First Person: How Staying Debt Free Earns Us Money

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I love being debt free. Ever since graduating college, I've made it a priority to keep debt to a minimum and pay it off as quickly as possible whenever it is necessary to take on debt. In so doing, I've realized that staying debt free makes a huge difference in our financial situation. It not only saves us money, but earns us money as well.

Getting Debt Free and Staying that way

After college, I paid off around $8,000 in student loan debt in under a year, staying debt free until my wife's bills for graduate school came along. At that point we had about another $40,000 to pay off, which we did in less than three years. Again, we were debt free until buying our first home where we undertook a mortgage. However, along the way, we put down a substantial downpayment, signed up for a bi-weekly mortgage payment plan, and even made extra payments in addition to that. This way, when we sold our first home and downsized, we had enough left in equity to buy our next property outright, again leaving us debt free. We're hoping now to stay that way for the foreseeable future.

Saving on Debt

According to an infographic on, the average American's interest payments on debt are $600,000 over the course of a lifetime. They go on to list statistics such as the average mortgage costs $240,000, upon which a homeowner will have paid over $580,000 over 30 years of payments and that the average auto loan is $30,738. It also notes that the average credit card debt is $10,637.

Thankfully, due to our hard work eliminating debt, we have in turn either eliminated or reduced the effects of interest upon such debt. For example, on that nearly $50,000 worth of loans between my wife and I, we only paid about $1,500 in interest since we paid off the debt so quickly, cutting extra thousands, if not tens of thousands of dollars off the costs of such loans.

With our home, while we sold in advance to paying off our mortgage completely, we were on track to shave thousands of dollars (and about 5 years of payments) off our estimated interest payments over the course of the 15-year mortgage. And since we've always purchased vehicles outright, we've never had to take on an auto loan.

Putting our Savings to Work

So while our savings on interest upon debt is real nice, it also frees up additional funds not only for saving, but for making money as well. For example, after paying off our student loans, we had a multi-year period where we could take our savings and put them to work for us. Not only were we not paying on debt, we were using the money that would have gone toward debt to make us money.

For example, once we'd paid off our student loans, we were saving for a home, so we still wanted our money to be fairly liquid. Therefore, we put much of it into a high balance, high interest rate savings account (back when interest on savings was still reasonable). In turn, we were making on average about $300 a month in interest alone on savings. It was a great example of how reducing debt provided us with savings to work for us. Having the bank pay us, rather than vice versa was a nice feeling.

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The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.

Sources: A Lifetime of Debt: The Financial Journey of the Average American. 2009. July 2, 2012.


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