When you have a lot of debt, the first reaction is to decide to pay it off as quickly as possible.
In some cases, making the radical changes necessary to pay off your debt very quickly can, in fact, allow you to stay out of debt. However, sometimes recklessly paying down debt as fast as possible results in a return to the same problems you had before.
To avoid falling back into the trap of continued debt (and, according to the Bankruptcy Data Project, about 1/3 of filers are in just as bad a place after filing), slow and steady can be one of the best ways to proceed.
Straining Yourself to Pay Off Debt
Are you straining yourself to pay off debt? One of the issues with putting all of your available funds into debt repayment is the fact that you don’t leave a cushion to deal with unexpected expenses.
Just after I married, my husband and I aggressively paid down debt. We made it our priority. However, we didn’t set aside any savings for other purposes. When it came time to move across the country for grad school, all that happened was that all of the debt we had paid off was reinstated on the credit cards we used to pay our moving costs. If we’d read the Citi Double Cash reviews we might have been tempted to switch so that at least when we did have to use a credit card, we’d be getting something out of it that could help us further pay off debt.
We spent some time tackling that credit card debt aggressively, only to end up moving across the country again. I was frustrated. We had a weekly grocery budget of $20 a week, and the thermostat in the house was turned down low enough that we wore layers of clothing in the winter. Everything extra we had was going toward debt repayment. But we weren’t making any headway because the moment an unexpected expense showed up, we had to use debt to cover it.
Once we stopped straining our budget to pay off the debt, and once we started planning for a cushion, things went better. We were able to make solid changes in some of our habits, and we didn’t end up scrambling if an unexpected expense cropped up.
No, we didn’t pay off our debt in a year. But the slow and steady approach ensured that we paid off the debt and were able to remain debt free.
Set Up Reasonable Expectations
In some cases, you can’t expect to change all of your financial habits overnight. In fact, most of us need weeks — or months — to make lasting changes. If you go on a “spending diet” in the name of paying off your debt as quickly as possible, it can be easy to get back into debt once the diet is done and your credit cards are paid off.
It’s a lot like more traditional dieting with food. You can get caught in a cycle of restricting your spending to the point that, when you lift the restrictions after the debt is paid off, you go crazy with spending in celebration. You’ll end up right back where you started.
Instead, consider making gradual changes, and adjusting your spending and debt pay down realistically. It might take more time, but you could see better long-term success.
What do you think? Could slow and steady work for you?
Photo: Images of Money
I always compare paying down the debt with being on a diet. Getting extra weight takes years, no one becomes fat for one day. And it’s strange how people want to lose weight in one or two weeks. The same is with paying down the debt – if you used urgent financial help for low credit consumers and borrowed money during a few years then you can’t pay off the debt in a week. For sure you can if you have won a lottery of somebody left you an impressive legacy) I think that it’s worth to make a plan of your debt elimination and give yourself time. Be realistic, paying down the debt shouldn’t make you borrow more just to stay afloat.
Miranda, you make an important point. Paying down debt is major, but building the kind of habits that will keep you out of debt is essential to staying out of debt. Maybe it would help to keep a diary along the way of which frugal discoveries saved the most money and which were the least painful. I’m always on the lookout for ways to save money that are somewhat painless. They do exist! After a while it all becomes part of my new normal.
Miranda, I had a similar situation where my husband and I made our student loans a priority before we purchased a home. We started out really aggressively but then realized that the amount we put into the savings for the house suffered. We decided to set up a payment plan that was more realistic and it really helped. Every time we would receive a large sum of money we would put a little more down than usual but it was nothing too strenuous on our finances. For instance, my father pointed out that you could sell your structured settlement. Since the money was unexpected I was able to put the a large amount down. After a lot of patience and obedience we were able to pay off the debt AND purchase a home. It’s definitely a great feeling.
Hi Miranda, You have made good points. While it is important to settle our financial obligations, there is really no need to pressure ourselves in paying debts. We also have to think about saving a little amount for emergencies. At the same time, modifying spending habits is crucial to financial survival.