Independence Day 2024: Why you should strive to become debt free

India celebrates its 78th Independence Day tomorrow.
This Independence Day is a great time for… take concrete steps to become debt free. When the debt level It is exorbitant, not only jeopardizing your wealth creation plan but also reducing a considerable portion of your interest income.

Let’s understand this with an example. Suppose your income is ₹2 lakh, and 10 percent of this income goes towards paying interest; then you are left with ₹1.80 lakh after payment of interest.

Now, imagine if you didn’t have to pay this loan. You’d have a bigger income that you could save and invest.

“To be financially free, one must be debt-free. This is a prime condition to be considered financially free. But to create long-term wealth, is it necessary to be debt-free forever? Not really. Creating long-term wealth is a process that one needs to follow with discipline, focus and meticulous planning,” says Preeti Zende, Sebi-registered financial advisor and founder of Apna Dhan Financial Services.

“I often tell my clients to only borrow money when absolutely necessary. It is better to delay gratification than to borrow money to spend,” says Deepak Aggarwal, a chartered accountant and wealth advisor in Delhi.

Why you should pay off your debts first:

1. Obstacle in wealth creation:Debt can be a huge drag on wealth creation and can slow down the process of achieving your financial goals while on the path to prosperity. Financial freedom.

Therefore, it is imperative that you settle your debts as soon as possible to achieve your financial goals as quickly and optimally as possible.

2. Theft of your savings: The old saying goes that a penny saved is a penny earned. If you don’t have a loan to pay back, you can use the money to save and invest.

3. When to resort to debt: Whether you want to buy a car, go on vacation, or invest in property, there are two ways to do it: save money over time and eventually buy it, or borrow money Buy the asset and repay the loan over a period of time. The first method is always more financially sensible, unless you need to buy something urgently, which would otherwise take several years.

“Good debts are certainly helpful as they help you build your assets and improve your knowledge and skills. The first example is the education loan. With an education loan, you can take a course that helps you improve and increase your primary income in a more significant way to achieve financial freedom early. The second example is a working capital loan or a business loan that helps you expand your business and increase business income manifold. So, you can have good loans in moderation to help you achieve long-term wealth creation early; but yes, excessive good loans also affect your finances,” says Zende.

4. The power of a habitThe problem with borrowing to acquire assets is that it quickly becomes a habit, which should be avoided at all costs.

Before you know it, you’ll have multiple loans to pay off and lots of automatic debits, draining your savings account. Not only is this financially irrational, but it can also create anxiety for borrowers.

5. How to avoid a debt trap:Many people who earn a good salary take out loans to acquire assets. As a result, they invariably fall into the debt trap.

So, on this Independence Day, make a conscious effort to get out of the debt trap and accelerate your journey towards wealth creation and financial freedom.