking away money for retirement.

  41. Jon says:

    I think there’s a lot of misconceptions in the article about Dave’s plan.

    He advocates you to pay all debt EXCEPT the house, fully stock your emergency fund, then fully fund (15%+) any retirement plan, take care of your childen’s college, THEN pay off the house.

    In fact, a fixed rate mortgage is the ONLY type of debt Dave allows in his plan.

    And when you think about it, debt for anything else is not fiscally responsible considering how much money you should be able to SAVE by not being in debt in the first place.

  42. GrantParish says:

    My husband and I have never been in debt because we followed the “if we don’t have the cash, we don’t buy it plan.” Our exception to this was our mortgage – while we had the cash to pay off the mortgage, we thought we were doing better to have the debt and invest the difference.

    Then I heard Dave Ramsey talk about how after adjusting your rates for risk, it is unlikely that you can come out ahead with this kind of rate play. So four years ago when we bought a new house, we paid cash and became totally debt free.

  43. Aaron says:

    #13, “With income tax rates going up soon (Dems in action) and “means testing” likely to be introduced to save Social Security, there are future tax benefits to be achieved from paying off the mortgage.”

    Wouldn’t income tax rates going up make the tax-deduction for mortgages more appealing?

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