How it Feels to Pay Off Debt
Caitlyn is a freelance writer from the Cincinnati area with clients ranging from digital marketing agencies, insurance/finance companies, and healthcare organizations to travel and technology blogs. She loves reading, traveling, and camping—and hanging with her dogs Coco and Hamilton.Read full bio
At a Glance
When you’re able to stop paying off debt and start building wealth, you can gain control over your financial security and freedom. Paying off debt feels good; you don’t have to worry about making payments or owing someone money. Your financial decisions can be completely your own and based on your own goals. It may make life and managing your money easier; living day-to-day is less stressful and saving for the future is possible.
Even if you have a low income, becoming debt-free is doable and well worth it, so it should be something at the top of your priority list.
In this article, you’ll find more about:
What is it like to be debt-free?
Getting out of debt may have been a long, exhausting process, but you’ve made it. When you’re debt-free, you may experience:
- Emotional relief. You may feel liberated and relieved to no longer have the stress of paying off debts. You’ve now broken free from difficult times in the past, and you’re able to move forward with better habits and financial freedom.
- Feeling happier. More money in your pocket means you’ll have to make fewer sacrifices and can worry less about debts hanging over you.
- Comfort. Now you can have comfort knowing those extra funds are in your bank account, and you don’t have to worry about an unexpected emergency taking out all of your cash reserves or putting you more in debt.
- Less stress. No longer do you have to think about how you’ll make your debt payments or when you’ll finally be out of debt. Gone are the days of stressing about how you’ll afford all your bills and other necessary expenses while also making payments on your debt.
- Better sleep. Stress and anxiety can lead to insomnia and sleep problems, which can negatively impact other aspects of your physical and mental health. Less stress means better sleep.
- Feeling more in control. Not having to make debt payments gives you more control over where your money will go. This can help you improve your money management skills.
- Improved relationships. Stress and financial struggles can take a toll on relationships. There’s a reason financial hardship is cited as a major reason for divorce. You may also have had to make sacrifices while paying off debt that friends didn’t understand. Being debt free gives you time to focus on others (as well as yourself) and your relationships.
- Physical improvements. Stress from debt can cause physical problems such as headaches or migraines, weight gain, heart disease, diabetes, gastrointestinal problems, and more. When you’re debt-free, you may feel relief from some of these physical symptoms.
What to do after you’re debt-free
If you’ve been paying off debt for a long time, it may feel like a part of you and your routine, so it can be strange to think about what you’ll do once you’re debt-free. While your first step should be to celebrate what you’ve done, your next step is to figure out what to do next, including setting new goals and continuing to use successful spending and savings habits to live the lifestyle you want.
The first thing you should do is celebrate your accomplishment. Regardless of how much debt you had, paying it off in full took work, effort and dedication. Take some time away from worrying about making your payments or stressing about finances to allow for space and perspective on what you did.
Set new goals
Evaluate the progress you made and start thinking about your new goals and the direction you’d like to go in next. Think about your new priorities. Your goals don’t have to be very specific yet, but you should have a general idea of what you want to accomplish. Remember that spending more on non-essential goods can easily get you back in debt while saving or investing those funds can help you reach greater financial goals faster.
Apply new habits
Once your debt is paid off and you have extra money that’s no longer going toward debt repayment, you have a big choice to make: let lifestyle creep set in, which means you spend that extra money on more non-essential items, or put those funds toward savings or investing goals. Choosing the latter can set you up for financial success moving forward.
While paying off your debt, you likely formed solid budgeting, saving and spending habits. Continuing those habits and resetting your priorities as necessary can help you make the most out of life’s opportunities in the future.
The psychological impact of debt
Financial stress takes a toll on a person, both physically, mentally, and emotionally.
Physically, stress from debt can be a cause or contribute to heart disease, allergies, diabetes, gastrointestinal disorders, sleep disorders, and even obesity. Mentally, being in debt can have a tremendous impact on your health. Here are a few ways debt can have a psychological impact on your health:
- Stress. Stress can have a powerful impact on someone’s physical and mental health, making it easier to develop mental health problems, heart disease, headaches or migraines, GI issues, and more. Paying off debt, especially if you’re struggling to make ends meet, can put incredible stress on a person.
- Increases risk factors. Long-term financial insecurity, poverty, pressure to repay debts, and relationship challenges are just a few things negatively impacted by debt. These are all risk factors for depression, anxiety, and other mental health and psychological struggles.
- Behavior changes. Some may experience changes in appetite, nervous or obsessive-compulsive behaviors, impulse spending, and other symptoms caused by financial stress.
- Increased usage of drugs and alcohol. Debt may cause someone to turn to drugs or alcohol to help deal with the physical or emotional pain from stress. This could lead to addiction, increased debt due to spending on these behaviors, and other physical and mental health challenges.
- Spending more. Someone who is feeling anxious, depressed, or stressed may turn to shopping or making impulse purchases to relieve the negative feelings. The problem is that relief is temporary, but the debt can be long-lasting. It can also be more challenging to stick to a budget, pay bills, and be motivated to eliminate debt, which can result in even more debt.
Is being debt-free worth it?
Getting out of debt is one of the best things you can do for your financial security and wellbeing. You’ll see a variety of physical and mental improvements, and you’ll have the opportunity to set and work toward new financial goals without the burden of debt.
That said, not all debt is created equal. Debt such as student loans, home loans, are small business loans are considered “good debt” because they are helping you generate an income or increase the value of yourself or something you’ve purchased. This good debt can help your credit score because it shows you’re a responsible borrower and a lower risk to lenders.
“Bad debt,” such as auto loans and credit card debt, offers no return, so you should pay that debt off first. Bad debt also impacts your credit utilization, which is an important factor in determining your credit score. This is the amount of debt you use compared to your credit limit. Experts suggest your credit utilization be no more than 30%; otherwise, you may face higher interest rates on future loans.
With no debt, borrowers can’t see if you make payments on time and are responsible with your money. Having no debt can also shorten your credit history, which makes up about 15% of your credit score. Even if you have no debt, regularly using and paying off (in full) a credit card can help build your credit history.
It’s also recommended to have a debt-to-income ratio of less than 43% in order to qualify for lower interest rates and better repayment timelines. This means you should have no more debt than 43% of your annual income. A lower ratio can lead to a higher credit score.
Overall, most people will agree the positives of being out of debt outweigh any negatives. When you need the motivation to get out of debt, remind yourself of how it feels to be debt-free.