Going ALL IN with Paying Off Debt: Ask Yourself These Questions First

“I just want it GONE and out of my life FOREVER!”

You have a lot of debt. You want nothing more than to get rid of this debt. You don’t care what you need to do to get this point- you just want to see that balance go to zero. 

This is common. Debt is a four letter word to many people, and it would be an understatement to say that they are debt averse. Veterinarians, in particular, are people who feel a strong responsibility to pay back any debt that they owe. 

BUT….

Remember that this can be taken to an extreme. When you’re at a point where you are doing everything possible to erase debt at the expense of other needs/wants in your life, then you need to take a hard look at your situation and evaluate whether you’re acting this way due to pure emotion. Have you honestly assessed your financial health as a whole? 

You want to aim for balance. Sure, you can be skewed one direction or the other, but you don’t want to be so far off to one side that you’re taking much more risk than necessary. 

If you have tunnel vision when it comes to your debt, you may be putting yourself in a financially unstable situation. So before you commit to going ALL IN with your debt Dave Ramsey style, make sure you’re asking yourself these questions first:  

1. What is my expected cash flow? 

There are many who desperately WANT to be debtfree, and they may have done some basic calculations to see if they can afford to pay off their debt more quickly. But just because you WANT to do something doesn’t automatically translate to the ABILITY to achieve your goal. 

In this case, figuring out your cash flow should be the bare minimum when you make this decision. Do you truly understand your fixed costs and your variable costs? Can you realistically add that monthly payment to your fixed expenses? Understanding your cash flow will help you answer these questions.

2. Do I have an adequate emergency fund?

Guess what? Life happens, and unexpected expenses will crop up as a result. This is why it’s vitally important to have an emergency fund. It’s not a matter of if you need the funds, but when.

Yes, I know it can be painful to see a pile of cash sitting in an account, just waiting to get deployed at the right time. 

But think of the alternative. If you don’t have enough of an emergency fund, you’re having to go into some kind of debt in order to pay for these expenses. This could be in the form of credit card debt, dipping into other savings accounts that are earmarked for other purposes (like your retirement!), or taking out loans. This slows down your momentum towards your goal of paying off debt, and if the emergency is big enough, it can really derail your plans for debt payoff and other financial goals. Do you really want to find yourself in this situation? 

A good rule of thumb is 3-6 months of living expenses. Don’t know your living expenses? Then go back to number 1 of this post.

3. Do I have enough insurance? 

Along the same vein, do you have the proper insurance to cover those big expenses that you can’t cash flow or cover with your emergency fund? Insurance is one of those products that you hope to never use, but when you DO use it, you’re so grateful that it’s there. 

Types of insurance that you need are: home/renter’s, health, life, auto, disability, liability, and umbrella. Having the proper insurance in place is a huge peace of mind. Understanding how much insurance you need will be highly specific to each individual, so make sure you’re relying on a trustworthy independent broker who will help you make these decisions.

4. Am I contributing enough to retirement?

I know, I know. It’s so hard to think about retirement, especially the further you are from traditional retirement age.

But trust me. You want to do this NOW. Ignoring my retirement savings as a new graduate was one of my biggest financial mistakes. You NEED to take care of your future self, because that person is dependent on YOU to make the right decisions today. And doesn’t “future you” deserve the very best?

At a minimum, if your workplace is offering an employer match, take the match!! It’s free money. Who says no to free money?

Even if you don’t get a match, you still get so many benefits by contributing to a tax-deferred account. By contributing, you’re lowering your taxable income as well as giving your money a chance to grow tax-deferred for decades. Don’t ignore this perk. 

5. Am I paying off my student debt the right way?

News flash: Student debt has gotten really complicated. Which also means that paying it back has also gotten complicated.

I have an entire category devoted to student debt, as well as a Student Loan advice resource page. The main takeaway: do NOT automatically dismiss the importance of looking at all of your options. Educate yourself on all the repayment plans and make an informed choice.

Student debt repayment now requires a serious strategy because it is so different from other types of debt. Your repayment strategy from 5 years ago may not be the best strategy for you right now. By committing to aggressive debt pay off, you may be shutting yourself off to options that will improve your overall financial health. You won’t know until you do some research first. 

6. What about other types of debt?

What if you have other types of debt, like credit card debt? Do you have a plan for how you will pay this off in addition to the other types of debt that you may be carrying?

If you’re focusing on paying off student loan debt while your credit card debt has double digit interest rates, then you need to prioritize your debt and have a debt payoff strategy. Sometimes, we get fixated on paying off one type of debt when it makes more sense to pay off another first.

7. Do I have any major life changes that are coming up in the near future?

Think twice before deciding to go all in with your debt payoff strategy when you’re just starting a new job, getting married, buying a home, or starting a family. You’re making a lot of assumptions when you have a debt payoff plan, and they all rely on having a foundation of financial stability. Basing your numbers on your current situation, without accounting for how it may change drastically in a short period of time, is short-sighted. 

If you are about to enter a major life transition, be honest with how you’re likely to see your finances change as a result. Realize that no matter how well you try and prepare, reality may look quite different, so be as conservative as possible with future projections.

8. Have I considered the opportunity cost?

People often have the question, should I pay off debt or invest? The opportunity cost would be the potential increased rate of return by investing rather than paying off debt.

However, there are other ways you can think about opportunity cost. What are you cutting out of your life to pay off this debt? What are you sacrificing? Aggressively paying off debt, by default, means that you’re not using that money for other purposes. 

One precious resource that can’t be easily quantified with money is time. Aggressively paying off debt may mean that you’re working more in order to bring in more income. More time at work means less time devoted to other things in your life, like spending time with family or focusing on your health. Think long and hard about how you’re prioritizing your time and if aggressive debt payoff is worth it.

9. Do I enjoy being frugal? 

Let’s be honest here: some people LOVE being frugal. They get a kick out of couponing and finding the best deals because they are making every dollar stretch as far as possible. To those who fit this category, being frugal is a game. They constantly ask themselves questions like: how low can I go? Or, how long can I do without? What can I get for free? 

So if you’re going to be cutting back, will you view this as an enjoyable game? Or will it be a tortuous nightmare that you have to endure? If you fall in the latter category, then think really hard before you seriously cut back on your expenses. Not only are you sacrificing opportunity cost, but you’re likely going to be miserable, resentful, and really cranky throughout the process. Is it really worth it?

10. Is this sustainable?

It’s all fun and games, until you start burning out. All of the excitement and motivation that you had when you started on this journey can take its toll if you feel like you’re constantly depriving yourself, and you question if it’s even worth all the agony. 

Be realistic. Remember that you can still be intense about paying off debt, but it doesn’t have to be an all-or-none deal. Maybe you need to stretch out your plan longer than you anticipated. This does not mean that you’re a failure. But you could have saved yourself an emotional roller coaster by having a realistic, prudent plan from the beginning. 

11. Is my spouse on board?

For those that are partnered up, making this a team effort will make this process WAY easier than trying to go at it alone. For example, there are couples that have decided to live off of one income while paying debt off with the other income. This dentist has decided to go with this strategy, and it’s clear that this was a team effort. 

Going all in without having your partner’s support can be an incredibly stressful process. It can drive a big wedge between the couple when they don’t make this a shared goal. The more ambitious your goal, the more you need to be on the same page with your partner.

CONCLUSION

For those that are wanting nothing more than to pay off their debt ASAP, just pause for a minute. Take a deep breath. 

I KNOW that this debt is weighing on you. It’s keeping you up at night. You probably have a lot of negative emotions around this debt. 

Don’t worry. There is a way out of it, and it doesn’t always mean that you have to live in constant scarcity and deprivation in order to pay off your debt. 

Make sure you check off the “financially responsible” actions first, like understanding your cash flow/budget, having an adequate emergency fund, carrying enough insurance coverage, and taking full advantage of your retirement accounts. 

Now think about how you want your life to look as you pay back your debt. Are you ready to make the sacrifices necessary? Are you making sure that you’re not heading towards a place of scarcity, deprivation, and burnout? Are you willing to see this as an opportunity to maybe have a little fun as you go on your journey? Do you have the right support systems in place to keep you motivated and inspired?

Remember that YOU are in the driver’s seat. Life happens, and your plan may not go 100% the way you imagined. But that’s okay. Managing your money means that you need to stay flexible and change course as necessary. If you’ve gone through this checklist and you have been honest with your answers, then you will know whether going all in with your debt payoff is the right choice. 

Have you decided to go all in with debt payoff? Has it all gone according to plan? Do you have any other tips that you would recommend? Comment below!

2 Comments

  1. The Vetducator on September 18, 2019 at 9:56 am

    Great advice! I think it’s easy to forget about the retirement accounts when you want to get rid of debt. With regards to #1- it may require a slight job change or move, like working ER in Phoenix instead of GP in Seattle.

    • RLDVM on September 18, 2019 at 1:15 pm

      It’s VERY easy to forget about investing/saving for retirement because it’s not a concrete concept like paying down debt. Just wanted to make sure that this gets addressed, because it really is a big piece of your overall financial health.

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