Achieving Financial Freedom: At What Age Should You Be Debt Free?
Discover How You Can Become Debt-Free Sooner with The Power of Roll Over Payments
Debt can feel like a weight that holds you back from living the life you want. But it doesn’t have to be this way! With a little discipline and a proven strategy like Roll Over Payments, you can expedite your journey to financial freedom. So, let’s take a closer look at how Roll Over Payments work and explore the ideal age at which you should aim to be debt-free. Our goal is to help you find the best path to a debt-free life and answer the question, “At what age should I be debt free?”
The Power of Roll Over Payments: A Game-Changer in Debt Reduction
Roll Over Payments are a simple yet effective strategy that can make a significant difference in how quickly you can pay off your debts. By allocating extra funds to your highest-interest debt and rolling over those payments to the next debt once the first one is paid off, you can save both time and money in the long run.
But how does this strategy affect the age at which you can be debt-free? Let’s consider an example to help you understand the process.
These steps will help you pay off each debt quicker as time passes. Here are the steps:
Start with minimum payments on each of your loans.
Take the loan or debt with the highest interest rate, typically credit cards, and add $50 to the payment. (see our PowerCash post for ideas on coming up with this money.)
Once the first loan is paid off, “roll over” what you were paying into the next debt.
The idea is to keep the total monthly cost the same price until you are debt free. The rate at which your debts disappear grows quicker as time passes because a greater percentage of each payment is applied to your balances while your monthly cost never changes. Why should you choose the Roll Over Method? The answer is simple: Interest. If you’re using the minimum payments or the recommended plans set by the lender, it could take half your life to pay off all your debt.
Let’s look at an example:
The average American College student graduates at 22 years of age with student loans and credit card debts, and by age 28 buys his or her first home, with total debts equaling nearly $300,000.
$40,000 Student Loans
$5,000 Credit Card Debt
$250,000 First House Purchase
Grand Total: $295,000
We’ll take this graduate through three different routes. The Standard Route, then the Extended Route, and finally we’ll use the Quick Route, which involves Roll Over Payments. These scenarios assume the graduate starts making payments on his or her credit cards and student loans at age 22 and buys his or her first home at 28.
The Standard Route
The Standard Route is what credit companies and lenders recommend. If this is the graduate’s choice, he or she will be debt free around the age of 58. It will take a total of 36 years to complete. It’s a whole lot of time but it’s the standard for a lot of people. Here is what the graduate will end up paying on the Standard Route:
Student Loan: Repaid $53,400 ($13,400 interest) 10-year term: finished at age 32
Credit Card: Repaid $8,702 (3,702 interest) Using minimum payments: finished at age 37
Mortgage: Repaid $483,480 ($233,480 interest) If a first and only loan on a 30-year term: finished at age 58
Total: Repaid $545,582 ($250,582 interest)
The Standard Route is a viable option but will end up costing a substantial amount of interest.
The Extended Route
This is a financially unsafe option. On this route, the graduate won’t be finished paying off the loan until he or she is 88 years old. We’ve also adjusted the mortgage to be more realistic, assuming the student has had a mortgage on multiple homes throughout his or her life. Additionally, this route assumes the individual carries a $5,000 balance on his or her credit card indefinitely, making a minimum payment but never paying off the balance:
Student Loan: Repaid $77,400 ($37,400 interest) Extended 25-term loan: finished at age 47
Credit Card paid $106,000 ($66,000 in purchases plus $40,000 interest… which is insane!) –$150 monthly payments.
Mortgage: Repaid $1,971,600 ($1,118,042 Interest) After upgrading homes every 10 years while doubling the mortgage each time. By the age of 58, the graduate will have a million-dollar mortgage that won’t be paid off until he or she is 88. Yikes!
Total: $2,155,000 ($1,195,000)
Obviously, this is not the preferred option. The graduate will spend his or her entire life in debt. The interest will grow to the point where it’s unpayable. If it’s unpayable then you’re going to financially fall apart. The extended route is the longest route to paying off your debt and the quickest route to bankruptcy.
The Quick Route:
This is the best option because it uses Roll Over Payments. It takes some effort, but it literally pays off in the end. By adding just $50 to the minimum payment of the account with the highest interest rate (in this case, the credit card debt) while rolling each payment into the next loan, the monthly cost will never change, but the debts disappear at a rapid rate.
Credit Card: $5600 ($600 interest) paid off at age 23.3
Student Loans: $50,560 ($10,560 interest) paid off at age 29.3
Mortgage: $410,420 ($160,420 Interest) Paid off and debt free at age 41.6
Total Paid: $467,180 ($172,180 Interest)
This straightforward comparison demonstrates the immense power of Roll Over Payments and how they can significantly impact the age at which you can be debt-free. Keep in mind that everyone’s financial situation is unique, and the ideal debt-free age for you may vary. However, by employing the Roll Over Payments strategy, you can substantially reduce your time in debt, allowing you to enjoy a happier and more financially secure life sooner.
About the Author
Rick Munster
Rick Munster is a personal finance expert and author with over 21 years of experience in the credit counseling industry. He currently serves on the board of directors for the Financial Counseling Association of America and has written over 200 articles on personal finance. Rick's expertise has been recognized by several prominent online organizations, which have quoted him on issues related to credit counseling, debt management, and financial education. With more than 20 years of experience at Money Fit, a non-profit credit counseling organization, Rick has established himself as a trusted authority in the field of personal finance.
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Housing Counseling and Education Fee Schedule
Online Education Program Fees*
Homebuyer Education Course: $59 per participant
- Self-paced courseavailable here, our online housing counseling and education center. Certificates will be automatically generated upon completion of the course (approximately 6-8 hours)
Rental,Fair Housing,Predatory Lending/HOEPA,Post-Purchase(Non-delinquency post-purchase workshop, including home maintenance and/or financial management for homeowners)Online Workshops: $49 per participant
- Approximately 1 hour each
Other Self-Guided Financial Literacy Webinars (e.g.credit,budgeting,homeless prevention,debt prevention): $0
One-on-one Counseling Fees*
Pre-purchase HomebuyingCounseling,RentalCounseling,Post-purchaseOwnershipMaintenanceandFinancial Management: $75
- Session by the hour
Reverse Mortgage/HECM Counseling with Required Certificate:
- $200†
Credit Report Fee: Paid Directly by Client
*Fees for all but our online education courses and workshops can be paid online by debit card, credit card, or PayPal or in person by cash, check or money order to: “Debt Reduction Services, Inc.” Registration fees are non-refundable 24 hours or less before the start of an in-person course or workshop. Certificates are non-transferable
*Fees may be waived for households with income of 150% or less of that identified on the US Department of Health and Human ServicesPoverty Guidelines Page
†Home visit counseling is available in 30 southern Idaho counties for potential HECM borrowers at additional costs to cover our travel (IRS reimbursem*nt rates apply) and staff time ($50 per hour or fraction there).
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Housing Counseling and Education Fee Schedule
Online Education Program Fees*
Homebuyer Education Course: $59 per participant
- Self-paced courseavailable here, our online housing counseling and education center. Certificates will be automatically generated upon completion of the course (approximately 6-8 hours)
Rental,Fair Housing,Predatory Lending/HOEPA,Post-Purchase(Non-delinquency post-purchase workshop, including home maintenance and/or financial management for homeowners)Online Workshops: $49 per participant
- Approximately 1 hour each
Other Self-Guided Financial Literacy Webinars (e.g.credit,budgeting,homeless prevention,debt prevention): $0
One-on-one Counseling Fees*
Pre-purchase HomebuyingCounseling,RentalCounseling,Post-purchaseOwnershipMaintenanceandFinancial Management: $75
- Session by the hour
Reverse Mortgage/HECM Counseling with Required Certificate:
- $200†
Credit Report Fee: Paid Directly by Client
*Fees for all but our online education courses and workshops can be paid online by debit card, credit card, or PayPal or in person by cash, check or money order to: “Debt Reduction Services, Inc.” Registration fees are non-refundable 24 hours or less before the start of an in-person course or workshop. Certificates are non-transferable
*Fees may be waived for households with income of 150% or less of that identified on the US Department of Health and Human ServicesPoverty Guidelines Page
†Home visit counseling is available in 30 southern Idaho counties for potential HECM borrowers at additional costs to cover our travel (IRS reimbursem*nt rates apply) and staff time ($50 per hour or fraction there).
Certainly! The article you've provided dives into debt management strategies, specifically focusing on Roll Over Payments as a means to accelerate debt repayment and achieve financial freedom. Let's break down the concepts discussed in the article:
Debt Services
The article revolves around various debt services, including debt relief, debt consolidation, debt management, and debt reduction services. It explores methods to manage and reduce debts effectively.
Roll Over Payments
The centerpiece of the article is the Roll Over Payments strategy, a debt repayment method where you allocate extra funds to your highest-interest debt and then roll over those payments to the next debt once the first one is paid off. This method saves time and money in the long run.
Debt-Free Age
The article delves into the idea of aiming for a specific age to become debt-free, analyzing scenarios based on different debt repayment strategies.
Financial Scenarios
It presents three scenarios:
- The Standard Route: Following the recommended payment plans, taking an extended period (around 36 years) to pay off debts.
- The Extended Route: A financially unsafe path leading to a lifelong debt cycle, paying exorbitant amounts of interest and never being debt-free.
- The Quick Route (Roll Over Payments): Adding a small amount to minimum payments on debts with the highest interest rates, significantly reducing the time taken to become debt-free.
Financial Expertise
Rick Munster, the author of the article, is presented as a personal finance expert with over 21 years of experience in the credit counseling industry. He's recognized for his expertise in credit counseling, debt management, and financial education.
Strategies for Debt Reduction
The article emphasizes the importance of strategies like Roll Over Payments to expedite debt repayment. It provides a detailed comparison of different repayment methods, highlighting the effectiveness of the Roll Over Payments method in achieving financial freedom earlier.
This comprehensive breakdown helps to understand the core concepts discussed in the article about debt management, specifically focusing on the Roll Over Payments strategy as a powerful tool for accelerating debt repayment.
