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Wanna hear a secret? I’ve decided NOT to be debt-free. Like, I’m consciously choosing to live in debt indefinitely. And you can do the same.

Cut up your credit cards? Absolutely not!

Pay cash for your new computer? Hahahah.

Make just 1 extra mortgage payment each year to save thousands in interest and be debt-free years sooner? Sounds like a good idea, but no thank you.

And here’s the interesting part: I’ve got legitimate, financially logical justification for choosing a life of debt.

Here's why I've decided not to be debt-free


5 Legit Reasons NOT to be Debt-Free

But…but Dave Ramsey says your goal is to be debt-free. Yeah, and Dave’s financial guru-ship is usually spot-on. But this one time, I think he’s wrong.

I think his no-debt strategy is too safe. And in being too safe, you miss out on some great opportunities. Really, when you crunch the numbers, you can’t afford not not to be debt free. (Wait, what? No, it’s ok – I said that right 😉 )

Here are 5 totally legit reasons NOT to be debt-free.

1. You can’t build great credit (or great net worth) without some debt

I mean, it’s not impossible to build great credit or great net worth without debt, but it’s insanely more difficult. Debt is super helpful in quickly building perfect credit from scratch and in growing your net worth when used properly.

When you first start adulting, you have no credit history. You’ve never proven that you can handle money and make payments on time. So it’s hard to rent an apartment, get utilities in your name, or get a loan. In fact, you usually have to pay an extra deposit on apartments and utilities, and you are charged a stupid-high interest rate on loans when you don’t have a credit history.

And the quick road to a perfect credit history is to take on some debt, and pay it off through consistent, on-time payments. And once you have great credit, you get better interest rates on future loans, so you get to save more money in the long-term on things like cars, homes, and education.

But using debt can also help you build net worth when you leverage the debt to buy assets (investments that are expected to grow in value). Like buying a house. You use some of your own money as the down payment, and take on a loan for the rest. Then as your property value increases, your net worth increases with no effort on your part! (And yes, there was a big housing market crash in 2009, but most markets are now a fair bit higher in value than they were pre-crash. Historically, real estate always comes out ahead as long as you’re patient and wait out those down-turns.)

Check out our post on using Smart Debt to improve your life for more tips on building credit and net worth with debt.

2. Saving for years to pay cash doesn’t always make sense

Imagine this: your computer is tragically outdated. You’re gonna need a new one, but you don’t have $500 sitting around to buy one. And you don’t want to dip into your emergency fund because this isn’t technically an emergency.

So you have two options: 1) struggle with that old computer for 10 months while you save $50/mo for a new computer. Or 2) use a credit card and pay $50/mo on that credit card debt while you get to actually use your new computer.

Sounds like a no-brainer, right?

But the problem with Option 2 is interest. If you use a credit card with a 20% APR (Annual Percentage Rate), you’ll end up paying $52 in interest. Ugh!

But there’s a solution to this interest problem: the 0% introductory APR card. It gives you a period of time with absolutely no interest (usually 12 or 24 months). As long as you pay on time every month and pay off the balance in full before that introductory period expires, you get to use credit card debt to buy that computer now without paying any interest. Hurray for interest-free debt!

Of course you have to be super careful not to abuse a card like that. The credit card companies are actually counting on you to slip up and charge more than you can pay off before the 0% period expired so you’ll end up paying all that interest. Don’t fall for it!

Always use credit cards carefully and strategically. Check out our credit card hacks for more ways to be a clever credit card user.

10/26/2017 REVISION: To be clear, you should never assume additional debt (even if interest-free) until you have a well-funded emergency savings. You need 3-6 months’ worth of living expenses available to cover emergencies. If you were to lose your job for example, that $50 credit card payment for your computer could become a real problem if you don’t have emergency savings to cover the payments.  (Thanks to Samantha for pointing this out and prompting this revision – you rock!)

Here's why I've decided not to be debt-free

3. Once you make an extra debt payment, that money is gone forever

If you have high-interest debts (debts with interest rates over 10% – like most credit cards and some car loans), you want to get those gone, asap! There’s no legit reason to keep high-interest debt. And making extra payments is the only way to knock that debt out. If you’re struggling with high-interest debt, we have a debt-payoff strategy to potentially save you over $30,000. It’s a must!

But when you get down to low-interest debt (under 5% – like some student loans and mortgages), making extra payments gets less appealing. Here’s why: once you make an extra debt payment, that money is gone. Let’s say you’re paying an extra $200/month on your low-interest student loans. Then – bummer – you lose your job. You can’t call your student loan company and be like, “yeah, can I get that money back, because I need it now.”

But if you had put that $200 into your emergency fund instead, it would be available for you.

So before you consider making extra payments on low-interest debt, make sure your emergency savings account is fully funded. We’re talking enough money to cover 3-6 months’ worth of living expenses.

4. Investment returns might be higher than the interest rate on your debt

This is my real problem with paying off low-interest debt.

Imagine you’re choosing between putting extra money toward your mortgage payments to get debt-free or investing that money in index funds (one of our fave investments for newbie investors!).

If your mortgage interest is 4%, and index funds are averaging 7% returns, you can reasonably expect to pocket that 3% difference by choosing to invest instead of get debt-free! You come out well ahead by deciding NOT to be debt-free.

Sure interest payments suck, but missing out on higher returns sucks more.

5. You might be getting tax breaks on your debt

This might sound crazy, but parts of the US tax code actually encourage people to stay in debt. For example, the current tax system allows homeowners to deduct the amount they pay in mortgage interest from their taxable income.

Example:  $25,233.66 of the mortgage payments on my rental properties went to interest last year.  I’m in the 28% tax bracket, so deducting this interest from my taxable income means I saved $7,065.42 on my taxes last year just for the interest deduction!

Why would the tax code reward debt? Well, manageable debt stimulates the economy as a whole, so it’s in the country’s best interest for people to carry some debt. So as long as this is allowable, you can structure your financial plan to take full advantage of this great deal for homeowners.

This is one of the reasons I love real estate as an investment strategy. Check out these 3 reasons you should buy real estate (even if you plan to be a life-long renter!).

Here's why I've decided not to be debt-free

And 5 Bogus Reasons for Staying in Debt

1. Economies rely on debt

So yes, our economy is built on a system of debt. That’s why we get tax breaks for mortgage interest. But the entire US economy is not your responsibility. There will always be people willing to live in debt, so you don’t need to worry that a debt-free lifestyle of yours would hurt the economy.

2. Blind consumerism

No, outspending your earnings is not an ok reason to be in debt.

3. The need to impress

Unlike blind consumerism, the need to impress is thoughtful. It’s an attempt to strategically spend money on things you don’t need, but that you hope will win you friends or social status. But, no one’s actually impressed. If anything, it breeds jealousy and resentment. And you don’t need that.

4. Underemployment

Underemployment is a big problem in our current economy. It’s college grads accepting minimum wage jobs because they don’t think they can land a job with a livable wage.

Side note: minimum wage was never meant to be a livable salary. Think of it as the amount small business owners legally have to pay zero-experience high school kids who work part-time.

If you have higher education or any work experience, don’t settle for a minimum wage job.

It’s really easy to feel like a victim of underemployment. It seems like our entire generation is well-educated and well-connected. So of course, people are going to be left behind at the minimum wage jobs, right? Maybe, but it doesn’t have to be you.

You have value. You have talent. There’s something that comes easily to you that most people struggle with. You need to use that! And keep looking until you find an employer who will pay you a competitive wage for it. Or strike out on your own as a freelancer!

5. No one taught you how to climb out of bad debt

We see this all the time. Americans are so weird about discussing money. So most of us don’t learn the basics as kids or teens, and have no idea how to manage finances as adults. It sucks.

The good news is that we’re living in the Google age. And it just takes a simple search to find step-by-step guides to creating smart debt pay-off plans.

In fact, we can teach you how to get out of bad debt in a single blog post. No excuses 😉

And we’re here to answer all your other financial questions! Never hesitate to reach out via Facebook, Twitter, comments, or email 🙂

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What do you think of my plan not to be debt-free? Is it something you’d be on board with or do you think it’s just asking for trouble? Let me know in the comments.

Cheers! From Savings and Sangria