Can you believe that 73% of Americans die with debt? And it’s not just a $200 credit card balance either. On average, Americans pass away with $62,000 worth of debt. That’s just insanity!
My advice? Learn the debt traps and avoid them, then build wealth and never look back. You won’t ever regret it and you know what? Neither will your kids!
Die With Debt? No Thanks. It’s Time to Understand the Debt Trap
Of the 73% of Americans that die with debt…
- 68% had credit card balances,
- 37% still had a mortgage,
- 25% had car loans,
- 12% had personal loans, and
- 6% had student loans
Sheesh. That’s a wide range of debt!
Some may have only had one category of debt above, but there were others that may have had every form. On average, a sizable amount of people had credit card debt, mortgage debt, and car debt!
Why is this? How do people fall prey to so many different forms of debt?
1) We Have a Credit Card That’s “Only For Emergencies”
“I’ll get a credit card…just in case something pops up that I can’t afford. It’ll be good to have in case of an emergency.”
After telling ourselves this, what do we do?
Because we have that credit card in our wallets, we purposefully don’t prepare for that potential emergency… Because after all, that credit card has us covered in case something happens!
So, we save up no money, inevitably have an emergency at some point, and that begins the downfall of our financial future.
It’s innocent mistakes like these that cause people to die with debt…
2) We Go Into Debt for Special Occasions
We initially get the credit card for emergencies, but after a few months we decide that it might be kind of smart to put big purchases on our card. After all, that spending will earn us points that we can later cash in on.
Soon, the next big vacation rolls around. The flights, rental car, and the hotel stay totals up to $4,000, so you naturally plop it on the credit card. I’ll have the money by the time that vacation starts…” you tell yourself.
And then of course…you don’t.
When your vacation comes and goes, that balance just gets tacked onto your card (you know, on top of those “emergencies” that you had earlier in the year).
3) We Splurge on Depreciating Assets
Sometimes debt can be a tool to earn more money. Certain business men and women make a great living borrowing money, building up assets, and selling them for far more money than they owe on their loans.
When people discover their smart friends are using debt, they decide to use it too…Only, they start using it for bad debt, not good debt…mainly, we’re talking about cars here.
On average, people spend $30,000 on a new car and borrow the majority of that amount. In four years, their friend’s business has doubled in value, and the once-new car is now worth just $15,000. That depreciating asset is one of the worst debt traps there is.
It’s bad enough to buy something that goes down in value. It’s double-dumb to borrow money and make interest payments on it too…
4) We Believe the Lie That Our Home is an Investment
Of all the reasons people die with debt, this one typically has the largest financial impact. After all, for many of us, a house is the most expensive thing we buy in our entire lives!
We’re told to:
- Buy a house when we’re young and broke,
- Then upgrade when we have children because each kid needs to have his/her own personal space
- And then, when we’re old and the kids move out of the house, we’re told to hang onto our home and our mortgage, because it’s a great tax deduction.
Lies, lies, all of them!
In reality, we should:
- Rent the cheapest place we can find when we’re young and broke,
- Buy a modest home when we have kids (so we still have extra money to invest and actually take a cash vacation once in a while),
- And when we’re old, we should have our home paid off so we can make the unadulterated choice to keep it or sell it – based on our life situation, not because of debt (and certainly not because of rip-off reverse mortgages!).
There are two facts that you should absolutely know about your home:
- It’s a terrible investment that barely keeps up with inflation
- Almost no one itemizes their taxes anymore…which means you’re not getting a tax benefit on your mortgage payments (I told you all the above advice were lies!).
Stop listening to the masses when it comes to “investing” in a home.
Die With Debt? Still Not Appealing…How to Avoid the Debt Trap
People that die with debt aren’t total idiots that know nothing about money. They’re normal people just like you and me, but they’re likely just not paying attention as much as they should be.
Per the above reasons, most people:
- Have a credit card (or five) for emergencies, and they end up owing more than they can pay over time
- Go on vacations, fully intending to pay for them, but they never make it a priority
- Become envious at some point in their lives and buy a brand new car that they can’t really afford (ie. they didn’t have the cash for it)
- Buy too much house and it makes them strapped for cash all their lives
And, all of the above reasons lead to other forms of debt when minor events pop up – kid’s school events, home repairs, and medical bills. When you stop paying attention, debt is always sure to show up…which of course results with the masses that die with debt.
So How Can We Avoid It?
How can we not become part of the 73% of people that die with debt? It’s pretty simple actually.
Here’s the mentality shift that might just change your life:
Instead of living for the moment every day, start making decisions for your best friend, the ’20-years-older-you’.
“Excuse me, 20-year-older-self, should I buy a brand new car?”
“Hmmm, I’d really rather you not. I found a calculator that shows you’ll be wasting 12 years’ worth of retirement if you spend $30,000 today. I don’t know about you, but I’d rather be on a beach somewhere…”
“Good point. Let’s keep our 2005 Honda Civic. It probably has another 200,000 miles left in it anyway.”
This is seriously how your conversations should go with yourself! Every decision you make today will have an impact on your future:
- Your retirement date
- The amount you have in your retirement funds
- Your kids’ education
- And even your future giving (we all want to be that generous grandma, don’t we?)
Take the Simple Steps to Become Wealthy
If you don’t want to die with debt, and if you actually want to build wealth for your future self, then here are the simple steps you’ll want to follow:
- Save up a mini-emergency fund of $1,000
- Pay off all your consumer debts using the debt snowball
- Save up a 3-6 month emergency fund
- Start investing 15% of your income for retirement
- Put money away for your kid’s education
- Pay off your house
- Live large and be generous!!
It’s Your Turn. Will You Die with Debt?
Will you be just another statistic? Will you be part of the 73% that die with debt?
I hope not.
Take control of your life today and make your future an absolute dream come true.
What’s steps are you taking to make sure you don’t die with debt and actually become wealthy instead?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.