I was debt-free once. I had paid off my student loan and had no consumer debt. I thought I would immediately start spending my suddenly-increased disposable income but I didn’t. Instead I found that I was very cautious with my money until I made the choice to go back into debt via a mortgage.
It turns out that I was like most debt-free people. It takes a lot of work to become debt-free and those lessons tend to stick with people.
Patrick Demers* recently became debt-free but it took him four years to get rid of $30,000 of debt. He says in an email interview, “I had accumulated a considerable amount of school debt, credit card debt and went through a stretch of being unemployed for roughly six months.”
1. They are detail-oriented and very organized
Paying off debt means knowing what you owe, developing a budget and sticking to it. Debt-free people keep track of their bills, how much they earn, how much they save and how much they invest. They speak to experts and have a tracking system in place, whether it’s an Excel file or another program. Demers went to a financial planner when he started a new job in 2008. “I went to a financial planner to get my house in order and set up a debt repayment plan, as well as placing a portion of my paycheque to an RRSP.”
2. They’re stress-free
Debt creates stress. People worry about money, they dread next month’s bills, they can’t sleep at night which leads to poor work performance… the list goes on. Getting rid of debt gets rid of stress as Demers experienced when he finished paying off his debt. He says, “It felt amazing. It was like this huge weight was off my shoulders. I didn’t go out to celebrate, though. I’m merely modifying my plan now.”
3. They operate within a budget
Just because they have disposable income doesn’t mean they spend haphazardly. If they can afford it, they’ll spend. If not, they’ll wait or forgo spending.
4. They pay cash
One of the reasons I was able to pay off my debt was because I chose to pay with cash. If I didn’t have the money, I didn’t use credit as that would increase my debt load.
5. They don’t have a lot of credit (and they understand credit)
Credit, when understood and used properly, is a good thing. Debt-free people aren’t afraid of credit. Instead they use it properly to build their personal credit and pay their cards off every month to avoid interest. Demers uses his grandparents’ attitude towards credit. He says, “Never, ever use them as a substitute for cash. They must be paid off every month. My card’s limit has been set deliberately very low for that reason.”
6. They understand value
Do you really need ten tops from a fast-fashion store or one very good, high-quality top that will be worn for years? Debt-free people consider the value of items before purchasing versus mindlessly buying stuff.
7. They’re patient
Debt-free people make the hard decisions. If they can’t afford something, they either wait until they can or choose to do without.
8. They comparison shop
They also cut coupons, wait for sales or buy second-hand. That’s not because they can’t afford it. They know that it’s silly to automatically pay full price for everything. Debt-free people have a habit of looking for realistic and pragmatic ways to save money.
9. They’re not materialistic
Debt-free people might like nice, shiny toys but they don’t define themselves by their possessions.
10. They think long and hard about taking on new debt
I was debt-free for a long time and was hesitant to take on new debt via a mortgage. It took a lot of thought, some calculations, a lot of research and talking to real estate and financial experts before making the choice to take on new debt. Thanks to my previous experience being debt-free, I continue to practice my debt-free habits as well as focus on paying off my new debt as soon as possible.
Demers would also take on new debt but with a few caveats, ”If I ever do take on debt, it will be exclusively with a credit line from a credit union or with an online bank like ING Direct. Their interest rates are favourable, and on top of that, I feel as if I’d be in a position to get a better deal.”
*Name changed by request