Being debt-free is a hot topic nowadays. Everyone wants to know how to pay off their student loans, credit card debt, or mortgage.
Some people want to be debt-free because they’d like to save for retirement or because they feel like they’re living paycheck to paycheck.
But many don’t know there’s a great side effect that can come with being debt-free: More happiness. Being debt-free isn’t just a financial state of being, it’s also a mentality that can extend to other aspects of life.
Being debt-free could provide more flexibility to spend time taking care of other things that matter, like family, hobbies, or travel.
Why Buying Things Doesn’t Lead to Happiness
Researcher Tim Kasser from Knox College has extensively studied how buying things affects the human psyche. His research found that those who are more materialistic tend to have more depression, low self-esteem, and antisocial behavior.
They also had more “headaches, backaches, sore muscles, and sore throats” according to the research.
The study evaluated people who were paid after doing an activity they previously reported enjoying. People who weren’t paid reported enjoying the activity more than those who were.
Kasser found that people who tended to be more materialistic were more likely to buy and spend more money on items that only bring fleeting happiness. And when that joy is gone, they’re left with a huge credit card bill.
In his Knox College bio , Kasser said, “My colleagues and I have found that when people believe materialistic values are important, they report less happiness and more distress, have poorer interpersonal relationships, contribute less to the community, and engage in more ecologically damaging behaviors.”
How Debt Affects Anxiety and Stress
The link between debt and anxiety has been extensively reported in studies and research over the years.
In a 2019 “Stress in America” survey from the American Psychological Association, 60% of people reported that money was the second-biggest source of significant stress in their lives. Other financial-related stressors were healthcare at 69% and the economy at 46%.
Specifically, 34% of adults worry about surprise expenses and 30% worry about saving for retirement. About 25% worry about having enough for everyday essentials. Another quarter of Americans worry that the economy will affect their ability to “get ahead financially.”
Though people with debt may have more stress and anxiety, it’s not clear if mental health problems lead to debt or if being in debt exacerbates already-existing mental health issues.
According to Student Loan Planner, one in 15 student loan borrowers with significant debt have considered suicide. And a 2017 survey by SoFi found that 43% of those with student loan debt have passed on health insurance and gym memberships due to that debt.
When in debt, stress and anxiety can feel overwhelming, so treats or indulgences seem like a good idea to help relieve those feelings and escape from financial problems. But becoming debt-free is like exercising or eating healthy. There’s no quick fix for many financial problems.
Paying off debt is typically a long-term lifestyle change. It can take years or even decades to become debt-free. Like losing weight, becoming debt-free can be a difficult adjustment. Don’t be surprised or ashamed if there are stumbling blocks along the way. It’s normal to struggle making any changes.
Plenty of studies have also indicated that having more money leads to happiness. A study from Princeton University found that people report higher happiness levels when they earn more, though any earnings after $75,000 a year led to the same happiness level.
What Stops People From Becoming Debt-Free
Some of the biggest obstacles to debt freedom are systemic, like stagnant wages and rising housing costs. These might be difficult to overcome on an individual basis.
Other factors are within an individual’s control, like the amount of spending. Brian Walsh, CFP® and Manager of Financial Planning at SoFi, said social media can be a major contributor to overspending.
This is especially relevant for those following influencers trying to sell products, brands hawking their wares, or even a cousin who’s always sporting a new outfit.
“Studies have shown that social media leads to comparing your lifestyle to others and increases the likelihood of spending more to avoid FOMO” (fear of missing out), he said.
To fix this problem, avoiding people who encourage spending more and contribute to guilt for sticking to a budget might be a good idea.
Walsh said he started to feel motivated to pay off his student loans after following SoFi and seeing success stories from other people.
“Ironically, the old saying ‘you become who you surround yourself with’ is even more important in the digital era,” he said.
How Being Debt-Free Might Help You Feel Better
Becoming debt-free might provide more options for people. They might consider quitting their job, starting a business, spending more time with family, or switching careers.
“Once they have extra room in their budget, it almost opens their minds and wallets up to save for exciting long-term goals such as retirement, college planning, buying a house, or starting a family,” Walsh said.
Being debt-free could also minimize the effect of emergencies and catastrophes. If a job is suddenly lost, it might be easier to get by without huge student loan and car loan payments to make. If an unplanned surgery arises, paying off medical bills might be less stressful without other loan payments coming due.
People who are debt-free might feel more free to spend money on items and experiences that could help make them happier and healthier. If a $300 student loan payment isn’t on the horizon, money could be set aside to take a vacation, sign up for a gym membership, or indulge in hobbies.
That’s another reason those who are debt-free might be happier and healthier. They might be better able to afford unexpected health challenges, many of which require money to solve.
They might have the means to pay for good health insurance, pay for a therapist, or sign up with a personal trainer. This is partially why those with higher incomes live longer , healthier lives.
Creating a Debt-Free Plan
Once spending is figured out, it could be a good time to start a budget. Walsh said tracking expenses and creating a budget is the first step to paying off debt.
“Knowing where you stand and what you spend is often overlooked but critical to accomplishing your goals,” Walsh said.
Tracking expenses is a way to develop a mindfulness around spending. When someone uses a credit or debit card, they might not feel the weight of those purchases. It’s easy to forget about the $100 boots until it appears on a credit card statement two weeks later.
After creating a spending plan, SoFi members can speak one-on-one with a SoFi financial planner to discuss debt payoff and other financial goals, at no cost. These goals might include buying a house, saving for retirement, setting up an emergency fund, and more.
SoFi financial planners can customize a debt payoff plan that might explain which debt to pay off first, how to stay focused on the goal, and how to change spending habits.
“We have found that the simpler this process becomes, the more likely someone is to follow their plan,” Walsh said.
It may take a few weeks or months to get in the habit of using a debt payoff plan. Don’t beat yourself up if your spending plan goes awry.
Becoming Debt-Free
Walsh said the first step to becoming debt-free is to address goals, concerns, and priorities. Goals can include working part-time when kids come along or becoming self-employed. Concerns can be how to save for retirement or a child’s college education.
“By starting with the why, it typically helps frame decisions much better,” he said.
For example, if a goal is to save for a child’s college education, it might feel like a good reason to skip takeout in lieu of eating at home. The “why” could help with making adjustments without feelings of being deprived or frustrated as could happen without a strong goal.
It might be a good idea to align debt-free goals with a top priority. If traveling around the world sounds fantastic, a picture of a particular destination next to a credit card in the wallet might be a good deterrent and reminder.
Remember, spending money isn’t a bad thing. It just matters how. Giving money away to charity or developing interesting hobbies might make someone happier than buying a new sports car.
Paying Off Your Debt
Looking for options to help pay off your debt? A personal loan could be an option to help take control of your debt. For example, you could consolidate your credit card debt with a personal loan, that way you can focus on one payment rather than multiple different credit cards.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
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