Should you get rid of all debt for financial independence?

Should you get rid of all debt for financial independence?

Is this what you want in financial independence?

Financial independence has definitely been on my mind a lot lately. I even started a blog (this one) dedicated to it! Financial independence doesn’t have the same definition to everyone.

Some consider it similar to early retirement, and you are not working. Some are on the opposite end and think it means that you can choose when and where you work and be more focused on enjoying life. One thing that may be different for some is financial independence when it comes to debt.

Debt doesn’t always mean the same thing for everyone. Some categorize debt as good or bad and place a lot of value on interest rates. Some think that all debt is bad and must be paid off. So does a person eliminate all debt before they declare that they are financially independent?

Are you considered financially independent if you are taking advantage of low-interest rates and would rather invest your money?

For me, I would prefer to have all debt gone. I know that many say you should keep low-interest rate loans since you can earn higher than that in the market.

However, I would rather have complete financial independence and have no debt, especially not a mortgage. I would want my monthly expenses to be as low as possible, but still enjoy life. That means no mortgage and no car payments or anything else large.

Positives of eliminating debt

  1. Lower monthly expenses. Your housing expense most likely won’t be completely eliminated since you will most likely have to pay property taxes still, but you will still be cutting your expenses by a lot.
  2. More room in your yearly budget to do what you want.  With debt, you might want to have more of a stable job, which might not equal financial independence for you any longer.
  3. Knowing that you paid it all with your current earnings can reduce the pressure to earn more to pay back debt. Also, you can get discounts when you pay in full. For example, according to, you can avoid paying additional credit charges and save around five to 10 percent on your auto insurance when you pay in full.

Positives of keeping debt

  1. Might be able to earn more in the market and “make money” off your debt.
  2. Less net worth tied up in your home. If you truly needed to dip into your investments, then cash from housing may not be easily accessible.

Are you working on eliminating all debt?



Should you get rid of all debt for financial independence? — 33 Comments

  1. I feel the same! I feel a strong need to be totally debt free before anything else, and that’s why we prioritise mortgage payoff over investing (for now). It may cost us a little in the long run, but we can live with that to be debt free.

  2. I guess it just depends on who you are and what you personally want to achieve. I want to get more into real estate so I am okay with the fact that I will probably have a few mortgages out there as I don’t plan on paying for all properties in cash. If I had the cash I would certainly pay for it but when you are trying to get to a certain point we all have different options and choices we have to make. For me I could easily say I wont get into real estate until I can afford to pay cash for the property. The question is am I willing to wait and is that a smart move. Not working to eliminate all debt just the ones I can make returns off of.

  3. I don’t think there’s one right answer for everyone. I think there’s certain debt, such as credit card debt, that we can pretty much all agree is bad. But when you get into things like a mortgage or student loans, the situation will vary person to person. I would define financial independence as not having to work to cover your financial obligations, whatever those obligations are. Whether debt is one of them is pretty irrelevant if you have the money to handle it.

  4. I’m working on paying off all debts that don’t put money back into our pockets. Some investments (like rental properties) can have debt owed, but still make you some cash flow after paying the mortgage and other expenses each month. I don’t mind that kind of debt, but any other I’m working on getting rid of.

  5. Being that my wife and I just got rid of all other debt besides the mortgage, we haven’t had to deal with this dilemma until now. I think what we’ve decided (being that we’re not even close to FI) is to invest all extra money in a non-retirement account. We will still put 15% into retirement accounts, but any extra stays in regular investment accounts. Then, if we decide that we have enough money to be FI, we’ll pay off the house using that investment money in order to lower our monthly expenses. I agree with you, in order to consider myself FI, I want to be completely debt free.

  6. Pingback: Weekly Recap – June 28th, 2013 | Common Cents Wealth

  7. Pingback: Link Loving {June 2013} | No More Spending

  8. Nice post Michelle! Great discussion topic. I plan to be entirely debt free soon and can’t wait for the day. The term “independence” implies that we are not tied into or connected with someone else. It means that we are free from the controlling influence of others and their authority. I’m not sure how we can say we are truly independent if we owe other people (i.e. banks) money. Are they not technically still in control of that asset until the debt obligation is paid? Until we owe nothing, our financial freedom is limited. Just a thought.

  9. I am with you, Michelle! I want to get rid of ALL the debt. Of course, I’m a big proponent of Dave Ramsay’s philosophies and I can’t wait to eliminate all of our debt. Let’s say your total debts cost $2500 a month.. can you IMAGINE what you could do with that much money a month as opposed to paying off a $40 sweater that is now costing you $65 because it was put on a credit card?! Ahh, can’t wait to smell that freedom!

  10. I will feel as though I’ve reached financial independence when I can choose to work on what I want, when I want. I’d been telling myself for the longest time that my student loans are “good” debt, yet those monthly payments force me to work a job I’m not enjoying.

  11. Having debt is not the end all be all for financial independence. But it does make it easier to enjoy life by freeing up as much cash flow as possible. I will happily state that I fully believe in being debt free, and I am striving towards that goal.

  12. Pingback: Carnival of Financial Independence, 18th edition

  13. The subject of debt is a very interesting and emotional one, and as Matt correctly stated, there is no one right answer as individual circumstances vary. However there are good debts and bad debts. For good debts, you take the loan and someone else pays for it while you retain the asset (the item pays for itself). For bad debts, you pay for it by yourself and can drown trying to keep up.

    Take investment real estate – how long would it take you to save say $2M?

  14. Pingback: Money Pros Carnival (Long Weekend Edition)

  15. Pingback: Yakezie Carnival | Making Sense Of Cents

  16. Pingback: Finance Inspired's Edition of Carnival for Young Adults - Finance Inspired | Finance Inspired

  17. It is definitely necessary to get rid of debt although it is very difficult to achieve this. Perhaps, lowering your expenses can be the best thing to do. It’s a great relief to be financially independent.

  18. Pingback: Carnival of Retirement – 77th Edition - Carnival of Retirement

  19. My husband and I have been debt free for many years, other than our mortgage. We would LOVE to be able to pay off our mortgage. I am a big follower of Dave Ramsey, author of The Total Money Makeover. I don’t care what anyone else says, having no debt would be true freedom. Imagine all of that money every month to do whatever you want with!!

  20. Pingback: Carnival of Financial Independence, 19th edition

  21. Pingback: Carnival of Retirement 07.15.13 — Fat Guy Skinny Wallet

  22. Pingback: Carnival of Retirement – 78th Edition - Carnival of Retirement

  23. Pingback: Fearless Men's Most Wanted

  24. Pingback: Carnival of Retirement | MoMoneyMoHouses

  25. Pingback: Carnival of Financial Camaraderie | MoMoneyMoHouses

  26. I’m a firm believer that you need to become 100% debt-free before reaching financial independence, but you list a couple of good points why it can be beneficial.

    I’m featuring this article in my round-up today!

  27. Pingback: Financial Freedom Pages – Volume 3

  28. Pingback: Carnival of Financial Camaraderie – Fincon13 Edition — Faithful With A Few

  29. Pingback: Carnival of Retirement - 89th Edition |The Frugal Toad

Leave a Reply

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