Should repaying debt be an obsession?
Some people never take control of their finances because they’re afraid that doing so would require them to give up everything they enjoy. I don’t believe that’s true. Getting out of debt requires hard work and sacrifice, but that doesn’t mean you can’t have fun along the way.
Aaron recently sent the following e-mail:
You paid off $35,000 in debt in just over three years. Does that mean you were balls-to-the-wall dedicated and had no frills and were dour-faced the whole time? Were you using every spare penny to pay debt? Did you give up all luxuries and all fun? Did paying off the debt consume you?
That’s my greatest fear about the whole thing. What makes it worse is that I’m serious about getting out of debt — I just don’t want to be miserable in the process. Especially since I’m going to be married soon.
Any encouragement you can give would be greatly appreciated.
When a person decides to make a lifestyle change — financial or otherwise — there’s a temptation GO ALL OUT. With the zeal of a new convert, you leap headlong into a life of thrift, for example, giving up everything you valued before.
There’s a problem with this.
Most people who leap from a lifestyle of deficit-spending to one of extreme frugality find the waters very, very cold. It’s a shock to the system. It feels oppressive. They struggle to stay afloat, but before long decide they’re going to sink rather than swim, so return to the warmer, familiar waters, the waters of debt.
I made several false starts before I found my way. I would decide to give up comics completely, or to never buy another computer game. These sorts of goals are foolish. Nobody has that kind of god-like self-control. Everyone needs an indulgence now and then.
Rather than quit cold turkey, I think the best way to begin a life of frugality is by taking small steps. Small steps eventually become big strides, but only after you’ve developed your frugal muscles.
Testing the Water
When I was working to pay off my debt, I was not obsessed. I did not give up all luxuries and fun. I was dedicated, yes, but debt reduction did not consume me. For much of those three years, I was struggling to figure things out. I didn’t suddenly move from clueless spender to clued-in saver. It was a gradual process, one that’s not even wholly complete today.
I started to focus on debt reduction in October 2004. In January 2006, over a year into my quest, I had one of my worst financial months ever. I spent over $1,000 on comic books. (I was buying expensive hard-bound compilations.) I’m almost ashamed to admit that, but it’s true: for that month, I spent more than I earned.
That’s an extreme example, though. Most months I made smart decisions with money, and gradually improved my situation. Measures that seemed extreme at the beginning became much easier by the end. When I started to get out of debt, I thought of cable television as a Need. By the end of the process, I saw that it was a Want. That’s just one example; I cut back in many areas. But again, these changes did not occur overnight.
Finding Balance
For some people, the gazelle-like intensity espoused by Dave Ramsey is absolutely the right way to go. But I believe that the people who succeed with this sort of devotion are those who actually learn to enjoy extreme frugality. They don’t feel like they’re making sacrifices. The rest of us need some sort of balance.
In my case, my most austere period came after I had re-paid my debt. When I quit my job at the box factory last spring, I spent a few months being too frugal, and I was not happy. It was then that I discovered the balanced money formula, which I’ve mentioned frequently over the past few months. Adopting this technique helped me to continue saving while also allowing room for fun. The same thing can be done while you repay your debt.
Yes, you should cut back as much as possible. Yes, thrift and frugality are important tools to meeting your financial goals. But I believe it’s important to develop sustainable financial goals. If you’re miserable, or if you cut your spending so far that you cannot maintain it, there’s a risk that you’ll lapse back into old habits.
There’s no one right path to debt-free living. Each of us has different priorities. To find the way that’s right for you, you need to set financial goals, draft a spending plan that moves you in the direction of these goals, and then practice patient persistence. And let yourself have a treat now and then.
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There are 75 comments to "Should repaying debt be an obsession?".
Obsession– maybe. Laser beam focus– absolutely!
Debt is an enemy that must be destroyed as quickly as possible. The reason is it continues to grow through interest– the bad side of compound interest.
The faster you slay this dragon– the better!
What a refreshing breath of fresh air — the fact that you DON’T have to give up everything in life to be “fiscally responsible.” You tell ’em, JD! 🙂
Just because you have debt doesn’t mean giving up the life you want to live, it just means redefining the life you want to live to fit within your means at any given point in time. We can indulge in our vices, but only to the point where they fit comfortably within our earnings, sometimes right along paying off past mistakes.
I agree completely that there has to be some sort of balance, or the frugality that allows us to pay down debt won’t last. My weakness is books. I love to read and whenever I hear about a good book, I want it. I have started checking with my local library first, and have saved a lot of money as a result. However, our library doesn’t have many of the books I’d like to read. I have come up with a plan to purchase fewer books, but to tell myself that I’m not EVER going to buy another book again is unrealistic.
The process (as with anything in life) is a marathon and not a sprint. It’s all about setting a goal and making small changes and small decisions each and every day. Over time, these add up to the results you’re after. It has taken us several years, a new business, and a second job (delivering pizzas) in order to put ourselves in a position to get out of debt. While we’re not their yet, life is great!
I think how you frame it matters even more.
If you consider it “sacrificing” it will always feel painful.
If you consider it “making choices about what matters most to me” it will make you feel powerful.
Aaron — the question about debt repayment is what your personal financial reality is:
Income < Expenses – you need to change your lifestyle significantly, or find a means of acquiring more income. You may need to be “gazelle intense” just to stay afloat.
Income = Expenses – Likely the debt payment is what is preventing you from making meaningful progress towards saving for retirement, having an emergency fund and developing financial security of any type. You’re living paycheck to paycheck and any unexpected expense is going to put you in “Income Expenses – You have some cushion in your life, but it’s likely that the debt obligations are taking away your ability to contribute in a meaningful way to retirement, build wealth or invest. The benefit, of course, is that you can tune the amount of money you want to put towards debt repayment and consequently know how long you will be doing so.
The bigger question, of course, is what YOUR future plans are. Do you and your new wife want to buy a house? Have children? Is she going to stay home with the children? Do you want to travel? Do you want to further your education somehow? Are you going to need to replace your car soon? Retire at 50? Start a business?
When you start answering those questions, you’ll get an idea of where the debt is actually holding you back, and then you might get more excited about paying it down more quickly. Or you might realize that you (and your wife) may be OK with taking five years to pay it all off, and you want to do some traveling before you have kids. It’s your life, you choose how to lead it — but you know that you are making a conscious choice to lengthen your debt repayment time to get something else. Many, many people never make this conscious choice and spend a long time in debt.
That last part should be “Income > Expenses” (Income greater than Expenses)
I am into a (relatively small) debt of 15k (car loan). I am not obsessed but yeah obvisouly I want to pay-it-off asap. After paying all my bills and minimum loan payments, I was confused whether I should put all I am left with towards loan payments or towards savings.
Having established a 3-month emergency fund, now I have decided to divide it 50-50. Any thought, anyone ?
I think you have to find a balance and a style that fits you or both of you if married. I don’t think you can make any progress if you resent what you are doing. Until you are in the right frame of mind you will not do anything. It wasn’t until my wife and I took FPU that we finally were able to be on the same page. Too bad it took almost 13 years to get there but now that we are there things are going great. Thanks for all the great articles.
@Aniruddha — look up the “debt snowball” approach. I use a modified version where I’ll hold the money I want to use in my own account (or, more accurately, a sub-account) and when it gets to a certain amount I’ll make a big payment towards the debt.
So you certainly could pile all of your extra money in savings and just pay off the debt when you have enough there. It’s likely that the small amount of difference the interest on the debt and the interest on the savings won’t amount to much either way. The biggest risk using this plan is YOU — that you’ll be tempted to spend the money on something else other than paying off your car loan. If you just send the extra in to pay off the loan, there’s no risk of that happening.
Also, make sure to understand how to pay down principal only on your loan. We have had the best results sending in a separate check marked “Principal Payment Only” — otherwise, the bank will just apply the money to future payments on the debt, which is not the same thing.
I would say that obsession is the wrong word here. Dedication is better. For any lifestyle change you have to make sacrifices, otherwise it isn’t a real change (more like a mood-swing).
~DB
I find it’s just like “dieting” – if you go from one extreme to another (poor eating habits to say, atkins) the change is extreme and many times unsustainable. But, if you make gradual changes to your eating (or spending) habits over time, they become engrained and a part of your lifestyle, with much less risk for “relapse.”
@Jason: Thanks for a detailed response Jason, sounds like a plan! I will start trying this right away, I am confident I never spend money anywhere untill unless it’s needed. 🙂
@ Beth –
Libraries can borrow books from other libraries. It is called interlibrary loans. If your library doesn’t have a book you want, they can get it for you from another library.
I don’t agree with your assessment that people who are gazelle intense don’t see it as a sacrifice because they like living frugally. My husband and I just paid off $6000 in 7 months on about 30K take home. THAT was a HUGE sacrifice.
But it was worth it. I no longer have to sit down and write a check every month. I no longer have to think about all the things I wish I could buy for that $130/mo. We worked hard and sacrificed big to pay it off quick so that we don’t have to sacrifice small for 5 years and then go into more debt to buy our next car.
It was a huge sacrifice for a short time. And now, we have $130 extra dollars every month! We already have a list of all the things we want to do with that. 🙂
(Having said that, we also found that since we were in control of where our money was going, we were able to celebrate a great Christmas with some presents we really enjoy. Not a lot, but things that were meaningful and fun for the family.)
My theory is to get intense. Shock the system, but do so knowing that you will need to surround yourself with the right people and information to keep your momentum.
Oh man talk about close to the mark.
I’ve been chronicling my progress on the GRS forums for months now. It’s been a hell of a roller coaster, emotionally.
I have gone absolutely crazy; that “gazelle intensity” thing describes me perfectly. I am wearing out my socks because I’ve told myself I won’t buy any more until I pay the debt off.
On the one hand I feel better than I did before I started because I am doing something about my problems. I feel like I’m in charge for the first time in a long time. I can see small gains that will for a brief moment in time rocket me into the stratosphere. When I realized my net worth was positive a few weeks ago, it was a moment of euphoria.
On the other hand, hell yes this is miserable! I hate it so much I am so tired I want it to be over. But the thing is, I think I’ve felt this way the whole time I’ve been in debt, it’s just before I felt helpless instead of like I wasn’t trying hard enough.
Yes there’s stress in my life that wouldn’t be there if I weren’t going so dang crazy on debt elimination. But there’d probably be just as much stress if I kept piling debt on. At least this way there’s hope things can change some day.
Yep, you need dedication to the long-term goal, but it doesn’t have to take over your life. When you’re starting the process you have to devote more thought to the project because you’re training yourself into new habits, but, as with working out, once you’ve got the habit your behavior becomes somewhat automatic,
I come at financial responsibility from the perspective of one who has never had overwhelming debt but who chose to take a 55% in pay in 1995 in order to move to a place I wanted to live. This place has nearly as high a cost of living as the city I left, with much lower wages. In order to stay out of debt I had to make some pretty radical changes to my lifestyle. Some things I changed felt like a sacrifice, but when I weighed it against my long-term goal of staying independent and out of debt, it wasn’t so bad. Over time, my income has increased but my standard of living remains fairly similar. I do spend on small luxuries that make my life better (wine, good shoes) but I don’t spend much on things that don’t matter to me. I don’t think I’d have learned to distinguish between the two if I hadn’t needed to cut my spending.
How you spend is the ultimate values clarification exercise. If you (and your fiancee, if possible) work out what you most want and make a plan for achieving it, you won’t be sacrificing happiness, just immediate gratification. Make your plan one that meets *your* needs, not some arbitrary plan that you think you *should* do. It’s your life to live, and living it in a self-directed, self-controlled manner is empowering rather than misery inducing.
I agree with some folks here that you need to dedicate yourself, however; your right – it is very easy to become obsessed and in the same note, overwhelmed with debt reduction.
I find myself constantly having to step back and reevaulate my debt repayment goals so that I down drown but manage to keep happy at the same time.
We cut back more and more as we went along, but it didn’t feel like a sacrifice because it was gradual. At first it was hard to not spend my lunch hours shopping, but I was focused on paying off debt, and that outweighed my desire for clothes and other stuff that I truly did not need (truly…I had a closet packed full of clothes, some with price tags still on). The desire for many things disappears, and that actually feels really great.
Now we’re debt-free and we have an EF. We enjoy our money a little more, but I honestly don’t want so many of the things I used to waste money on, so a big chunk of our fun money goes in a travel fund.
If it seems overwhelming, just list all of your expenses and all of your debts, and look at anything you’re spending money on that isn’t that important to you. Start cutting there.
Personally I think it’s all about how a person feels about their debt. I would think the more worrisome the more obsessive one would be about it
Nice blog I can across it reading an article about how much bloggers make. I have a blog with a similar theme to yours. Just started mine in Dec 08. Looks like you have been around for a while
Good luck
Rob
What always puzzles me is how people equate money with fun. Some of the best times I’ve had required little to no money. Some of the best times for me usually involved friends, good conversation, cooking, taking a walk on the beach That may not help all the coastally challenged folks out there, but I’m sure you can find scenery wherever you live (sorry, Gary Indiana)
Several weeks ago, my sis and her husband came down for a visit. We could have gone to Epcot and spent a bundle. Instead we went to Old Town in Kissimmee, had a few rum drinks and hit the three story go-cart track. We had a blast and probably didn’t spend more than $20 each.
Ultimately, I believe the best fun is found and not bought.
Cheers!
Also, keep in mind that Dave Ramsey’s approach is not about only getting rid of debt — that’s only one step in the process. Later steps introduce filling out the emergency fund, funding retirement, college for the kids and building wealth. He also is pretty clear that he’s not against spending money on toys and fun as long as you have your finances in order (in addition, of course to giving some of it away).
The Total Money Makeover is pretty easy to read, I got it from my library and my wife and I read it in a week and agreed that we were going to use it as the basic framework for our financial planning. We don’t really identify ourselves as evangelical Christians, either — although Dave is most definitely one — but his advice and plan is most definitely applicable to anyone.
First things first. Sit down with your fiancee and talk about debt and spending habits. Make sure you’re both on the same page or you’re doomed to failure (just read the previous post here on GRS).
Once you know she’s on board then develop a spending and debt reduction plan. Getting intense is needed, but it doesn’t have to be all consuming. As other’s have said it’s all about balance. I can speak from experience that becoming a miser and not spending a dime more than is absolutely needed will have a serious affect on your relationships in the real world. I have my finances broken down into three catagories: Needs, wants and desires. I pay the needs first, including extra principal payments to my mortgage. For my wants, I have $100mo in “spending money” so if I want something I have to ask myself if I have enough. If I don’t then it becomes a desire and I either put it off to next month or farther out and save to pay for it. I’ll admit, late last year I borrowed $100 from my emergency fund when my big desire, a Canon EOS DSLR, went on sale and I still hadn’t saved up for it.
How fast do you want to pay off that debt? Personally I want to be totally debt free (including mortgage) by the time I’m 50. I have the plan and I have the means to do this, so I am. Be willing to let your goals slide a bit if they are unrealistic, but don’t give up. Being out from under a burdensome debt is a good feeling. You will sleep better at night knowing that, when your phone rings it’s more likely someone asking if you’re free to have lunch with them than a creditor asking you to pay them.
Good luck, from someone who’s been there, done that!
Here’s the catch 22 I can’t seem to escape from: as a result of the flailing economy we have had to cut back like most of the country. Cable, landline, going out to eat, etc. have all been cut out. Now that we are out of non-mortgage debt and are building emergency savings, we have very little left in the budget for “fun money.” Even when I allow myself to spend a little on myself, the tremendous guilt I feel afterwards negates any fun I get out of it. So, I am obsessively depriving myself of everything that is not a necessity or feeling guilty for spending any money on myself. It’s a lose/lose situation. How do I free myself from this mental financial prison?
I have often mentioned how I chose a slower debt repayment path because that is what works for me. Like a dieter, I’d tried multiple times to do hard core debt repayment, but after 3-4 months, I’d get frustrated by the strict lifestyle, and would relapse. I eventually realized that the only way I could succeed was if I chose a more moderate approach.
The difference between my current repayment and my previous failed attempts is night and day. Instead of just rushing in and making drastic changes, I took each step gradually, and didn’t move on until I was sure that I’d mastered it. I know some people feel that this is foolish–that I should just work and work until I’m fully debt free. Logically, I understand that and wanted to jump right in, but I feared that if I didn’t get to the heart of WHY my spending was out of control, even if I succeeded in clearing away my debt, I’d just see those zero balances as an invitation to go right back out and spend.
I basically followed these steps to get to where I am now:
1. Stopped adding to my debt. This may sound horribly obvious, but I don’t mean that I just froze my credit card in the freezer or cut it up. Stopping cold turkey would work short term, but wouldn’t teach me how to spend responsibly in the future. Instead, I worked on a larger paradigm shift, where I did not stop using my credit card, but I got to a point where I would not charge something new if I didn’t have the money to cover that new charge on top of my normal payment. I felt that if I could learn that skill, then once my debt was paid off, I’d be able to remain debt free. I actually spent a number of months in a sort of limbo, where I just worked on this point, until I felt that I’d mastered it.
2. Gained full control of my budget. I’d always kept a rough budget, but I had trouble accounting for yearly or intermittent expenses. Like most people in debt, these pop up bills always threw me for a loop. I played with my budget for a number of months, tweaking allocations and figuring out what method works best for me in terms of the irregular expenses. (In my case, that’s keeping a chronological list of the larger annual costs, and keeping a contingency amount in my weekly budget of about $20 to cover the smaller ones.) I made sure that my budget also included a small amount towards a baby emergency fund.
3. Created a solid repayment plan. Now that my budget was strong and I wasn’t adding to my debt, I knew exactly how much progress I could make in a month towards repayment. At this point, I felt comfortable consolidating under a lower cost HELOC, as I knew I was no longer in danger of going out and running back up the CCs. Also, at this point, I’d established the baby emergency fund, so I had that small cushion of safety.
4. Learned how to indulge myself in a responsible manner. As I mentioned in step 1, I taught myself the mental shift of not buying something unless I had cash put aside for it. I now plan ahead for indulgences, so that they do not incur debt. I still plan vacations and buy toys, but I only let myself do it when I have specifically saved cash for it. I actually enjoy the indulgences a lot more than I used to in my wild CC days. Partially this is because I’m choosier about how I spend my money, so they are more of an occasional treat, and partially it’s because when I do spend money, I know that I’m not taking away from any of my goals, so the guilt isn’t there. A side benefit is that because it takes me time to save the money up, I have plenty of time to research my purchases, so I save money that way as well.
I’d never try to argue that my method is “superior” to a hard-core, spend nothing until the debt’s gone sort of approach. I greatly admire the discipline and control that other people have. I recognize my own character flaws, however, and the slower approach seems to be the path to success that worked for me.
@ Wendy:
It’s NOT a lose/lose situation. You are now, due to strategic actions on your part, out of non-mortgage debt. That’s a big WIN from my perspective! Congratulations! If you had credit card debt…you couldn’t have afforded it in the first place. Also, does fun necessarily = spending money? I guess I learned early on as an underpaid social worker, that if I was going to have fun that I had to pay for, I had to find really cheap or free fun. Once you get your head around fun can be free…it’s not that big of a deal, and if you have to spend money to have fun, well…good luck!
Great post! When dealing with addicitions to food, smoking, or drugs, going cold turkey is necessary. I think with lifestyle changes such as getting out of debt going all out is not benefical.
I have, however, run into people who seem to be addicted to something and that something seems to drain thier bank accounts. In cases like those, deprivation may be the answer.
I think this is a personality style question. Some of us naturally fall into addictive/obsessive patterns. I do and for me debt repayment is an obsession. However, because I had no desire to fall into the “dour-faced”, over-sacrificing situation, I made sure to have budget catagories for the things I consider fun. Since I knew I would be obessive about following the budget, building in the pleasure was the key for me. This way there is no guilt or even question about there being money for pleasure while shifting the priority to becoming debt free.
So if Aaron is naturally obession, maybe the answer is shifting the goal from debt repayment to following a budget. And he can tailor that budget to repaying debt while including some of his personal pleasures.
@Brigid
I second that! I want to gain more from my debt reduction plan than just a positive net worth. I want REAL financial independence. I want my “wants” to not be so tied up in money. I hate to admit that going shopping sounds life a lot more fun than going on a picnic with DH. I want to learn to love the things that are important, without needing to equate spending money with having fun. I think (regardless of my financial state) that learning to enjoy these things will make me happier later in life.
To that end, its less about “should I go ahead and splurge so I don’t burn myself out” than it is “WHY do I want this item so badly?”
It does not have to be painful. It WILL be different, and change can be uncomfortable. The biggest change for us didn’t really have to do with money. It was all mental – once our priorities changed everything fell into place.
When my husband and I moved in together I had $3000 in credit card debt, and he had about the same, plus a $10,000 loan for his car. No savings. No budget. We moseyed along for a few years, not adding to our debt, but not paying it down or saving anything either. Our combined incomes are just under $100,000 gross, and we spent every penny of our take-home pay.
Then we wanted to buy a house. We are in Canada, and we didn’t have the same “no money down, no income needed” mortgages available to us. Thank god, in retrospect.
We didn’t know how we would get a down payment together. So we went to the library and took out some money management books, and based on the advice in those books we made a budget.
There was some trial and error, as we figured out what we could live with and what was too extreme. I am much more frugal by nature, but my husband will go along with most ideas. We had a clear goal – buying a house – which made it seem more like a fun challenge, instead of constant deprivation. Having a goal definitely makes it easier, and is something we need to focus on again as we have been coasting a bit here.
Building in wiggle room made it easier for my spend-y husband to get on board. We do an “allowance”. I rarely spend mine, but it’s there if I want it. His allowance is more, and he spends every penny. That’s what it’s there for. We never fight about money – if he wants to buy something that I think is a waste of money, it’s his money to waste.
We didn’t stop shopping, or going out, or having fun. We just do it a little differently. If we need new clothes or household stuff or electronics, we try to find it used. Hunting for it is actually fun – when my husband wanted a laz-e-boy type recliner, we kept our eyes peeled and found one in brand-new condition at a garage sale for $50. When he wanted an electronic keyboard to learn to play piano, we found one at a pawn shop. His computer gadgets come out of his allowance. My craft supplies come out of my allowance. If we are going on a trip we pack a picnic lunch. When we do spend money, we discuss it and spend it mindfully. We still go out to eat and go to the movies, but we do it once a week instead of all the time.
Not buying whatever we wanted whenever we wanted took some getting used to, but it was never painful. The rewards more than make up for any discomfort. We are debt-free, own 2 cars free and clear, have a fully funded emergency fund, a retirement plan, and have paid off $25,000 against the principal of our house in 3 1/2 years. We take regular vacations, give money to charity, and don’t feel like we lack for anything. We are more frugal than most people we know, but we have found our personal comfort level.
I realize that our debt levels were pretty low, and our income pretty high. We were cutting back because we wanted to, not because we HAD to. Having a foreclosure or job loss hanging over your head is definitely different. Still, I think the process is the same. Figure out what your goals are. Once you know what you really, really want your priorities can shift. When your priorities change it’s much easier to change your behaviour.
My wife and I have paid down a considerable amount of debt over the past 18 months. We still have a ways to go. With such a long road ahead, we’re trying to have some fun in between … making time for us and budgeting for some fun things/events while we attack our debt with passion. I think some fun helps ease the tough weeks when we’re saving like crazy to pay off our debts.
@Wendy – My spouse and I use the concept of “blow money” or “an allowance” to allow for personal spending without guilt. It’s added in as a line item in the budget, it’s withdrawn as cash, and can be used for anything we want to use it for — and the other can’t say a thing.
It’s possible to be TOO accurate in a budget, to where every purchase seems to require approval (and perceived judgement) by the other party in the relationship. Having some amount of “your own money” conveys the approval and removes the guilt. Even if it’s $10 or $20 a month, the psychological benefit can be huge when you can treat yourself to something and not feel guilty about it.
FWIW, we find that having about $100 each per month allows us to go out to lunch occasionally as well as go out to dinner with friends, or just get an occasional treat out. However, the actual amount may be wildly different for other couples and lifestyles.
Good job, though, on not having any debt other than your mortgage!
Shouldn’t be an obsession for a major factor in your decision making and life because it has such a huge affect on the outcome of your financial life.
@sandy
true, getting out of non mortgage debt is a great accomplishment and it is a HUGE relief for us both! i don’t HAVE to spend money to have fun, but sometimes it’s nice to buy those shoes even though i don’t need them or go out to that expensive restaurant when we could cook a nice meal at home. we enjoy lots of free things, too, like hiking and camping with our 2 crazy dogs, or going for a bike ride, or spending time with friends. i’ trying to balance between saving for goals, having cheap/free fun, and having the occasional splurge (without feeling guilty).
@jason
i have budgeted for us each $100 a month for “miscellaneous” money, but i still feel guilty even though I have budgeted for unnecessary spending! After I buy something I think, that could be money I could have hoarded away, getting us that much closer to our goal that much faster. It takes the fun right out of it! We do discuss any large purchases before making them (over $75 is large to us) and have a 24 hour rule before purchasing something. I know that money doesn’t buy happiness, but saving it hasn’t been a picnic either… I guess I am just going through “spending without worry” detox!
Hi JD, it’s MP here. 😉
As you know, I did the same thing when paying off my debt, and it’s such a relief to hear your moderate POV. I sometimes feel like my backside is still sore from the public beating I took for admitting that I lived life AND paid back debt, and that felt right for me (for us). In case your readers would like to check out my journey (with the Women in Red on MSN Money):
http://articles.moneycentral.msn.com/SavingandDebt/ManageDebt/after-5.5-years-finally-debt-free.aspx
Obsession can be healthy and as they say, “everything in moderation, including moderation.”
It takes each individual to know what will work for them. As JD makes very clear in most of his posts, there is no prescribed approach for everyone, no “one size fits all.”
You probably know if becoming obsessed with something will help you reach your goals lightning fast or burn you out well ahead of the finish line because you’ve probably tried it before. Learn from your past mistakes and don’t try to evaluate each situation in isolation because every facet of who you are will affect the outcome of the decisions you make.
Trust yourself! You know what’s best for you better than anyone else. Get Rich Slowly is an awesome place to find and maintain motivation to achieve your goals, but in the end, the right answer lies entirely within YOU.
@Wendy — maybe you should donate some of your $100 somewhere — church, a charity, your library or just walk up to someone and give them $10. Perhaps you could take someone you know out to lunch. Maybe you could save up and surprise your (I assume) husband with something he likes to do but you “can’t afford” — a concert, sports event or really fancy restaurant.
I don’t think you should feel guilty, though.
It just depends on personality. When my husband and I have a few thousand consumer (credit card) debt – we focused very hard on it and paid it off quickly. Same way when I borrowed about $15k from my dad for a car – I became very focused on paying that debt as soon as possible. That focus has probably been the main reason we haven’t gone into any other consumer debt – I hated owing that money – especially on something that was depreciating before I could pay it off.
The house is a different matter entirely. I can’t get totally focused on several hundred thousand dollars. I’m focused on paying it off early, but that means paying it off in increments – I can’t look at the final goal because it is just too daunting.
When talking about debt, I think it is important to first identify if you have good debt or bad debt.
Good debt = A debt incurred to increase assets or income
Bad debt = A debt incurred to acquire a liability
I have quite a bit of debt but all of it is for my vending business which doubles my income and net-worth.
Brandon
In theory, I love the gazelle-like intensity espoused by Dave Ramsey and others, for goal-attainment in general.
In reality, it just doesn’t work that well for me. My attention span quickly wanes and I find that life tends to get in the way.
Via David Bach and Tim Ferriss, I’ve had better success by changing my environments and setting up more automatic approaches.
For example, when I do my budget each month, I pencil in 5% to 10% of my income for savings as a bill that must be paid–before any of my actual bills.
I’m much more likely to meet my savings goals by getting that money in the bank and out of my hands at the beginning of the month (before other expenses come up) than I would be by trying to save whatever’s left at the end of the month.
For me, it’s about defining the goals–build a 3 month emergency fund and eliminate debt (and especially not taking on any more debt)–and then crafting simple (preferably automatic) methods of meeting those goals.
I think “small bites” might work better for someone who’s never had any discipline regarding spending. I can equate it with going on a diet – try giving up one “bad” food at a time, so it’s not so earth-shattering. I find it’s easier to adapt to new behaviors if you change your habits a little at a time.
I think if there is severe debt, the obsession needs not adding to the debt while paying down the existing debt.
The faster you can eliminate debt the better, of course, but the important thing is getting there somehow. An obsessive approach isn’t necessary.
I got obsessive, but didn’t start out that way. I started on a 7-year plan to eliminate all debt. Then about a year and a half in, I lost my job. Once I landed on my feet, I went all in, because I didn’t want to ever be in the situation again of having no job and having $2,000 worth of bills that still have to be paid.
The result was that I ended up being out of debt, including mortgage, in around five years. Worth it? You better believe it!
In contrast to the implication of the e-mail that prompted the initial article, I think the real issue here is NOT “what must I sacrifice to get out of debt quickly (or be obsessed by it)”, it is “what choices am I prepared to make in order to live within my means?” My family and I started the Dave Ramsey program about 8 months ago now. While I am probably a bit obsessed about the debt thing than my wife (she might say more than a bit), we both have the same goal in mind – to become debt free. I have things I was ready to give up to accomplish this, she was ready to give up different things – the key was to both COMMUNICATE about which things were important to maintain and what we could alter. Even Dave Ramsey says to include a category for “blow money” in your budget because, despite his zealousness, he realizes we are all human and aren’t willing to crawl into a cave til this is all done.
Interesting observation I made a while back when talking to our kids (9-14 yrs of age) about what has amounted to a “philosophy about spending” change in our household. I asked them what they feel they’ve missed out on since we got intense about debt reduction. They all thought for a while and, other than decreased dinners out, they couldn’t think of anything. They articulated that they actually LIKE being in the kitchen helping us make supper from scratch and the increased family time at our own table (where conversation can sometimes vary from what’s acceptable in a more public venue…). It’s all in the presentation and how you decide to look at the changes you’ve made. We can see the glass as half empty of half full. I suspect that those looking at a half empty one will focus more on the “sacrifice” it will take to become debt free while those looking at a half full one will point to the end goals and the perceived/anticipated benefits of achieving them.
For whatever the rambling’s worth…
Like loosing weight, it is best to start small and get to a rate where you are comfortable. Finding that balance is the key thing.
JD, I love reading your blog and find your advice very helpful. Today’s post, however, rubbed me the wrong way. Perhaps it is because I am still stinging from a recent veterinary bill of $1K. Many people are struggling with debt that was not begotten by “fun” spending. In my own case, my debt is primarily a result of medical costs. I have insurance (thankfully), but also have many disorders and a few medical emergencies here and there that still leave me with a bill to pay. I don’t make much money, but the bills have to be paid some way, therefore more credit card debt. It seems that every time I manage to save a little money for my emergency fund, an emergency comes along that wipes it out sooner than I can save it. This month, it’s the vet bill, last month it was taxes, the month before it was an overdue medical bill. I’m currently delaying a much needed repair on my car which will have to go on the credit card. So, “frugality” or “cutting back” in my case would look like this: allowing my cat to die; praying my car doesn’t die (public transit isn’t an option for me with my job location and schedule); finding a healthier roommate who doesn’t require time off work so that he won’t die; or figuring out how I won’t die without taking my necessary medications.
I wish I had shopping trips for shoes that I could give up or outings with friends or a vacation (which I haven’t had since 2002 – and that was a business trip).
Remember, some of us are facing real life struggles and not lamenting that we can’t take that cruise this year. I count myself lucky that our household (in a house we rent) hasn’t faced a lay-off, heaven forbid.
Yes! Everything in moderation. When I started paying off debt and a savings account, I started small. An extra ten dollars here and there, more when I could. Pretty soon I was seeing a difference and my savings was getting bigger.
I totally agree with this approach. In the old days I would take my GF to lunch 2-3 times per week. We have cut that out at a savings of $30 – $60 per week. We are also eating out less often on the weekends. I enjoy cooking, so this works out. Now when we do go out, we enjoy it even more because it is special instead of routine.
While I am on my $80K debt repayment journey I have cut back, but not completely cut out. Because every time I go extreme I rebound and end up spending.
Now, I am on a solid stable path (which require little attention on my part). I know how much is paid towards the bills, how much is going into my savings, and how much I have left for variable costs. If I choose to cut back on these variable costs then it allows me to have some fun. Like the family trip we are planning to Hawaii. It may take me 4 years on this stable path, but i am okay with that. As long as the debt keeps going down on track. 🙂
JD,
You omitted one crucial piece of advice: Don’t waste big money on a wedding celebration. Tell everyone that cash gifts would be appreciated more than ‘stuff’ and have an inexpensive wedding. No wedding planners, buy a few flowers from a florist, no fancy invites, no fancy ballrooms. How about a backyard wedding?
That 20k to 50k you save will be a huge first step. If fiancee not on board, frugality is not going to work for you
100% Debt repayment may be fine for some; but, debt can actually be a useful wealth-creation tool, when used in moderation.
The real problem is that people confuse Good Debt / Bad Debt with Cheap Debt / Expensive debt:
– The former applies only when you are deciding which debt to take on,
– The latter applies when deciding which debt to pay off first.
… a simple, but critical, differentiator for those of us who have SOME debt – and, isn’t that [almost] ALL of us?! 🙂
Great article – and a lot of the comments are really helpful too.
I’m very focussed on reducing our debt and will do almost anything to achieve that. My husband on the other hand doesn’t quite get it – although he is slowly coming on board. He does have a weekly amount he can spend however he likes although I find it hard to bite my tongue and not comment when I see how he has spent it.
We’ve cut some things out of our budget completely and have cut back in other areas too.
This year for my birthday I sent my close family a very specific list of what I wanted – this included those things I see as an extra – like vouchers for the movies, a massage, a magazine subscription. This way I feel like I’m not missing out on the things I wanted plus I haven’t ended up with random stuff as gifts that I would then need to find a home for.
For Mother’s Day I asked that my sons take me out for brunch instead of buying gifts. Again this was a really nice treat for me and I enjoyed spending time over a meal to chat and catch up.
I would like to hit our non-mortgage debt quicker and harder but am resigned to knowing it will take a while. I need to learn to be more patient!
I love this post! I completely agree. I’ve been doing a Dave Ramsey approach to start with – the emergency fund, the budget, the snowball. But what I can’t get down with is the thought of doing away with some of the things that bring joy to my life until I’m retired and I can THEN and only then (if I should still be alive and healthy) take that vacation I’ve dreamed of. Instead, in our house we balance our lives to take some pleasure now and defer others for later. We live frugally for much of the year and this allows us to fund our one must-have luxury (in our family that’s world travel).
I agree with those who compare it to dieting. I paid off about $35K too and even working 7 days a week it took a lot of time – about 3 and a half years after a few false starts. My step mother felt that I should put absolutely everything on hold, that even spending $15 on a the occasional meal out with friends was a shocking waste that would entirely derail my efforts. But I couldn’t take 3+ years out of my life. I have to live with the mistakes I made, with the emphasis on live. Her comments such as “if I owed that much money, I’d eat peanut butter sandwiches every day until I was out” ignored the fact that I was learning how to budget properly, to eat nutritious and varied meals on a smaller budget, to live my life on a less spendthrift scale than before. I couldn’t lock myself in a room and eat bread and water until I was out of debt – just thought made me want to run off and buy myself ‘treats’. Maybe if I’d owed a smaller amount that could be knocked out in a few months. But not for that amount of money.
Now having paid off $35K I’m trying to lose 30kilos (65 pounds) (I figure one is no less impossible than the other) The same sensible moderation approach seems to be working. Just really slowly 🙂
Excess is never good in anything. To me, it is most important to have a reasonable debt reduction plan identified and established. Once that is done, then the rate at which the debt is paid back becomes essentially moot.
My $0.02 (after taxes)
Len
Ok, I admit I haven’t read all the comments, so I’m probably repeating something a bunch of other people have already said.
But cutting out every frill in your life, all luxury, all fun money, while you pay off your debts is like going on a starvation diet and thinking you can maintain it while you lose 100 pounds.
It’s not sustainable.
We don’t have non-mortgage debt, but we’ve had to pare down our budget thanks to health issues, childcare and salary cutbacks thanks to our economy. There isn’t a lot of padding in our budget. (I think what hurt most when we had to re-balance it after the salary cutbacks was cutting down the amount of savings, but that’s another issue.) But even with our budget feeling very bare bones, we made sure there was still some money to cover gymnastics class for our 4.5-year-old and we put $40 a month into our “entertainment” budget, which is essentially anything that we find fun and makes us happy. It’s often spent on a babysitter so my husband can get some downtime when he’s not working or taking care of our daughter. (My health issues mean I can’t keep up with her if I’m alone with her.)
Anyway, that’s my two cents.
cheers,
Aviva
I personally have been about 70% of what Dave Ramsey calls “gazelle intense”. So every now and then, I really do let myself have fun. Kind of 1-2 events a month, going out for drinks or a small meal. I have budgeted $75 dollars a month for entertainment. Now, to be honest, I haven’t used it most months mostly because I have been preoccupied with family events. However, I think allowing yourself a little fun every now and then will help the habit of staying out of debt. Remember when debt was fun, and you traveled on your credit cards and shopped ’till you dropped? Remember when you buckled down and threw every last penny at your debt and sat at home totally miserable? If you are miserable, don’t you think it will be more easy to pick up the “fun”” (aka debt) lifestyle again?
We have done very well with our debt snowball, and are having fun knocking out our debt. Done with credit cards by next week. Done with the car at the end of the year, then completely debt free. We have enjoyed working extra to pay off our debt, but allowed a little fun and games, and also, we didn’t say YES to every extra job possible–we needed a little break!
We paid off $55,500 in 12 and half months and yes we were obsessive about it and yes we spent that year living very lean. However, we also took a paid for vacation together and we each took a paid for vacation separately.
Adding up how much debt we had after we got married and Mr. Sam’s debt became mine (in my mind) was a major shock to the system. Changing how we spent money (no credit cards, just debit) and tracking our spending was also a shock.
I found that being obsessive really helped us kill the debt in a short period of time and I was all for short term pain and dramatic changes to get a quick result. And once we started making good progress on our debt snowball it got sorta fun and certainly exciting to kill debt after debt after debt.
Being afraid to give up “luxuries and fun” indicates a spoiled, immature mentality–the very one that got you into debt in the first place. (I speak from experience.) If you really want to be debt-free, you must let your thinking grow up. Change your definition of “luxuries and fun.” Because right now, debt is a luxury, and that’s the first definition you should change.
If you’re planning a big wedding, unplan it. Marriage isn’t about being a bride and a groom, it’s about being a husband and a wife. You need money (and often debt) for the former, but not for the latter.
IIIIIIIIIIIIIIII’M DEEEEEEEEEEEEBT FREEEEEEEEEEEEE! My husband is going to the bank AS WE SPEAK to get a cashier’s check to the tune of $7609.25 to get Citibank off my back. We subscribed to Dave Ramsey’s philosophy of debt elimination and we did it. It took us four years. HOWEVER. We went as cold turkey as reasonbly possible. We still had cable (though basic) and we still went out to eat occasionally (basic restaurants) and we still splurged on “stuff”. But nothing, I mean NOTHING compares to the feeling of (pardon the forthcoming bad grammar) not owing nobody nothing! New purses do not feel this good. New shoes do not feel this good. New living room chairs do not feel this good. Indescribable.
This past month I realized that my dedication to eliminating our debt had spiraled down to an unhealthy obsession. I looked at myself and realized I had crossed the line from frugal to cheap and I felt like I have been in a cage of my own making. The best I could do at keeping expenses low was always becoming the ‘new standard.’
JD’s words on balance were encouraging to me. I think, for me, giving myself margin is key. Yes, I try to keep daily expenses down, but I can’t always get the absolute best price. Yes, some fun money is important as I will enjoy my life as we finish off paying this debt and then move on to other ways to bring a healthy balance to our finances. I think there are times when I can still sprint to pay more towards debt, and then balance that with other times when I lower my pace.
Good article. I’m in the moderation camp, always have been, always will be. Long term, yes, I want my debt gone, but right now, paying it off would stop me from living the life I want to live. And I’m not talking about living the high life, eating out every day and buying clothes all the time. I’m talking about marrying the man I love and getting to a place where he can quit the job he hates and start a business he loves. It’s one thing to give up the little pleasures in life, which I’ve gladly done, but I won’t give up our dreams to pay off debt.
@rma – Yes, you speak from your experience, but you shouldn’t project your experience onto everyone else. While many people are in debt due to a “spoiled, immature mentality” others are in debt due to schooling, bad luck, medical bills, or many other reasons.
And yes, a wedding is a luxury. Some people are willing to pay for that luxury though, whether due to religious reasons or familial obligations or pressures or just plain old personal reasons. Obviously, you shouldn’t be stupid about it and spend more than can be afforded, but there’s nothing wrong with having one.
Well, it isn’t necessary to be obsessed with paying off your debts. I do think, however, that that’s a good thing (for the most part). But, just be sure that it’s a healthy obsession. When it starts taking over your life (and even your skin!) then that’s a red light right there.
@Slinky,
You talk about wanting the debt gone, but not at the expense of living the life you want to live. You then go on to mention things that would be so much easier with little or no debt holding you back. Take a look at how much you are paying in interest to your debt and visualize how much faster you could afford that wedding or future hubby’s new business if that money went into savings, instead of your creditor’s pocket.
Frugalality, like marriage, should not be entered into lightly. Zealous enthusiasm often results in shell shock and burn out!
We should be joyfully knocking down that debt and joyfully approaching frugality.
Frugality teaches us to enjoy the wonderment of life. A walk in the park is better than a trip involving travel, stress, over spending, worry over the weather etc… it’s the attitude of gratitude we must try to embrace!
I have about $20,000 worth of debt. I want to get out of debt as soon as I can!!! But I have to be realistic: stuff happens. Every year I have to get my car fixed. I’ve had my car for about 9 years and I’ve spent $5000 on maintenance. Three years ago I had to get new bearings: $700. Two years ago I paid for a used transmission & labor: $2000. That was an unexpected expense. Then I had to get a new alternator: $400. I can pay off all of my debts in 8 years–if I’m dedicated and no financial emergencies pop up. I don’t need any more financial emergencies! I barely make enough money to survive. If I didn’t have to spend money on my car, I’d pay off my student loan…or buy a few luxuries. I don’t spend money on gas to visit family & friends. I just watch TV or use the internet for entertainment. Sometimes I just sit in the park and read a newspaper. I don’t have money for fun. My salary gets better every year, though. That helps. Two years from now, I’m planning to use my annual tax refunds to pay down my student loan. I can pay off my student loan by the year 2015 if everything goes as planned.
Having debit is no fun. I dislike owing money. The more money,the more freedom. I will be debit free. Sacrificing isn’t always easy. There are luxury items you want, but I agree that you can’t take frugality to the extreme.
I was one of those people who charged it up on cards to live a lifestyle ahead of what I actually was supposed to be living in. When the credit card companies started calling and my debt rose I knew there had to be some drastic changes to my life. I found help through a great negotiation service and I am now on the slow road to recovery. I’m learning to say “no” to things I “want”, but do not “need”. I created a blog to help others with similar credit card debt problems, so please visit to read my story.
@JerryB – That’s very true. I could save the money faster if I had no debts, but I can’t save it sooner. I’ve done the math both ways, and I’ve calculated the premium I’m paying in interest. I’m not stupid with my money, I know it’s costing me more in the end. But there are things in life that you just can’t put a price tag on, like dreams and happiness.
I have a question:
I have 3 loans from college and my wife has 2 loans.
Here’s a breakdown of mine and my wife’s loans:
3 AES Loans – 1 fixed subsidized, 1 variable private, 1 fixed nonsubsidized
2 Sallie Mae Loans – 1 fixed subsidized loan, 1 fixed unsubsidized
How much can i consolidate these loans between us? I’ve heard or rules against consolidating between married couples. I’ve also heard of rules against consolidating certain types of loans. Any suggestions on how to get the best deal for us?
I would definitely say I’m obsessed right now. I have been tackling my debt for about a month now, so I’m still in the early stages of paying it off. My lifestyle hasn’t changed significantly because the things I gave up were frills that never really mattered to me in the first place. I think once you’re really in the mindset of saving money, it doesn’t seem so scary to swim out into those cold waters. Time will only tell if I sink or continue to swim. Great article!
I believe in being as debt free as possible, and if you got yourself into debt – you have to pay the consequences to get yourself out of it again as quickly as possible. Same thing as when you gain weight and then have to spend time to lose it – doesn’t happen over night. But, if you do it too slowly – you will never reach the goal.
If it were me, I would do my best to pay it all off as fast as possible. I would set a realistic (yet aggressive) schedule and stick to it.
Once you are debt-free – you can start really enjoying yourself within your means..
I’m on my way to conquering my debt, and I’ve actually found that going at it with an extreme intensity is working well for me. You suggest that this is not a good way to go, for it gets you back into your general spending habits and hence back into debt, but I realized I was frugal to begin with and essentially had one or two unhealthy habits that just needed to be cut.