Category Archives: Debt

I’m Not Sweating My Debt, but Sometimes You Should

If you listen to some financial experts they’ll tell you that debt of any kind is an emergency, enslavement, or other terrible thing. Some make an exception for a mortgage but still insist it be paid off ASAP. A few go as far as to talk down to anyone who ever borrowed money as if they were fools and idiots.

I disagree.

Going to school was a terrific investment. A year after I graduated my income had doubled, I’m in a job that I really enjoy, and I have many more options in my career path. The formal education also gave me a lot more confidence in my skills and has helped accelerate my job growth. The minimum payment is easily manageable and doesn’t block me from being able to do other things. I’m on the standard 10-year repayment plan and will have it paid off years ahead of time.

My car loan wasn’t as smart and although I have some regret there it isn’t enough to make me hate the payment. I was at least somewhat smart about getting the loan – I bought an inexpensive car, did enough research that I got exactly what I wanted in the car and it has a low interest rate. I also made a large enough down payment that I haven’t owed more than it’s worth. When it’s paid off, however, I will start setting aside cash for my next car. Which hopefully won’t be for at least another 10 years because I really do like my car. I don’t live in the city so a car is pretty much a necessity.

I’m very glad I bought my house. It was cheaper than renting and I really, really love having my own four walls. A discussion over whether a mortgage is a good thing or not is a whole ‘nother post, but I do think a house is one of the few things where a loan is ok. Within reason, of course, and it should be paid off eventually, but a house will usually retain or even build equity as you pay it off and will return something if you sell. If you don’t buy you still have to pay rent and you get nothing back from that. (Not that buying is right for everyone, but it was for me.)

I think the biggest reason I’m not sweating my debt is because I know it will be gone. It’ll take a few years but I’m not looking at lifelong “enslavement” to my loans. ┬áMy balances get lower every month and I have the tracking spreadsheet to prove it. If I was pushing to get them done as fast as possible and stopped spending money on all fun, then I’d feel like a slave.

When should you sweat the debt?

When the balance is growing or stagnant. If you can’t make progress on the principle, or if you add more than you pay each month, it’s time to do something different.

When it has a high interest rate. For me, that’s anything over 7% or where the monthly interest accrual is at least half your payment. This includes the rate that will be in effect after an introductory period.

When it has a high minimum payment relative to your income and savings. If you lose your job will the debt become a burden?

When it’s obstructing other parts of your life. If you can’t save for vacations because of the payment, time to start kicking it in the butt. If you want to take a better but lower paying job, if you can’t qualify for a mortgage because of your debt to income ratio, you know what to do.

When it stresses you out. Why would you want to keep something around that causes stress?

When you’re worried you’ll be paying it off forever. Worry is a kind of stress and tackling it head on can help ease the fear.

When you hate the debt. Maybe you do feel enslaved every time you send in a payment. Maybe you regret what you did to collect the debt. Don’t keep things you hate.

Debt is a tool and like any other tool it can help or hurt. Sometimes both. Ever get hit by a piece of flying wood that got caught in the saw? The board got cut, but so did you. The key is to plan ahead, wear safety glasses and be careful.