There has been so much talk about money, budgets, credit cards and debt in the past few months many people have become desensitized to the state of the economy. This of course is a normal reaction when one is bombarded with the same news each and every day, however it is important that we not forget the lessons learned in the past few months. This does not mean people have forgotten the recent changes in the economy, just that many consumers have been forced to adjust and find ways to adapt to the current state of the economy.
The recession has brought to the forefront the need to re-evaluate how we think about money and our spending habits. This of course is a good thing since many people have been consuming and consuming with little thought about the long term effects of living beyond their means. Naturally this practice has come to a screeching halt for some consumers as millions face unemployment, increasing debt and dwindling savings.
It remains to be seen how long this new “awareness” of personal finance will last. If people really want to change their financial future and live debt free they will have to make certain sacrifices and some of these adjustments may not be embraced by the general public.
If you are going to adopt a life of debt free living, you will have to accept that you now will pay with everything in cash..which means you will have to save money before making purchases big or small.
Common Uses of Debt
Here are a few things that many people may find difficult to pay for without some form of financing or credit.
- Cars cost a lot of money. For people who live in a large city and have access to some form of public transportation, living without a car is not necessarily a huge hardship. For others who rely on a car to get back and forth to work and just about everywhere else they have to go, having a car in good working order is not an option. Even purchasing a used car from a private seller or dealer will put you back several thousand dollars.
- Higher education. As the cost of a college education continues to rise, putting one or more children through college will cost someone considerable money. Fortunately more people are taking advantage of 529 plans which allow them to begin saving for their child’s education long before it it time to pay the first bill. For students who are on their own financially, paying for college will get very tricky if they have to pay the bill upfront.
- Travel arrangements. Most hotel, car rental and airlines require a credit card to secure reservations. For this reason many people who have no desire to use a credit card will still carry one in order to make travel arrangements. To avoid going in debt you should still save the amount needed before your trip enabling you to pay your balance in full when the statement arrives.
- Purchasing a home. Most people would prefer for their first home to not be a nursing home. Saving hundreds of thousands of dollars in advance to purchase a home is a bit of a stretch even for the best budget. This means that many people may have to reconsider what they need in their first home and consider houses that are considerably less expensive than their dream home. Even so in some areas of the country fixer uppers still cost more than the average person could afford to plunk down in cash.
When it comes right down to it, there are people who simply will not be able to maintain their standard of living if they choose to live a cash only lifestyle. That does not mean they have to throw caution to the wind and spend more than they earn. If you manage your finances well and live within your means you can still live comfortably without going in debt.
Could you live without debt?
{ 6 comments… read them below or add one }
I *could* (once we get out of debt) but I really don’t want to have to. Let’s face it, used responsibly, credit cards are VERY convenient.
I’m not clear if you mean no debt as in never using credit cards (even if you pay them off at the end of the month) or no debt as in just never carrying a balance. I think the former is a lot easier. And I will probably continue to use credit cards, even after we get out of debt, for things like travel arrangements or unexpected expenses. My husband and I both have chronic illnesses, so expenses pop up every time we turn around.
And if we ever choose to buy a home, it will be with a mortgage. We’re not really sure yet whether we’ll be able to afford one and/or whether we would rather just rent. A lot is up in the air for the foreseeable future.
As for cars, I would like to have all — or at least most — of the cost saved up. It simply gives you more bargaining power.
I think, like any extreme, living with no debt limits your choices. But if someone feels better living that way, good for him/her!
I like the new look. I think you raise great points. Especially in terms of buying a house and such. I think I want to be in a position that I have enough cash to make a down payment and I have enough other cash that if I was to lose my job, I could pay my mortgage for at least 6 months. I don’t think I could wait long enough to save up to pay for a house in full but I would definitely want to put 20-30 percent down. I think the society is based in such a way you HAVE to have a credit card (assuming you don’t live in a remote farming village). You need one to rent a car, most apartments want you to have a credit rating before they rent to you and such things. I think I would want to be able to pay for things like vacations, shopping and plane tickets with cash, and then only use debt for really big items like a house. I think the best card would be like the ML card that’s basically a 30-45 day interest free loan you have to pay back…..
Certainly it is possible, even preferrable, to live without debt. It would take about 10 years to save up for a house, versus 30 years to pay the loan off. You would miss the tax benefit, but what have you been doing for the past 10 years — probably paying interest on all of your other debts! School loans only make sense if they contribute to your future income. And you do not need a car — you could always take public transportation. A better question to ask is — would you prefer your dollars to be worth 80 cents?
If only public transportation was available everywhere…
There’s no way I can live without debt but then again I don’t think all debt is bad.
I generally keep about $60 in cash on me and use credit cards for anything that is larger than that. But it isn’t a problem because I pay off my credit cards every month. Of course I try to limit the number of cards I have (I only have 2). For cars I don’t use credit because I buy them used, in cash.
The two largest “debts” I have is my student loan and mortgage loan on my investment property. I think it’s impossible to pay those off in cash… unless you wait a long time to acquire both an education and a home. The student loan is fixed at 1.875% so I’m delaying that as long as I can to repay it. The investment property is fixed at 4.5% over 15 years so the payments are small enough that I can handle it with both my salary and the rental income it produces.
I think debt can be very useful, as long as you know how to use it in moderation and it is within your ability to repay it.
One can become debt free but it will not be overnight for persons who are used to the credit card and high maintenance living. They will need to make a lot of sacrifices to accomplished.