Why We’re Happy Taking a Few Extra Years to Pay Off Debt

Why We're Happy Taking a Few Extra Years to Pay Off Debt #SavingGoals #financialplanning #debt #saving

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Guess what – Paying off debt at an accelerated rate can be harmful to your health… More than that, you may not be making the best decision for your financial future. “Why?” You ask – Being debt free isn’t the only mark of financial success. In fact, I’d argue that your saving goals can be significantly more important than being debt free…


Depending on your specific situation.



I met with our accountant last month, and throughout the first half of the meeting, I kept reinforcing a few of our current financial goals. “By throwing an extra $X at this loan, we’ll be able to knock that loan out 2 years sooner…”


I was focused on getting rid of a few of these debts we have as fast as we possibly could. And for a half hour, I lost sight of the bigger picture.


My accountant would humor me as he’d nod and then move on to the next topic. But eventually, he stopped me and said something that shocked me back to reality:


“Once you pay your extra money toward the debt, now you have to ask the bank for your money back.”


I literally stopped the meeting and said, “I need to write this down – I’m going to write a post about this… By the way, you’re 100% right. Thanks for the reminder.”


What he meant with that well-placed statement is that once your money is paid toward reducing your debt, you’ve effectively eliminated any other option that cash could be used for. Emergency fund, retirement, buying a home, starting a business, … Anything.


So now, if you decide that you want to open up your own dental practice, for example, you’ll then need to ask the bank for your money back. And guess what – maybe they’ll give it back to you and maybe they won’t, but if they do – they’re going to charge you for it… Again.


Let’s dive into the weeds and examine this decision: prioritize saving goals or paying off debt


Why We're Happy Taking a Few Extra Years to Pay Off Debt #SavingGoals #financialplanning #debt #saving


Exactly what money are we talking about when deciding to save versus paying extra toward debt?


This conversation is centered around money you have remaining at the end of the month – after all of your other budget items are satisfied. I like to refer to this chunk of change as “progress money” because if used intentionally and in the right way – this is the money that will allow you to achieve your financial goals.


I’m not talking about not paying off credit cards, missing a mortgage payment, or even budgeting less for your monthly grocery spending… You create your budget independently, and when it all shakes out – your progress money is what’s left over.


So savings goals are now the priority, right?


I’m not there quite yet. Before you start saving at an impressive level, we need to make sure any bad debts are allotted a significant portion of your progress money first.
  • Credit cards
  • Payday loans
  • Anything with an interest rate over 7% (in 2018’s economy)


I don’t care who you are or what your goals are – if you’re paying the minimums on a $10,000 credit card bill that’s racking up 23% APR… You’re not making progress. And that situation will come back to find you – it’s just a matter of time.



I don’t think you’ll find too many sane people to argue that point with me. Bad debts need paid off – period. Like right now. OK – sweet. Let’s move on.


Now we’ve come to the crossroads



Nooo – not the amazing Bone Thugs In Harmony jam from my childhood…


What I’m talking about is one of the big divides in the personal finance community – prioritize saving goals or become debt free.


It’s easy to get caught up when reading about those who have summited the debt-free mountaintop and then aspire to the same heights… But I think the problem is that we equate being debt free to being happy – and I’d argue those two factors are independent of each other.


Here’s exactly how we navigate the situation – and where we allocate our “progress money”


We currently have a lot of debt. But we’ve structured our repayment terms such that by paying only the “minimum payments” – at worst case we’ll be debt free (not including our mortgage) in about 7 years. (Read: aggressive repayment plan as a baseline)


We have the option to turn that 7 years into about 3.5 – 6, depending on how crazy we’d like to get… But we’re conceding the extra time to focus on saving money instead.




A few reasons:


1- We have more exposure and responsibilities now


Our emergency fund doesn’t just encompass 2 young adults with their vehicles and an apartment. We have the mortgage, the business, children, cars, and some debt on most of those. A serious financial problem for us could total in the 5-figures pretty quickly, so we need a bigger cushion than some others.


2- I’ll sleep better at night knowing we have an extra $25,000 in the bank


Honestly, I feel less stress and anxiety when our savings number is higher than I do when our debt number is lower. A higher savings account balance feels like a 14-point lead in the 4th quarter – most of the time safe…


3- We’re business owners and cash flow is a business’ lifeblood


I don’t want to have to ask the bank for my money back if the need arises. I’ll much prefer to put a portion of our savings into an online savings account, earn close to 2%, and take the hit on not paying off debt (that carries a 5.2% interest rate).


All it would take would be for a few pieces of critical equipment to break or to have a few slow months in a row – and if we didn’t have a savings cushion built up we may need to borrow some money quickly. And when you borrow money quickly, it normally costs a little extra.


It’s a short-term loss for the long-term win. We’re strategically retreating from the battlefield only to capture the chasing army in a trap up the road.


How does this strategy produce victory?


1- Eventually you will have saved enough money


At that point, you can sit comfortably on the stack of cash and either use a chunk of it to pay toward your debts. Or, you could take the extra progress money and start throwing it on debt after your savings goals are met. But either way – you’re now playing with a lead and a cushion.


2- Emergencies matter less


Replacing your roof or a broken water heater isn’t a calming situation, but it’s a little easier to swallow when you have $25,000 sitting in the bank…


3- You have the freedom to choose


This was my accountant’s original point:


At the end of the year, when you’ve saved a significant sum of money, you can still choose to pay off the debts. Or you could max out your retirement account. Or maybe you total your car and need to get a new(er) one… Whatever the case, you have the freedom to choose what you do with your money – and no bank will charge you to make that choice.




Personal finance is personal (if I’ve said it once…). And everyone’s situation is different… But when you’re deciding between saving a little extra versus paying down debt at an aggressive level, you need to seriously consider your specific situation and, more importantly, your exposure and risk level.


How much debt? What are your interest rates? How much money have you saved? Are you contributing to your retirement accounts…? Literally, thousands of questions can be asked to help you make the best decisions – but that’s the point. Ask the questions, get the answers, and make the best call for you.



Reader’s Input


What are your experiences with saving vs. paying off debts aggressively? Do you agree with my accountant (and me), when we say that saving more is a wise move (depending on the variables)? Or are you a “debt free at all costs” type of person? Let us know in the comments below!


Thanks for reading!


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– Mike
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  1. You do have a solid plan and paying off your debt is 7 years at a pace that you can tolerate better definitely is the way to go compared to a more aggressive debt pay down if it forces you to suffer/cut back more than what is comfortable. 3-4 years difference in the debt paydown plan is not the end of the world. The key is to stick with that plan 🙂

    1. Xray – based on your experience and position financially, the fact that you think we’re on the right path gives me much comfort! It’s not hard to see many other PF bloggers out there who advocate for radically paying down debt, but it sounds like both you and I are in the camp that we need to be aggressive, yes – but we shouldn’t lose sight of reasonably living for today as well. Thanks so much for the comment and the support, I really appreciate it!

  2. This has been a real life struggle for us right now in the decision to buy the next house. My original goal was to have my student loans paid off in two years after finishing training. THEN we would buy a house.

    Well, as we progressed, we were doing better and better at paying off our loans. It was going to he 22 months (instead of 24), then 20…

    Me being the goal oriented person that I am… I kept looking at that and saying, great! We will buy our house then! Well, that’s when the right house, at the right price, in the right location popped up and we weren’t done paying off loans.

    I had to remember that our goal was two years originally. And then further realize if we slowed down our debt pay off strategy just a little bit, we could still buy the house, and comfortably pay off our debt in our two year time frame that we set out on.

    Balancing various goals is really important. We can get so pig headed about “doing the right thing” financially that we lose site of the big picture. It’s all got to be kept in the right perspective.

    Glad you are going through that right now, too!


    1. TPP – I always appreciate your insight and opinion. Much like Xrayvsn, you two either have been or are currently in a similar situation and it’s not always black and white. The fact that we can bounce ideas and exchange information, is just awesome to me.

      I really appreciate your comments and I hope that you and the family are able to find that balance in your decisions as well.

      Really means a lot – thanks again and good luck.



  3. My wife and I were aggressively paying down the mortgage (15 year 2.875% – I know, right!), Until I read JD Roths post on the “opportunity fund”.

    For whatever reason, this phrasing allowed me to get over the mental hurdle of having extra in savings. Essentially, build up the opportunity fund, deploy it toward any way you see fit, but if it eventually gets so large that you can pay off the mortgage in a lump sum, do it.

    Building this opportunity fund has given us the freedom to explore new options, like buying another home, paying for grad school, or jumping on the next crypto currency bandwagon (not really, but you get my drift).

    That freedom is worth quite a lot, and certainly more than 2.875%.

    1. Some great things to take away from your comment there:

      1) The fact that we need to drive forward to gain new knowledge on a continual basis – you were out there reading other sites and taking those lessons to apply to your life. Nice work!

      2) Personal finance is personal. But making a plan that you’re more likely to stick with is infinitely better than making a crazy aggressive plan that detracts from other aspects of your life and won’t be followed through with.

      Thanks so much for commenting and reading and good on you – great stuff! Best,

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