No Result
View All Result
  • Home
  • Business
  • Marketing
  • Finance
  • Home and Garden
  • Education and Career
  • Fashion and Beauty
  • Health
  • Tech
  • Home
  • Business
  • Marketing
  • Finance
  • Home and Garden
  • Education and Career
  • Fashion and Beauty
  • Health
  • Tech
No Result
View All Result
No Result
View All Result
Home Finance

How Being Debt-Free Is Different from Financial Freedom

Miles Austine by Miles Austine
July 14, 2021
in Finance, Tips and Tricks
0
0
SHARES
74
VIEWS
Share on FacebookShare on Twitter

The terms “debt-free” and “financial freedom” might seem synonymous at first. However, they have very different meanings in the financial world. In this article, we’ll discuss how the two terms are different, which might be better for you to focus on, and how to become debt-free.

Debt-free vs. financial freedom: how they’re different

Debt-free means that you don’t owe any money to a lender. You are the king of your destiny, beholden to no one. Financial freedom, on the other hand, refers to having passive income to cover your necessary living expenses. You don’t have to work a job you hate or think twice about affording an unexpected car repair. In other words, it’s having your loans paid vs. being financially set and in control of your money.

Which should I focus on?

Here are a few scenarios to help you decide whether being debt-free or having financial freedom is more important.

When it makes sense to pay off your debt

It probably makes sense to use your money to pay off debt instead of invest if your debt is high-interest, e.g. credit card debt. A 17% credit card interest rate will cost you more than you’d make back on an investment with a 5% return. It also makes sense to focus on your debt if you’re trying to boost your credit score. A credit utilization ratio is a comparison of the total amount of credit you have available to the amount that you’re using. Most lenders like to see this number below 30%. Paying off debt can lower your ratio and raise your credit score.

When it makes sense to invest

You may want to invest instead of paying off debt if you think you’ll be able to earn more on your investments than your debts are costing you in interest. For example, if your return on investment is 6% and the interest rate you’re paying on your debt is 4%, it likely makes more sense to invest your money.

Debt-free and financial freedom: the best of both worlds

It doesn’t have to be a one-or-the-other decision. You can do both. For example, you could put a portion of your income toward your debt, another portion into investing, and another portion into savings. That way, you’ll pay off your debt, investing to achieve financial freedom, and save for your future or emergencies all at once.

How to become debt-free

If you’ve decided that you’re going to put some or all of your extra cash toward becoming debt-free, here are 3 techniques that can help you kiss that debt goodbye:

1. Debt snowball method

The debt snowball method is when you continue paying the minimum amount on your loans but put more money toward the smallest balance. When that’s paid off, you’ll put extra cash toward the next smallest balance. The debt snowball method can be very encouraging as you’ll see your debts completely eliminated, one by one.

2. Debt avalanche method

The debt avalanche method also involves you paying the minimum amount on your loans but more money will instead go toward the debt with the highest interest rate. When that’s paid off, you’ll focus on the second-highest interest rate. The debt avalanche method is best for saving money overall.

3. Balance transfers

Balance transfers involve taking out a new credit card to pay off existing debt. Your new card will ideally have a better interest rate, which can save you money, in addition to simplifying your bill-paying each month. Balance transfer cards often come with introductory 0% APR periods. It’s best to pay your balance in full during this period to avoid accruing interest on your debt.

Being debt-free and having financial freedom are both important parts of being financially healthy. While your financial needs may dictate which one is more important to you right now, it doesn’t have to mean just selecting one or the other as your permanent financial goal. Who says you can’t have it all?

Previous Post

Financing a Caravan When You Already Have a Car

Next Post

Dharma Ocean on Risking Relaxation

Miles Austine

Miles Austine

Next Post
Dharma Ocean on Risking Relaxation

Dharma Ocean on Risking Relaxation

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Recommended

When is a Medical Malpractice Lawsuit Necessary

All About Medical Malpractice Brain Injury

5 hours ago
When is a Medical Malpractice Lawsuit Necessary

When is a Medical Malpractice Lawsuit Necessary

5 hours ago
Reducing Electrical Hazards at Home

Reducing Electrical Hazards at Home

7 hours ago
Keeping Your Gut Healthy: Everything You Need to Know

Keeping Your Gut Healthy: Everything You Need to Know

7 hours ago
7 Custom Exhibition Stand Design Ideas to Try on Your Next Trade Fair

7 Custom Exhibition Stand Design Ideas to Try on Your Next Trade Fair

7 hours ago
4 Tips for a Successful Wealth Transfer

4 Tips for a Successful Wealth Transfer

7 hours ago
No Content Available

Get Blogo is a web magazine platform. Our aim is to provide trending information. So that, our readers get benefited from this website. Our team is here to provide the latest news and information on different topics.

Category

  • Animals
  • Apps & Software
  • Automotive
  • Biography
  • Business
  • Celebrity
  • Education and Career
  • Electronic & Gadgets
  • Entertainment
  • Fashion and Beauty
  • Finance
  • Fitness
  • Food and Recipes
  • Gaming
  • Health
  • Home and Garden
  • Jobs and Services
  • Law
  • Lifestyle
  • Love and Relationship
  • Marketing
  • Miscellaneous
  • News & Politics
  • Nursing
  • Outdoor
  • Parents and Children
  • Politics
  • Real Estate
  • Social Media
  • Sports
  • Tech
  • Tips and Tricks
  • Travel
  • TV Shows
  • Writing
  • Trending
  • Comments
  • Latest
Drew Pritchard Wikipedia – Wife, Divorce and Antique

Drew Pritchard Wikipedia – Wife, Divorce and Antique

January 1, 2020
Catherine Southon Wikipedia, Cancer, Husband and Children

Catherine Southon Wikipedia, Cancer, Husband and Children

December 28, 2019
Catherine Southon Wikipedia, Cancer, Husband and Children

Catherine Southon Wikipedia, Cancer, Husband and Children

0
Drew Pritchard Wikipedia – Wife, Divorce and Antique

Drew Pritchard Wikipedia – Wife, Divorce and Antique

0
When is a Medical Malpractice Lawsuit Necessary

All About Medical Malpractice Brain Injury

January 26, 2023
When is a Medical Malpractice Lawsuit Necessary

When is a Medical Malpractice Lawsuit Necessary

January 26, 2023
  • About
  • Team
  • Privacy Policy
  • Editorial Policy
  • Terms & Conditions
  • Contact

Copyright © 2020, Get Blogo

No Result
View All Result
  • About
  • Contact Us
  • Disclaimer
  • Editorial Policy
  • Get Blogo – Web Magazine
  • Home 4
  • Home 5
  • Privacy Policy
  • Team
  • Terms And Conditions

Copyright © 2020, Get Blogo