Debt in America: Why We Should Aim to Be Debt-Free

See why Americans need to develop a healthier relationship with debt.

Jul 12, 2014 at 5:00PM

Debt is one of those things that's OK until it isn't. You can skate by for a while on minimum payments or introductory terms -- perhaps even convincing yourself that it's sustainable -- but then that balloon payment pops up, or your income is disrupted, or interest simply gets out of hand.

The Great Recession reacquainted the public consciousness with the dangers of debt and the folly of a hope-for-the-best approach to personal finance. And while credit card debt trends showed that we learned our lesson in the immediate, anemic aftermath, a recent reversal in course and our overall body of work has to make you wonder: Did anything stick? Just consider the current state of affairs:

National debt (as of June 2014) $17.5 trillion
Credit card debt (as of Q1 2014) $801.3 billion
Student loan debt (as of June 2014) $1.2 trillion
Individual bankruptcy filings (2009-2012) ~ 7.5 million
Number of foreclosures (2009-2012) ~ 13.5 million

Why be debt-free?

  1. It's cheaper: Debt obviously comes at a significant cost, and the more you rely on it, the more expensive it becomes. The same principles of compound interest that enable early savers to accumulate a great deal of long-term wealth work against you when you're constantly playing from behind. Finance charges incur finance charges, minimum payments rise, and things can quickly become unsustainable.
  2. It's less stressful: Americans are becoming increasingly stressed, according to the American Psychological Association, and the effects can be corrosive to our mental, physical, and financial health. The primary causes of this stress: 1) money, 2) work, and 3) the economy. Having to scratch and claw to make monthly debt payments exacerbates this high-stress state of affairs, potentially resulting in physical and mental illnesses that can drive up costs and make it even more difficult to get back in the black.
  3. You'll have a better retirement: The sooner you can divert funds away from debt payments and into a retirement account, the better. Time is your biggest ally when it comes to retirement planning. It enables you to benefit as much as possible from compound interest and reduces the need to take unnecessary investment risks as you get closer to the age at which you'd like to exit the workforce. It's human nature to prioritize the tangible now over the distant future, but if you can empathize with your future self and consider the quality of life you'd like to have, you'll be less likely to rob from yourself in the short term.
  4. Debt dictates lifestyle: Taking on a significant amount of debt can limit the options available to you in various aspects of life, from the types of jobs you can afford to accept to the way you can spend leisure time to your ability to leave a dysfunctional relationship.

True debt freedom instead entails wielding leverage with responsibility and purpose, rather than out of necessity or rashness. Stay tuned for tomorrow's follow-up article on how you can become debt-free -- and stay that way.

Your credit card may soon be completely worthless
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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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