When I was 19 years old I worked part-time at a famous burger chain on the West Coast for $10 an hour. It was more than what the other burger chains were paying its workers. So my coworkers and I thought that we were getting paid a lot of money at the time. This sentiment became more apparent when, after a staff meeting, one of them started talking about the brand-new car he had just bought (with a car loan) within three months of being hired. A group of us became curious so we followed him to the parking lot to see what the car was all about. It turned out to be a nice modest American car (think Ford Focus or Chevy Cruze). Naturally, I wanted to know how much he had financed it for, and so I asked him. I can’t recall how much it was now, but I do remember being uncomfortable at the thought of taking out such a loan; especially for something like buying a brand-new car. All I could think about was how dependent I would be on my part-time job in order to make the monthly car loan payments. I was still only a teenager, and it was only supposed to be a temporary job. So it didn’t sit well with me. And now that I’m a little older, my revulsion at the thought of being in significant amounts of debt is even stronger.
For starters, being in debt increases dependence on a paycheck, and thus increases job dependence. Obviously, there is nothing wrong with working and contributing to the great American economy. However, workplaces are not exactly a bunch of oases. Sexual harassment does happen. Ageism is a real phenomenon. And insulting conversations happen quite frequently. Also, there are many job positions that are very stressful, and there are cases when employees have to work way more than the standard 40 hours a week but still get paid the same salary. Sometimes the boundary between work and home isn’t respected. There are managers who expect you to answer emails or calls outside of work hours, often at night or on the weekend, disrupting your time with family, friends, or hobbies. And personally, I’ve held a few mind-numbingly boring jobs where the whole goal was to look busy so that it seemed like you’re working (it made me hate my life at the time). Maybe someone you know has experienced some of this (or perhaps you’ve experienced it yourself). You might have even suggested that they leave and look for a better job. But guess what, that suggestion is difficult for them to do when they’re in debt!
Being in debt decreases your ability to not have a job for a significant amount of time. Perhaps you have been fortunate to have never experienced any real problems in the workplace so far. Maybe you even love your job, and your boss and coworkers are your best friends. That’s great, but things can change very quickly. It’s fairly common for bosses or coworkers to leave for a different team or a different company, and they can get replaced with someone you might not get along with, to say the least. Also, being able to work and having paychecks flowing in without interruption is not guaranteed. There are many reasons for this. I’ve known people who couldn’t get along with their new boss, which eventually led to them quitting or getting fired. Recently, the media has been discussing the incoming American economic recession*. So you might even find yourself laid off one day. You can get into an accident or develop a health issue preventing you to work for months until you get well. According to Forbes, 63% of Americans do not have enough savings to pay for a $1,000 emergency**. So if you’re an American and found yourself without a steady flow of income for months, it might become difficult to cover your monthly expenses on utilities, rent, food, subscriptions, medical costs (if you have health issues), and existing debt. You might even resort to taking on more debt just to stay afloat, digging you deeper into debt.
Your family can even be affected. If you die, your estate (all of your assets) will be used to pay for your debt. In the best case, this leaves your heirs a smaller inheritance than what you could have given. In the worst case, they might not inherit anything at all if what you owe is more than the value of your estate. And in some states, like Arizona and California, your spouse will be responsible for the debt you’ve incurred during your marriage. So would you really want your loved ones to inherit the debt, and the mental stress that goes with it, when they are already in grief? I do not think so. The only solution is to pay off your debt as quickly as you can. Don’t let your household become an average American household; where a family owes $6,929 in revolving credit card debt, $28,033 in car loans, and $47,671 in student loans. That’s a total of $82,633***. As in, roughly $20,000 more than the median household income in America****! And that doesn’t even include money owed from mortgages!
Finally, being in debt might hinder your ability to give back to society in a more meaningful way. Obviously, the more debt you have the less money you have available. So you can’t be as financially generous to the people you value, like your family and your close friends, when they’re in need. Or make significant donations to the political or the social causes you truly believe in. Being in debt might even prevent you from working for a company that you think is doing something meaningful, more meaningful than making people click on ads, but unfortunately does not pay as well. Taking such a pay cut just doesn’t seem like a good idea when you’re buried in debt.
Actually, there are many things that, all of the sudden, just don’t seem like a good idea when you’re in deep debt. Having debt is restricting. The reasons above are just some of the examples. There are many more. When you take them into account, you suddenly realize that the cost of debt isn’t just the monthly payments you’re required to make each month. It has other significant costs in your life. So if you are lucky and are already debt free, all you have to do is to not take on any debt. However, if you are currently in debt, now is the time to start paying it off aggressively. This is the year. This year, become debt free.
* Articles about an incoming economic recession from the Economist and the New York Times.
** An article on how 63% of Americans can’t cover a $500 emergency by Forbes.
*** An article on how much the average American household owe in debt by NerdWallet.
**** The median household income in America as reported by the United States Census Bureau is $61,372.
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