When your debt feels like your arm

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“I’ve been in debt so long that it really doesn’t matter whether I pay it off in October vs. March.”

– A friend of mine who was talking about going on an international trip despite having $6,000+ in credit card debt. When I suggested NOT GOING BECAUSE THAT’S RIDICULOUS and putting the money towards the debt, my friend pointed out that it didn’t really matter when the debt was paid off since it had been around so long. I had never heard this perspective before and found it fascinating.

More stories from iwillteachyoutoberich readers about their debt.

[Update]: The New York Times asks, What is your biggest extravagance? and gets 400+ responses.

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  1. I too struggle with long timescales. I’m not paying extra on my new mortgage, because frankly paying it off 4 months early after more than 29 years is not exactly filling me with joy and excitement.
    Fortunately for me, I have a very over-developed fear of being without money that means that I’m not in any sort of consumer debt – otherwise I too could be in the same situation as your friend.

  2. I completely understand this mentality. I disagree with it and find myself fighting the same battle, so I can relate. The factor that nobody ever takes into consideration is the unpredictability of life. To say “October is fine to pay off my debt”. is fine if you know what will happen between now and October. Nobody knows what will happen or what life will bring.

    I have forced myself to pay off what I can, because there are always situations that come up which will make me wish I hadn’t done that six thousand dollar “thing”. A great financial counselor once said “Play with snakes and one day you’re gonna’ get bit”.

  3. I have seen many people with this same idea of procrastinating on taking care of debt and personal finance. For example, I had a friend that purchase a home in early 2005 with a 3/1 ARM. The ARM is about to adjust its rate with a much higher one and my friend is very passive on refinancing. I have mentioned, as well as many other friends, that he could be facing some much higher monthly payments if he does not refinance to a fixed rate very soon. It is amazing how some in this 20-something generation have more of a sense of urgency for a sale at Best Buy or Fry’s expiring, than they do with something as large as their home loan.

  4. Paying off debt can be hard. It is important to be diligent about paying it off, but it is also important not to be too hard on yourself. If Ramit’s friend has been paying off his old debt for several years and the international trip is a unique opportunity now and the question is over completely paying off the debt this fall or next spring then I agree with the friend. If paying off the debt has not made significant progress in the recent years, the international trip could be taken later with a similar opportunity, or the time frame for paying off the debt is years away then I agree with Ramit that it is time to knuckle down and start thinking more about the future.

    plonkee — I guess it depends on what paying off your mortgage early would mean to you when you accomplish it, what you are doing with your money instead, and what kind of rate you have on your mortgage. With a lack of consumer debt I imagine your credit (and interest rate) are pretty good, so their may be better investments than paying off the mortgage early for you.

    Personally my thing with paying off debt right now is that although I have some money to pay down debt, I don’t have enough to pay it off and the interest rate I am paying is lower than my ING savings account interest rate. We have a few thousand dollars that we took from a promotional cash advance on a credit card to buy a used car from a friend – we’re playing the promotional balance transfer game with that making a balloon payment just before it’s time to apply for a new card. We also have a few thousand dollars on a credit card that we transfered my wife’s pre-marriage debt to with a promotional rate that doesn’t expire. Our remaining debt is my wife’s hospital bills from an accident we were in before we got married and my student loans (they’re subsidized while I am still in school) – once the student loans enter repayment, extra debt payment will most likely be focused there unless they can be consolidated at a lower rate because we have excellent credit.

  5. I kind of did this same thing, but I was also moving into a house that my parents own (no rent/mortgage), so I had a plan to start paying off the debt very quickly.

    I felt very guilty about it before we left, but honestly, after going, I don’t regret it one single bit. I’ll be debt-free in two months, and it was 100% worth it. At the end of my life, I get to say, “I was in Italy.” It was my biggest dream, and now all I can think about is going back (BUT, when I do go back in two years, I’ll be debt-free, with a healthy savings, and the trip will be paid for in advance).

    Financially smart? Not at all. But if I had cancelled, I think I would have continually found excuses about why I couldn’t go, which is what I had been doing for almost 6 years.

  6. amazing; In reading the responses to others actually being understanding of Ramit’s friend’s comment, I think I’ve had an epiphany in understanding, or at least just seeing why people are ok with debt.
    I just bought my first house and am more than excited to pay every month because of the awesome affect it has on my balance sheet. If I have one suggestion for all; it is to keep a balance sheet with your assets,liabilities,and owner’s equity and update it at least every week (I do it when I’m bored (so every day)).

  7. I find this attitude toward debt common in the U.S. It’s one of, “Everyone is in debt, so yours is no surprise. Get used to it. And since everyone will always be in debt, what’s another $X?” It’s almost as if it’s a fait eaccompli.

    I have found in my journey to becoming debt-free that being frugal, being prudent actually angers some folks and makes others outright hostile. The reason: it makes them confront the reality of those attitudes, which is never very comfortable or fun. You mean I actually have to pay attention to what I’m doing, delay gratification, and sometimes deny myself various desires and wants in order to satisfy real needs? That’s not the American way. (HAH!)

  8. Being from the Netherlands, I have had some trouble getting used to the ease with which a lot of Americans just pile up debt without appearing to realize the repercussions. A few simple calculations will make it obvious very quickly how having to pay interest on a continuous basis affects your quality of life. While I agree that it is sometimes beneficial, if not necessary, to take out a loan or to carry a balance on a credit card, I don’t think it should ever become a habit. It is quite possible that there are immediate benefits to that trip to Italy, but if you go just because you might think it’s the opportunity of a lifetime, think again. Going to Italy on a vacation is a lot more enjoyable and a lot cheaper once you’re debt-free, and as long as you set your mind to it, you can always find a way to get to Italy, even an inexpensive one.

  9. Yeah, Italy would have always been there (well, maybe not Venice, since it’s sinking), but I would have always regretted not taking that trip. I had talked about going for years, and, considering the timing, I would have had to go then, or wait for at least 2-3 years. But, if I was barely making ends meet, I would have cancelled. I was living rent-free with a low-interest loan, I knew exactly when I’d have the debt paid, and I didn’t charge anything from the trip. So with that in mind, I enjoyed my trip just fine.

    By the way, my debt was from trying a business venture that I found wasn’t a good fit for me after I’d gotten into it, so I wasn’t just in debt because of bad spending habits.

    Would love to know more about the inexpensive ways to get to Italy…

  10. I agree with all the sentiment about not spending what you don’t have; it is typically the best decision. But the amount of debt you have (unless it is extreme, which I don’t think it is in this case) needs to be balanced against living your life. So, in that vein Ramit and commenters, assume the following:

    First, the trip is an isolated opportunity (he cannot put it off for a year)

    Second, going on the trip will not increase his current debt

    With this in mind, would you go in his situation? I probably would.

  11. Your friend’s response makes all the sense in the world. Debt creeps up, especially $6K in credit card debt–you’re always used to it. It grows with your ability to pay the minimum balance, and still live a decent life. It’s not the SMART thing to do. It denies you opportunities to go on even better vacations, with a bit of planning, or get an even nicer car, with some foresight. I still remember (with horror) the day my first credit card bill came in, and my dad sheepishly informed me I could ‘just pay the minimum’. Ten years later, I get almost physically ill thinking of that. I’ve spent about a year now trying to get my debt in order. It took me several months just figuring out home much debt I HAD, and then getting things moved to lower interest accounts when I could. I’ve paid off over $6K in the last 5 months, but it’s hard, and I totally sympathize with your friend.

  12. What she is saying is true. People having been paying on credit cards and loans all their adult life to the point it is almost a memeber of the family. LOL

    They see debt as apart of their lifestyle

  13. I agree with you – an infuriating attitude, but not surprising. When I hear my peers talk about money they seem to look at “can I afford it?” to really mean “can I afford the monthly payments?” I don’t know if this is a once in a lifetime trip or not…but I think that really misses the point. Americans are NOT into delayed gratification so LOTS of things get defined as “once in a lifetime” to justify the fact that someone wants it and isn’t willing to wait. It is hard to think in terms of how much money you save by paying in cash rather than credit….especially when you feel deprived and want something! Sometimes I wish I cared less so I could get and do all the cool things I want to, but can’t afford ;)

  14. My wife and kid are about to fly on an unexpected international trip using tickets that were bought using our credit card. But the situation is justified:

    1. We live in Japan and normally carry a zero balance on our credit cards.
    2. Death in the family in the USA occurred within the past 48 hours.
    3. Our “emergency fund” that we set aside for stuff like this will only cover about half the ticket cost.
    4. We’ll immediately pay half the credit card debt with the balance of our emergency fund.
    5. The credit card balance will be paid in full within two months by careful planning and budgeting, at which time we will begin to replenish our emergency fund.

    Sometimes, events in life hit us unplanned and unprepared. Those are the times that we should consider taking on consumer debt if it’s the most reasonable of one’s feasible alternatives. But to be carrying current consumer debt and deciding to add to it with additional consumer debt for a vacation is risky. A younger me may have done it, but the wiser me says, “hell no”.

    Ramit’s post doesn’t indicate the purpose of the international trip. I’d be curious to hear the justification.

  15. Mike,
    I’m very sorry for your loss. In my opinion, this is a circumstance that totally justifies racking up some credit card debt. From your description of the situation, it sounds like you already made plans for how to get out of it, which is more than most others would have done under these circumstances (and I wouldn’t fault anyone for not planning ahead for things like this). My thoughts are with you and your family and I wish you all the strength you need to get though this hard time.

  16. April, I did not mean to imply that going to Italy was the wrong thing to do. I don’t know the circumstances of your situation and it certainly sounds like you have your finances under control. What I do take issue with is people who just ‘put it on a credit card’ without having a plan to ever pay off the debt. My wife and I use credit cards all the time with the understanding that we budget to pay them off every month. If, because of unforeseen circumstances, we can’t, that’s OK, but we make every effort to get back to 0 balance as soon as reasonably possible. Our base goal is not to pay one penny interest unless we really have to, but to have the option to carry a balance if we need to.

    As for cheap trips, I have two real-life examples of how this worked for me:
    1) When I was in High school, I spent 5 weeks with a friend and her family traveling through Scandinavia and Russia (to Leningrad/St. Petersburg). I got to go because my mother allowed me to, and because my friend’s parents said: ‘the only extra cost to us is the tent on the campground and the food, if you’re willing to pay for that you’re welcome to come along.’ All I had to do was to take the opportunity and introduce my parents to hers :-)

    2) When I was in college in Holland, I organized an exchange with a British student. She came over and lived in my room for a week, while I used her apartment in Sheffield. We both had a blast and only payed for the travel. I ran into some trouble when it turned out that my landlord would have liked to know about the arrangement in advance, but other than that everything went fine.

    I realize that the situation is different for everyone, but these are just two examples of experiences I’ve had. To date, these are two of my most memorable vacations and they have been the cheapest. Yes, you have to hide your personal stuff for a while but I guess what I’m saying is, if you really want to get somewhere and minimize the cost, there are ways, depending on what you are willing to sacrifice.

    I did not have a credit card while being on either one of those trips. I have made much more luxurious trips since, but these still stand out as the most memorable ones because of the sheer sense of adventure, and the fact that I had to get by without a penny to my name, let alone a credit card to fall back on. Right now, at age 38, my wife and I have a good income, and I am very happy with what we have, but I still look back on those low-budget, inventive vacations as my most memorable ones.

  17. If you want a less expensive Mediterranean vacation, try the Greek islands in the off-season. I went to Italy and Greece in October last year (great for both!) and had the best time. The weather was warm enough for swimming/beach/hiking/outdoor stuff, but everything was less expensive, cooler than the summer, and a bit less flooded with tourists. I found hotels (simple ones, via hostel websites, but still actual hotels) on the beach in Greece for 18 euros per night (that was in Naxos, but Santorini wasn’t much more). I also found that if you go with friends who you don’t mind sharing beds/hotels with, you can still stay in a hotel and pay less per person than in a hostel most of the time (Ideal # would be 3 – 4 people) – this is true in both Italy and Greece. I spent three weeks total in both places and spent about $2500 including my plane ticket. Not cheap, but definitely worth it (and paid for in cash), especially considering Europe is one of the most expensive places you can go these days if you’re earning your money in US dollars. For me, travel is one of the few things worth spending money on. Life is short and I’d much rather see the world than drive a BMW or have expensive clothes.

  18. By the same logic, it doesn’t really matter if you go on a trip in October or March, right? Except that it’ll cost you less to do it in March, if only from the interest you’d save.

    Not to mention that it won’t really matter if you pay it off in March or August, right? Or August or December or 2020…? If you can’t discipline your spending habits to pay off your debt in the present, chances are you won’t be able to do it in the future either.

  19. Woody–I totally agree about keeping zero balances. My fiance and I are aggresively paying off any debt we have (by most standards, it’s not all that much) and we plan to build up a big emergency cushion before we buy a house so that we will never have to rely on credit cards again.

    Sara–I would love to find out more about your trip if you don’t mind. We are planning to do Greece and Italy in October ’09 (we went to Italy in October last year, and I really liked going at that time of year, too). We also like the budget travel route–seems you are closer to the culture that way. Three weeks at $2500 is really great…

  20. “Life is short and I’d much rather see the world than drive a BMW or have expensive clothes.”

    This has become my mantra. I am finally starting to control my impulse buys because after being in Italy, all the crap I spent money on seems dumb. I look at huge expenses and really think long and hard now because every dollar I save gets me closer to going back to Europe (or to Peru, or to any of the other places I long to go).

  21. I understand this perspective all too well. In general, of course it’s totally appalling, but I was in appalling circumstances. I had credit card debts that were in collections, no, beyond collections. They were in the hands of lawyers who laughed at me when I made the suggestion of paying them back on a monthly schedule.

    So to reduce the amount of humiliation I faced when dealing with such debt collectors, I chose for several months to not communicate with them until I had enough saved up to pay them in full and hoped that I could get a significant reduction of the debt through a settlement. Which is exactly what happened with all 3 of the debts that I paid off. Had I been able to pay them earlier, I would have had even more leverage and would have gotten better deal. Either way, I am glad to be done with them. Now, of course, this doesn’t take into account the damage this does to credit scores. It’s just a way of coping.

    Now I guess my story is a bit different because I made the effort and sacrifice to actually get rid of the debts. But that was only able to happen when I thought about the future. I think the mindset here is “ignore it and it will go away eventually”. Yes it will, but at a significant cost.

  22. I empathize with where your friend is coming from. In fact, I had a similar attitude when I was in college. “What difference does it make if I have $3,000 or $10,000 in credit card debt – I’m going to make so much money in the future that it simply won’t matter.”

    Fortunately for me I was right. Although it did take me a little longer than I anticipated. . .

    Getting rich and debt free is easy – all you have to do is make a hell of a lot more than you spend. :)

  23. This runs along the same idea as “dying with debt is good”.
    If you can extend the debt out far enough, it may never catch up with you if controlled.

  24. I was going to say something about how I agree and how debt is bad and blah, blah, but something really bugs me about everyone’s comments.

    Debt is the new fat. It’s just one more thing to be ashamed about and carry guilt about., and for other people to be pious about and to lord over other people about.

    I have a ton of student loan debt (no credit card debt), but I spent seven months living and teaching English in France. Maybe I should have stayed behind earning a bigger paycheck working to pay my debt. But I’d been working real jobs for three years and the debt was still there, and I was still struggling to get by, and I wasn’t going on vacations or anything, and the debt could possibly be with me until I’m 40 if I do all the “right” things and by then I’d be too old to participate in the program!

    I have a friend who now has as much student loan debt as I do (she got her MBA) and a mortgage and a husband and right now she’s miserable. She’s spent her entire life post-college, and doing everything “right” and while she’s probably in better financial shape than I am she’s infinitely more trapped. Not just because of the debt, but because of the mindset that comes with thinking that finances can dictate her life instead of the other way around. Your life dictates your finances. If you want something badly enough you can find a way to afford it that doesn’t involve getting into hock up to your ears.

    We’re not taught that.

    I think careless consumer debt is dangerous mostly because it stops people from living the lives that they really want to lead. But I think the opposite is true too. there’s such a thing as being too cautious too. Of waiting to do everything “the right way” and ending up dying and not having done anything.

    Money is not an end in and of itself, it’s a means to an end.

  25. [...] Million Paths leaves this excellent comment on my recent post, When your debt feels like your arm. I was going to say something about how I agree and how debt is bad and blah, blah, but something [...]

  26. Debt is the worst. Nice article.