Should You Really Become Debt Free?

Becoming totally debt free is an unbelievable accomplishment and a great achievement for those who are disciplined to pay down their debts. Is it really smart though to become completely debt free?

Depending on your financial situation, you might be better off hanging on to some of your loans and spreading your payments over time. Take student loans for example, which are some of the cheapest forms of long term debt. If you have multiple student loans, consolidating the loans and negotiating longer repayment terms might be the prudent move over paying off the loans in full.

Here’s why:
* Up to $2,500 in interest paid on your student loans is tax deductible if you meet income requirements.

* A 10% return from an investment is greater than the 5% interest you are paying on the student loan. Reinvest your earnings back into your investment, and over time compound interest kicks in to generate massive gains.

*If you invest the money in a tax sheltered IRA or 401k instead of paying off the loan, you are investing pre-tax money, which lowers your realized income - which means you pay less income taxes. You could also take advantage of company matching programs if offered by your employer’s 401k plan.

*Student loans are the lowest forms of debt. If they are not they should be, so consolidate the loans. Focus on paying off all other loans first before even considering paying down your student loans.

If you have no other debts and are in the position to pay down a big chunk of your loan, or pay it off entirely, you are really in a win-win situation. You could choose to invest that money to help boost your wealth accumulation, or you could give yourself peace of mind by paying the debt off entirely. Either way, you are making a wise decision with your money and you have put yourself in a great position to have these options.

The same holds true with low, fixed rate mortgages. Wouldn’t it be great to have no housing expenses? Owning your home free and clear would greatly improve your personal income-to-debt balance sheet, or cash-flow. On the flipside, it is possible to invest that money to earn more money while time and compound interest make you even wealthier.

For info on consolidating your student loans, visit www.finaid.com and Sallie Mae. Money Magazine also offers a student loan calculator to determine how quickly you can pay off your student loans by making a higher monthly payment.

Millionaire Money Habit: If you are in a position to pay off your remaining low-interest loans in order to become debt-free, remember to consider the tax incentives for continuing to pay interest on your loans over time. Is being completely debt free more satisfying to you than investing the money you have to pay off the loan in order to accumulate more wealth?

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Dennis Zabawa is an Leading Authority in Business Funding. Dennis is available to come and be a speaker at your next event. He has a great topic, "Why are you not wealthy?" For further information, please visit the website, www.creditiswealth.com