The question of when to be debt-free is a complex one, with no single answer that applies to everyone. It depends on a variety of factors, including your age, income, expenses, and financial goals.
However, there are some general guidelines that can help you determine when it might be the right time for you to be debt-free.
Why 45 May Not Be the Ideal Age to Be Debt-Free
Kevin O’Leary, an investor on “Shark Tank” and personal finance author, has said that the ideal age to be debt-free is 45. He argues that this is the time when you should be focusing on retirement savings, as you are entering the last half of your career.
However, Rachel Sanborn Lawrence, advisory services director and certified financial planner at Ellevest, disagrees. She says that aiming to be debt-free by 45 may be ill-advised for many people, as it can mean leaving money on the table.
Sanborn Lawrence argues that if the interest rates on your debt are below 5% to 10%, it often makes more sense to invest your extra cash in the stock market, which has historically earned at above this rate. She also points out that mortgages are at historic lows right now, so someone with an interest rate at 3% or below shouldn’t feel pressured to pay off their home quickly.
“If you are borrowing money at a lower rate than you’re able to make on that money, you’re going to end up net positive,” says Sanborn Lawrence.
Who Should Be Cautious with O’Leary’s Advice?
Sanborn Lawrence also warns that women, and especially women of color, should be cautious about O’Leary’s advice. She argues that because of the gender wage gap, women’s salaries tend to peak at a later age than men’s, which means they have less time to save for retirement.
She also points out that women are more likely to take time off work to care for children or other family members, which can further impact their earnings potential.
“As women, we tend to need to save more earlier on in our career,” says Sanborn Lawrence.
When Should You Really Be Debt-Free?
So, when should you aim to be debt-free? Sanborn Lawrence says that a good goal is to be debt-free by retirement age, either 65 or earlier if you want.
However, she also says that it’s important to have a holistic view of your finances and make sure that you’re not neglecting other important goals, such as saving for a down payment on a house or starting a business.
If you do plan to carry debt past retirement age, it’s important to work with a financial planner to make sure you have enough income to cover the cost and understand how this debt might affect your heirs.
How to Get Started on Your Debt-Free Journey
If you’re ready to start your debt-free journey, there are a few things you can do:
- Create a budget: The first step is to create a budget that tracks your income and expenses. This will help you identify areas where you can cut back on spending and free up more money to pay down debt.
- Prioritize your debts: Not all debts are created equal. Some debts, such as credit card debt, have high interest rates that can make it difficult to pay them off. Other debts, such as mortgages, have lower interest rates and can be paid off over a longer period of time. It’s important to prioritize your debts and focus on paying off the ones with the highest interest rates first.
- Find ways to increase your income: If you can increase your income, you’ll have more money to put towards debt repayment. This could involve getting a raise, starting a side hustle, or selling unwanted items.
- Make extra payments: Once you have a budget and have prioritized your debts, you can start making extra payments on your debt. This will help you pay off your debt faster and save on interest.
- Consider debt consolidation: If you have multiple debts with high interest rates, you may want to consider debt consolidation. This involves taking out a new loan with a lower interest rate to pay off your existing debts. This can save you money on interest and make it easier to manage your debt.
Getting out of debt can be a long and challenging process, but it’s definitely worth it. By following these tips, you can start your debt-free journey and achieve your financial goals.
Additional Resources
Here are some additional resources that you may find helpful:
- The National Foundation for Credit Counseling: https://www.nfcc.org/
- The Consumer Financial Protection Bureau: https://www.consumerfinance.gov/
- The American Financial Services Association: https://www.afsaonline.org/
Consider a debt consolidation loan if you have high-interest credit cards that will take years to pay off in order to potentially pay off the debt at a lower annual percentage rate. SoFi assists consumers in refinancing credit card debt and other high-interest loans by providing personal loans up to $100,000, contingent upon creditworthiness.
Paying off debt is a personal decision based on a variety of variables. If you have multiple forms of outstanding debt and you plan to retire soon, you might want to speak with your financial advisor or use some free tools to calculate the total cost of your debt over time.
Then take some time to calculate how much you want to save for retirement. Vanguard offers a retirement calculator that lets you input your current age, how much you can afford to save monthly for retirement and what your ideal retirement age is. See how much youd need to save to reach your retirement goal and then consider how much your debt payoff plan might be holding you back.
Imagine what it would be like to have a mortgage after retirement, when your income might be lower. Then, you must determine whether you can live with that. Likewise, if you find comfort in having an asset to pass on or in owning your home outright, consider that when making your choice.
It would make sense for you to heed Oleary’s advice and pay off any high-interest debt you may have, such as credit card debt or an auto loan with an annual percentage rate in the double digits, as soon as you can. If you don’t prioritize a plan of attack, carrying a credit card balance can easily cost you thousands of dollars in interest and take years to pay off.
Achieving Financial Freedom: At What Age Should You Be Debt Free?
Learn How to Use the Power of Rollover Payments to Get Out of Debt Faster.
Having debt can make it feel like a burden that prevents you from leading the life you desire. However, this doesn’t have to be the case! You can accelerate your path to financial freedom with a little self-control and a tried-and-true method like Roll Over Payments. So let’s examine Roll Over Payments in more detail and discuss when it’s best to aim to be debt-free. In order to answer the question, “At what age should I be debt free?” we want to assist you in determining the best route to financial freedom.
By What Age Should You be Debt Free? | SUBSCRIBER $ REVIEW
FAQ
What is the ideal age to be debt free?
How much debt is normal at 25?
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Generation
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Average total debt (2023)
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Average total debt (2022)
|
|
Gen Z (18-26)
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$29,820
|
$25,851
|
|
Millenial (27-42)
|
$125,047
|
$115,784
|
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Gen X (43-57)
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$157,556
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$154,658
|
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Baby Boomer (58-77)
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$94,880
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$96,087
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How much debt is normal at 23?
At what age should I have my house paid off?
What is the ideal age to be debt-free?
Kevin O’Leary, an investor on “Shark Tank” and personal finance author, said in 2018 that the ideal age to be debt-free is 45. It’s at this age, said O’Leary, that you enter the last half of your career and should therefore ramp up your retirement savings in order to ensure a comfortable life in your elderly years.
What is the best age to pay off debt?
But if taking on debt in your younger years is considered the status-quo, what’s the best age to pay it off by? The answer, CNBC Select found, depends on a few things. Kevin O’Leary, an investor on “Shark Tank” and personal finance author, said in 2018 that the ideal age to be debt-free is 45.
Should you be debt-free by 45?
Kevin O’Leary says you should be debt-free by 45. This financial planner disagrees Ellevest’s Rachel Sanborn Lawrence weighs in on why you shouldn’t necessarily try to be debt-free by age 45. “Shark Tank” investor Kevin O’Leary has said the ideal age to be debt-free is 45, especially if you want to retire by age 60.
Are you debt-free if you retire?
In a perfect world, you would be debt-free by the time you retire. That scenario is not realistic for many Americans, however. Householders in this age group who have debt carry an average debt of $105,250. Among those in this age group who have a primary residence debt, average mortgage debt is $152,890.