Most people seem to have a lot of false beliefs about being debt free. They seem to think that those of us who are debt free never have to worry about money, or that we are somehow free from the concerns of everyday life. Some people work to become debt free because they believe that it will somehow solve all of their money problems and confer some sort of bulletproof status upon them. When they discover that the reality is somewhat different, they are disappointed and wonder why they worked so hard to become debt free if it doesn’t solve all their money problems.
Sure, there are some perks to being debt free and in a lot of respects a debt free life is a lot less stressful than one laden with debt. However, being debt free does not miraculously cure all your money worries or automatically make you rich. The debt free aren’t problem free. Here are the most common myths I hear about being debt free.
You never have to worry about money: It’d be nice if this were true. It would be great if being debt free meant that you never had to worry about money again. But it doesn’t work that way. Those of us who are debt free still have to worry about layoffs, pay cuts, medical issues, sudden tax increases, and other devastating financial events. While we might be able to weather a crisis better than someone with a lot of debt, we don’t get off scot-free, either. We may not be lying awake at night worrying about how to pay our bills, but we do worry about keeping expenses low, saving up enough to cover emergencies and long term needs, and dealing with unexpected expenses. Just because we can pay to replace the heat pump out of pocket doesn’t mean that we don’t worry about the ramifications of having to do so. How will we replace the savings? Can we still take that vacation this year? Do we need to eat out less for a while? We may not have the same worries as someone with debt, but we do have our own worries about money. If we want to stay out of debt, we have to worry about money.
You can have everything you want: People seem to think that if you have no debt that you can have everything you want. You can travel all the time, buy whatever you see in a store that you like, and buy a new car on the spot. I’d love it if this were true, but it isn’t. Most of us who are debt free are not rich (see number 5, below). We may have more disposable income than someone who is locked into a bunch of payments, but our disposable income isn’t unlimited. We still have to make some tough choices about what we want and need most. Do we want to travel this year, or would we rather redo the flooring in the house? Do we need to replace the car this year, or can we put the sunroom on the back of the house? To think that we can have everything is the path to debt. Even the debt free have to choose with care how we spend our extra money.
You don’t have to budget: I would argue that the debt free have to budget more than those with debt. If you’re willing to take on debt, it doesn’t matter where the money goes. There will always be a credit card or home equity line to pick up the slack. Overspend for a couple of months and you can just put the extra on a card. But if you want to remain debt free, you have to know where the money goes and then rein in the spending when too much starts to go out at once. You have to know what you spend on necessities, what you’re saving, and exactly what is left over for “fun” and unnecessary spending. You have to know where you can cut if times get tough and you have to know what to set aside for big expenses like taxes and insurance payments. A budget is practically required in order to remain debt free. It’s not something that we get to stop doing on the day we’re debt free.
You don’t have to worry about your credit score: People think that the debt free never have to sweat their credit score. The reasoning is that if we’re never going to take out a loan or credit card that it does not matter what our score is. That might be true if a credit score was only about getting a loan. But in a world where a credit score determines insurance rates, employment opportunities, and whether or not someone will rent to you, a good credit score is important. Chances are, debt free people have to worry more than those with debt. Because we carry so little debt and are reluctant to take on credit cards or personal loans, our lack of credit history is sometimes a problem. Lenders and others who use FICO consider someone with no or little credit history just as much of a risk as someone with bad credit. It isn’t fair, but it’s the system we live in. This means that a debt free person has to carry a credit card or two when they may not want to. It means that they may have to take on a small mortgage just to develop a credit history. It means that we have to be incredibly careful with whatever lending products we do use so that we don’t screw up what little credit history we manage to have.
You’re rich: I wish. There are two sides to this one: The first is that, if you’re debt free, you must have money because it’s impossible to be debt free unless you’re rich. This isn’t true. Most debt free people make average salaries and are not the recipients of family money or big windfalls. Sure, there are a few who have trust funds or received large inheritances. There are some who hit it big in the stock market or had their business bought up by a larger corporation. Yes, some are very wealthy. But not most. Most of us are average and we make average salaries. We’re debt free because we worked hard and exercised a lot of discipline through the years.
The other side to this myth is that being debt free makes you rich. Not true. Being debt free makes it easier to become rich someday with a lot of hard work and discipline, but it doesn’t make you rich automatically. It’s possible to be debt free and yet have very little wealth if you blow all the extra money on unnecessary items. We may have more in savings than someone with a lot of debt, but we are not wealthy enough that we can stop worrying about money or go drop $30,000 on a new car without breaking a sweat. We are not rich enough that we can do and have whatever we want without consequences. We may reach the point where we are wealthy later in life (and maybe sooner than those laden with debt), but most of us will probably never achieve Trump-like levels of wealth.
If you’re trying to become debt free because you think that it will cure all your money woes or somehow make you rich, you’re doing it for the wrong reason. A debt free life is generally a peaceful one and it is usually less stressful than a debt laden life. But it’s not without it’s worries and it doesn’t make you rich. You still have to exercise discipline, watch your spending, and worry about how to meet all of your goals. Debt free people may sleep better than those with debt, but don’t think that we all live on easy street.