According to a recent Fox Business article 73% of people have outstanding debt when they die. They have an average of $62K of debt which including mortgage debt. If you remove the mortgage debt then there is still is an average balance of almost $13K. That is insane and honestly really depressing!
This article was also discussed on the recent Stacking Benjamins episode with some great guests such as Mr. Groovy from the Freedom is Groovy blog. This episode is how I came across the article and I would like to add my input.
While the article and podcast do discuss some aspects of the debt they mainly focus on what happens when you die with debt. I am going to focus on why this should be a wakeup call to anyone with debt, even with a mortgage. Do you want this to be you? Statistically this will be 3 out of 4 of us. Do you really want to still be owing anyone when you die? Is that the legacy you want to be leaving? Of course not, but it still happens quite frequently apparently, and if you have debt it will happen to you if you continue to find excuse after excuse for keeping this debt around.
We rely too much on society to tell us how to manage our money. We let it tell us that it is normal to always be in debt and that is just what you do as an adult. Well, you know what, that is not the kind of adult I want to be and hopefully you don’t either. We all have the right to make choices for ourselves but please don’t be normal in this regard. Let’s create a new normal where we value actually owning our possessions and having financial freedom and independence.
DEBT BEGETS DEBT
I’ve had all kinds of debt that it might as well have been my middle name. The most destructive debt to me was the credit card debt since it always grew a little each month in seemingly unnoticeable ways. It was evidence that I wasn’t living within my means. I wasn’t rich by any means but I still made more than enough to not go into credit card debt, but hey, it was OK so long as I could make my minimum payment, right? No. Flat out, it enabled my bad behavior.
Then again, maybe it was the student loan debt? Wait that can’t be, it’s a ‘good debt’, right? It’s harmless. Well, most people that say that don’t have $900 of minimum payments per month on their student loans. There is nothing good about that as it means you have that much less to put towards investing each month. It was a much bigger amount than the credit card debt and as a result I always felt with the student loan debt that a few extra thousand didn’t matter and so it enabled my credit card debt.
We’ve gotten too comfortable with debt. We’ve just accepted that we have to take out student loans or get credit cards so we can ‘build our credit’. Let’s forget that the side effect of ‘building our credit’ is debt if you don’t pay it off each month! No one talks about the real life implications of debt other than saying ‘don’t let it get too out of control.’ Of course, the person saying that to you themselves is probably in debt and in turn denial.
I always figured I would take care of it down the road although I had no actual plan for when that would be. In my mind it would be when I made more money or had more time. The problem with that thinking though is that you always feel like it is never the right time so you just keep feeding the machine of just paying the minimum payment. And then one day you die and you never got around to truly getting rid of it. Now your family has to deal with it depending on your estate.
That is how you die with debt. You keep kicking the can down the road rather than saying today is the day I turn things around and no longer play that game.
When Erin and I got married we were getting these questions such as when are you going to buy a house or when are you having kids? We didn’t see these ideas as being compatible with the amount of debt we had. We could have just gone along and did what people said to do but instead we decided to be radical and pay off our debt at an accelerated rate. That would then allow us to do those things and not have the cloud of debt hanging over us. Did we give up and cut out stuff to make it happen? Yes, but we found we were happier knowing that we could do these other things as a result. We listened to ourselves and not everyone else.
One wakeup call I had early on in our process was when I did an amortization schedule of my Sallie Mae loans that I had previously changed from a 10 year payoff period to a 25 year payoff period. This reduced my monthly minimum payment right after school but obviously tacked on 15 years of payoff so that I could ‘save’ a measly $200 a month. That is another story of being misguided but let’s focus on the amortization schedule for now. It laid out every payment I would make if I just made the minimum payments for the life of the loan. Intellectually I should have known what it was going to tell me, but for the first time, I saw that I would be paying them off into my early 50’s. That was shocking to me and instantly gave me confirmation that we made the right decision to start paying it off.
Why would I still want to be paying off student loans in my 50’s when I took them out in my mid 20’s? Well, it didn’t seem to be that big of a deal to me at the time when I extended the loan. All I was focused on at the time was the short term and that was where I made my mistake.
By only thinking short term it always put me at risk in the future. Thinking short term is exactly how one accumulates debt and ends up dying with it because you base all of your decisions in the short term. By shifting your thinking long term you’ll recognize that you don’t want to have debt forever and that you have to do something soon in order to make that a reality.
The average mortgage that most people take out is a 30 year mortgage. Long gone are the days when you got married, bought a house, paid it off and lived in it your whole life. Now, people move multiple times throughout their life which in turn resets that 30 year term each time unless you build up enough equity or cash to pay them off. If you go with the idea that you’ll always have a mortgage then guess what, you will get just that and end up dying owing on your house. Anyone who inherits it has to take over payments or sell the house in order to pay off the mortgage or other debts left over from your estate. Is that what you want to leave your spouse? Is that what you want to leave your kids?
Wouldn’t it be nice to know that despite your absence your loved ones are taken care of and they don’t have to deal with the mess of dealing with your debt? So if that would be a nice thing to do then do it. Start making decisions today that lead toward having all of your debt, including mortgage, paid off. Think long term about it.
I’m not saying you shouldn’t have a mortgage, but I am saying that you should work to pay it off early or pay cash for subsequent houses. Do not do it at the expense of investing though because you need to look at the whole picture. Do this though so that there is a time in your life, ideally before retirement, when you truly are debt free including the mortgage. Non-mortgage debt should be paid off long before you retire.
One way to ensure that you will die with debt is to always finance your cars rather than paying cash. Not having a car payment is a huge part of being debt free. Saving up and paying cash for a car prior to purchasing it and buying used cars is the way to go.
Another aspect of this is that if you are dying with debt you are most likely paying interest to someone else your entire life. Once again, it does not have to be this way. Instead of paying interest to someone else, put yourself in position to have interest paid to you through investing. That is how you grow wealth, but if you always have debt and are paying interest you are subtracting from the investments you do have. That literally is a swing of hundreds of thousands of dollars over your lifetime.
DEBT FREE HAPPENS
The whole point of this blog is to let people know that it is possible to be debt free. You don’t have to be normal and always have some form of debt around. Being debt free does happen and it truly is within your grasp if you want it to be. You have the ability to radically transform your life and get in control of your finances. The only thing stopping you is you.