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:

1. Start with minimum payments on each of your loans.

2. 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.)

3. 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)