As I mentioned earlier, my debt has dropped quite a bit. I’m not sure if it’s because of that or because of something I read on this blog that made me reconsider my approach to paying down debt. I might have talked about this earlier but it’s a topic I keep coming back to. Ever since I started reading pf blogs, I have contributed a huge percentage of my income to paying down my debt. I did not want to pay a single penny more of interest than I had to. Debt was “bad” and something I had to get rid of as quickly as possible so any money that was not going to essentials was sent straight to Visa or Mastercard.
The Moment of Change
I think my aha moment was when I realized that debtkid still has way more debt than I do but he has substantial savings. I think this is mentioned in the post about his mom. He has $177,266 in debt but on the other hand he has $59,130 in savings. If that were me last week, I’d have put at least $50k towards my debt. Think of all the interest that payment would save me! However, reading that made me realize that I had put myself in a precarious situation. Yes my debt is dropping quickly, but if I lost my source of income, not only would I not be able to pay my day to day expenses (like rent!) but I also would not be able to meet my credit card payment for the next month! Just because I pay much higher than my minimum balance and have been for so long does not give me extra time to pay. On the other hand, if DK’s income for some bizarre reason disappeared, I think he’d be able to live for another 2-5 months and meet his debt obligations.
What this all means
I am dramatically slowing down my debt payments and I’m going to focus on building up my savings. I don’t feel comfortable with only $1k in savings. I’m also going to put more money towards doing things i enjoy now such as travel. Yes, I will pay more in interest but I will consider that extra amount the price of having fun and gaining security. First things first, I’m going to sign up for that photography class I’ve been putting off for almost 5months.
What are you thoughts?
{ 8 comments… read them below or add one }
Very good points, only once one has that safety net of 3-6 months of fixed expenses set aside as savings should the full scale debt paydown really begin.
I think concentrate on one goal at a time. If you have debt, work on depleting the debt, then once you reach that goal begin to save.
Debt is the worst thing we can have, other than bad health problems. It is an albatross that hangs over us, until we make it disappear slowly but surely.
I think you are partially on the right track. It is very important to have an emergency fund to cover possibilities such as being without an income for a time and I would strongly recommend that you build up a fund for this.
Where you go off track would be to think of spending on frivolous activities such as hobbies or travel before you have your debt slaughtered. Well, maybe you could think about it in the context of how nice it is going to be when you can do those activities without having to worry about your debts. Make it a future goal, something to keep you focussed on the immediate goal of paying down your debt.
Would you borrow money to travel? Spending on a trip before you have your debts paid off is equivalent to borrowing the money. Having funds available which allows you to cope with an emergency is good planning. Focus on what is most important.
As you pointed out, while being debt free quickly would be nice, what happens if you lose your job? I think there needs to be balance between saving into an emergency fund and paying off your debt until you have a comfortable amount of savings to fall back in. If you pay off all your debt and have no savings you will quickly find yourself in debt again if an emergency occurs. This would emotionally hit me hard if I back in debt after having been debt free a while. My ultimate goal is debt free with a nice cushion in savings so I can remain debt free even if a job loss or emergency occurs.
I think balance in all areas of life is key to living healthy and flourishing in all that you are as a person- THIS is the best gift to society.
I’m just trying to fix my own debt right now. I’m tired of stressing over it. It seems to just consume you.
While I agree with most of the ideas in the post, I think I personally lean more towards Jim’s (the commenter) concerns. I try to compromise by also allotting a specific portion of my income for savings and other expenses. True, a huge chunk of my funds still go to paying off my debts and at the moment I can only afford little pleasures with the little amount from my ‘other expenses’ fund but it seems to be working for me so far.