Paying down debt is a challenging task for many people.
It isn’t likely that someone magically ended up with massive amounts of debt overnight.
Normally it takes time to accumulate a large debt load.
Over that time, people develop some habits that just don’t work well with practical money management.
When you’ve developed bad habits it is often very difficult to change those habits.
However, once someone has hit rock bottom they’re normally reached a point where they realize they have to change. Some people change pretty drastically. These are the cases you normally read about on the news.
Is The All In Attitude A Good Idea?
Remember the Harvard grad who paid of $90,000 of student debt in about 7 months? It was a very inspiring story but I wouldn’t recommend following his path without putting in a ton of thought into it beforehand.
I think it is awesome his debt is gone but he pretty much went at it all in. To him there were no other options other than killing his debt as fast as possible.
When people truly go all in toward paying off their debt they can do some crazy things. They can sell all of their assets. I’m talking houses, retirement portfolios, cars, and many other things.
They do this without examining their situation fully just because they have tunnel vision and want their debt gone.
Yes, some of these items might be in excess and truly need to be sold. People don’t need McMansions, luxury cars, and crazy expensive clothes.
However, everyone needs a place to live, a way to get to work (and it might be the bus) and clothes to wear. Take some time to examine your situation because believe it or not, there are other options than going all in.
All Or Nothing Isn’t The Only Option For Paying Down Debt
Today, people seem to think the only options are to go all in or just pay the minimum payments and do nothing else. There are other options.
You can allocate a lot of your resources toward debt payoff and still spend some money in other areas of your life that are important to you.
All or nothing is probably the fastest way for paying down debt, but it isn’t the only way. All or nothing is extreme and can hurt you in many other ways.
If your sole focus in life is paying down debt you can miss a ton of other opportunities. You won’t always get a second shot at them. Don’t get me wrong. Paying down debt is important. Just don’t take it to an extreme unless you’re in an extreme situation.
So,what are some of these opportunities you’re missing out on if you’re going all in while you’re paying off debt?
Saving For Retirement
When people go all in while paying off debt they save nothing for retirement.
In fact, the Harvard grad tried to cash out his 401(k) (thankfully he couldn’t) as a starting point to pay his debt down. That would have been a huge mistake in my book.
He quit contributing 10% to his 401(k) and gave up any potential employer match, basically free money, he could have received.
Saving for retirement is very important and the younger you start the better. If you’re all in on paying off your debt you could miss many years of retirement savings when they count the most.
Due to the power of compounding, the money contributed in the earliest years of retirement savings have the most time and potential to grow.
My suggestion is to at least contribute enough money into your 401(k) to get the full employer match unless your debt is at extremely high interest rates of at least 10% or more.
If you don’t get an employer match then the decision is more difficult. Getting a 10% return isn’t expected, so if your debt is high interest rate debt I could see skipping saving for retirement for a short time.
Personally, once we get married we could take the all or nothing route to speed our student loan payoff.
I could sell everything in my Roth IRA. I’d have to pay a penalty because I haven’t had it for five years). I could quit contributing to my 401(k) and lose my employer match. If we did these things, we could have the student loan debt gone before the end of the year easily.
We’d have the weight off of our shoulders but it would cost a steep financial penalty. We’d be massively set back in terms of our retirement savings. All to save some interest payments on student loan debt that isn’t anywhere near a 10% interest rate.
That isn’t all we’d miss out on either.
Life’s Other Opportunities
Saving for retirement is a financial decision, but if you go all in on paying off debt you could miss out on a ton of other great and irreplaceable opportunities in life.
To quote one of my favorite movies, Ferris Bueller’s Day Off,
Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.
Paying down debt is important, but so is living your life!
If you’re so focused on cutting expenses and growing your income to the maximum potentially solely to pay off debt you could miss some important life events because you had no time or budget to take part in them.
You could miss out on the opportunity to meet your soul mate because you turned a down a friend’s invite to go out for a night on the town for the first time in months.
You could miss out on a once in a lifetime opportunity to see your absolute favorite band play a reunion tour.
You could miss a family member’s 90th birthday because you didn’t want to spend money on gas to drive the 3 hours to their hometown.
You could miss a sibling’s wedding because you didn’t want to spend $300 on a plane ticket to attend.
You could miss the opportunity to see a family member for the last time without knowing there won’t be another opportunity tomorrow.
There are ways you could make these things happen without spending a lot of money.
You can go out on the town and just drink water and use a coupon for dinner. You can still attend the concert, you just might have to sit in the cheap seats. You can car pool or take a bus to your family member’s 90th birthday.
You can suck it up and earn some extra cash to attend your sibling’s wedding, because they’ll never be getting married again.
We are on a mission to pay down my fiancee’s student loan debt but we’re still living our lives while we do it.
We still have cable and we still go out to eat. We have a budget for fun and we spend it on what we want to do. We have a budget for vacations but plan them to make our money count.
However, we also have a massive budget for paying down her student loans.
It is one of our main goals and you can definitely tell that from our budget. We put a majority of our cash flow into the loans, but we still manage to have fun while we’re working to pay that debt down.
We can’t wait until the loans are paid off, but we aren’t willing to sacrifice living our lives to have the loans paid off tomorrow.
You need to pay your debt down and you need to have a plan. Just remember that your plan doesn’t have to be all in unless you’re in an extreme situation. Life needs to be lived too!
How do you juggle paying down your debt versus living your life? Do you think that you go to go all in or nothing but the minimum payments? When would you make exceptions?
This post was originally posted on March 22, 2013.