I do think much of the debt that is available to those with good credit and decent incomes at the moment is so cheap that honestly, it’s hard to justify paying it off ahead of schedule unless there’s some other rationale for doing so, but I do live in something of a “bubble” in terms of stuff like being aware of what others are paying for credit card debt because … yeah, yikes. The icing on the cake is this account we are using is on an investment property which has tax deductible interest also. In case anyone is curious, it turns out my investment account is a Roth IRA, so I can take out the principal with no penalties but would have to pay a bunch of tax if I took out any of the earnings. His comment was in response to me turning down going on a golf trip with him and some buddies as I told him I was going to put my money towards my student debt instead. Anyways, credit card debt, seriously? If your new to the mustachian way of thinking you’ll probably find other excellent tips on the blog that will help you shrink you loans even faster by cutting expenditure further. I even made a culture out of it among friends – it was called the “Drink Booster Program” (DBP for short), and part of the challenge was to do high-drama booze pours – boosting your drink in public without being secretive.. while the others might discreetly chant “DBP! Once you move to the ghetto and houses are under $13ok then you can consider owning. I once substituted white kidney beans for fava beans in a felafel recipe (which involved grinding soaked raw beans, then frying balls of the mush). They went out for dinner a few times a week and bought some shoes and a few tanks of gas in that first month, and eventually the bill came in the mail for $1125. A couple of years ago they refinanced all of their debt into a consolidated mortgage with a lower interest rate. I need to fix this immediately, so obviously all spending beyond food, and getting to and from work in the cheapest way possible, is now suspended. Keep the peace, or do the financially efficient thing? There are two types of people in this world. I know what Dave Ramsay says, but I also value Mr. Money Mustache’s experienced opinion. Instead, start an emergency fund and invest that money somewhere where your money will grow and you should have easy access it when you need. It’s much less of an emergency to pay off a loan like that (while you might not delay child-raising, you’d still be wise to live a very frugal lifestyle until you get back out of the red). Mr. Money Mustache November 13, 2015, 8:53 am. AspiringYogini I actually found your site via his…and was referred to him by none other than…Ramit. MMM love your blog. No Name Guy I actually do think there are some cases where loaning money, even to people less frugal than me. Mr. Money Mustache (@mrmoneymustache — Pete Adeney in real life) grew up in Canada in a family of mostly eccentric musicians. Yes, exactly. Mr. Money Mustache. As long as they can make the minimum payment, they don’t mind piling more on. him I didn’t have 10 bucks but, if I did, I would like to spend it myself. Paying interest on borrowed money is simply stupid:You throw away money that took time and effort to earn. After the loan, that left pretty much nothing, but I assumed that my friend would have the balance paid back within just a few paychecks. Find your Net Worth, Spending, and Savings Rate, https://www.youtube.com/watch?v=IomfI_iF4EM. But frugality has an instant effect. Made around 1600 this year using credit cards. I invest 15% of pay into 401k and an additional 660 into roth and traditional ira accounts. Had to be cultural/learned somehow. And I'm probably going to treat it as pretty urgent debt for a while. Emergency funds are a good tool to protect you against big emergency expenses. I was able to pay off my $35,000 student debt in 13 months. I’ll never do that again. Look at the TOTAL cost – the TOTAL outflow of dollars. Mr. Money Mustache Whole fuckin’ circle. It takes a couple of days to get the money back out, and there are tax implications, but I could cover any short-term emergencies with credit cards. Groovy post. April 18, 2012, 9:09 am. Because I didn’t know how to live without debt. What are your thoughts? How long would it take you to pay off living frugally or becoming a Master Mustache? If you don’t pay it, then it counts as an early withdrawal, then you’d have to pay income taxes PLUS 10% penalty. I wonder if monetary responsibility is a combination of genetic predisposition, parental example, and peers and cultural learning later in life. Wait, so… I have some sort of investment account currently worth $17,000, started for me by my parents in better times (I don’t think I even knew about it until I was 24 – I’m now 27. Ask me Anything! I am a new reader. While I will never reach a full MMM (children are my vice), I use personal finance blogs to keep me motivated. Many people consider doing something similar to pay for their children’s tuition – but the retirement count marches on. I already live a frugal life and my only assets are my non-extravegent car I need to get to and from work and my small emergency fund. Just focus on the things you *can* predict and take care of yourself overall. YO MMM! We have a renter in our duplex and we reduced the rent for a few months because he was having difficulty with some bills. Since I want to use this as my springy debt safety net, I don’t actually want the money, I just want the option to have it at any point. I haven’t yet signed up for anything, but the language that I’m seeing makes it sound like signing up for a loan requires taking that money. This stage will be short and effective. Kathy P. This is a great comment. Can you get a higher paying job in the next year or two. When I was younger, I used to put Everything in Vanguard and just let the mortgage do its slow auto-payment thing (figuring stock market returns should beat mortgage costs on average). And so you can feel even better, I’m a Harvard Law School graduate, and this blog has easily become one of the most influential things I’ve read. Bonds produce decent returns in 4-5 years. Probably eat canned goods for a couple of weeks/months, depending on the debt. I currently have 11k in student loans and 14k left to pay off on my car. Learning this type of restraint also helps in ways other than with finance. I find that this is a personality thing, a lot like Ginger said above. By following your advice from this post, I estimate you just saved/earned me $18,386 over ten years by moving money out of my lame bank account (“gotta have at least 3-6 months salary in liquidity for emergencies!”) and towards paying off debt instead, while relying on our HELOC for emergencies*. If I used the savings to pay down debt, it would barely make a dent and what would happen if I had an emergency? So let me spell it out for you. Meaning, large sweeping changes versus smaller incremental changes. I agree that debt should be considered an emergency. I’ve made peace with this, it was my fault as much as theirs. Mortgages are not an emergency at interest rates like we have today. (I’m not sure–I didn’t think to offer a loan for that until it was too late.). February 1, 2013, 3:54 pm. My current understanding and situation are as follows: I have a $25k emergency fund in my checking and $79k in student loans (putting extra $800 towards principal monthly). That’s April next year. I tried for a long time to lose it. Depending on where in your billing cycle the charge occurred, you’ll get an average of six weeks at 0%. Nope, looks like at least 3 of us LOL Step 3 is 3-6 months expenses. This may sound like a normal Friday night to most people, but note that the purchasing of expensive beverages, DVDs, and video games was put at a higher priority than paying off the debt. Working in standard tech-industry cubicle jobs in various locations throughout the late ’90s and early 2000s, he retired from real work way back in 2005 in order to start a family. Then I’ll see you at the next stage, which is really where this more advanced blog begins. I would recommend a small cash equivalent cushion to cover minimum expenses in case of unemployment. I have made it a life policy never to loan money to anyone, for as Polonius counsels Laertes in Shakespeare’s Hamlet: “Neither a borrower nor a lender be, I would also be curious about MMM opinion on this. © Mr. Money Mustache. April 18, 2012, 11:23 am. I bought some gravel for my yard two weeks ago as part of a zeroscaping redesign that will save me money in the long run, but I’m still suffering from buyer’s remorse. Uh, no. Thanks for bringing in some new perspective – indeed many of the most promising Junior Mustaches may be renting a place at the moment and thus unable to set up a home equity line of credit. More money doesn’t solve money problems….it only augments them! In the absolute worst case, it is at this moment that the emergency bell should sound, for anyone in the world. If your money is tied up such that you can’t access it for weeks, then it’s little help in an emergency. It’s very hard for me to find the logic in putting money into a 401k unless you are: 1) getting an employer match aka “free money”, 2) you are in a high marginal tax rate (in which case 5k shouldn’t be something to sweat over anyway). I need to figure out how to save up for my own place, plus a cheap car, plus still save enough. I’m not even halfway perfect but I’m going to be cc debt free in 2016 and I only started getting my act together in late May 2015 and I’m working on 35% savings (post tax,401k,and benefits) thereafter. I'd also, of course, recommend exploring other Mustachian options (cutting costs), rather than touching the Roth. I tried counselling him instead, but he continued to make extravagant purchases such as $30 giant omlettes which he called a “good deal” because they had 6 eggs (at a true cost of $0.50). A credit card is one form of springy debt. But foregoing credit cards and low-interest financial leveraging for investments and/or emergency fund? They are actually good things, since they help you to learn. Logically, it follows that even if you only wake up several credit cards later and realize that you have fucked up, the emergency applies to an even greater degree. lower interest debt second and Go straight to the most healthy and balanced eating regime and never deviate. Mr. Money Mustache loses some points here. Thirtysomething retiree who now writes about how we can all lead a frugal yet Badass life of leisure. !”, Dancedancekj As for my 27 year old comment. David Robarts Right now I’m distributing 75% of my “savings” into my loan, and 25% into long-term savings. 2 months later and we’d paid off the $6.5k on $5k/month take home. “A mortgage, on the other hand, is one-way debt, since you can pay extra on the principal, but never suck money back out when needed”. I needed a kick in my pants! And a year or so later, I maxed it to the $22K allowed under the IRS “catch-up” provision. April 18, 2012, 6:44 am. April 18, 2012, 6:39 am. The most interesting thing is what people learn through this experience and how much of that badassity they decide to keep for the rest of their lives. I am sure this sounds completely bizarro to you congenital mustachians but I’m sure I’m speaking for a lot of the rest of us. One question: since we don’t have enough home equity yet for a HELOC, I looked to lendingtree.com per your suggestion (great idea!). Secondly, transferring the retirement savings to the higher yield of the student debt payoff was only one part of it. My frugal nature has become habit; the lifestyle ingrained. No tax deduction for mortgage interest here in Canada. But if you’re already in a ton of credit card debt, having $3000 as a cushion against the water heater dying (or whatever) will save you from just putting that water heater repair on your credit card. Fortunately their ways never rubbed off on me. Renting a Tesla on Turo! As you point out, we should be suspicious when the credit card limit is more than one months’ net salary. I like everything I’ve been reading here EXCEPT the credit card thing. I’m an avid follower if YNAB and was introduced to your website via Jesse. Bankruptcy used to be a shameful event, now it’s something that people willingly accept as normal. Instead, invest up to the 401(k) match first, because that’s essentially free money. You will appreciate paying this off more if you do it yourself. This is article is totally eye opening to me. © Mr. Money Mustache. While I never borrowed money (I was usually the lender but I always got it back-I’m slightly intimidating apparently) I did rack up tons of debt and had poor spending from, let’s say my mom allowed the spending as a kid, 18-33. I haven’t yet replaced my shoes that have a hole in them or taken care of other deferred expenses. If that’s not enough time, you crunch numbers and make a judgment call – pay interest while continuing to pay the debt, or cash out investments and risk missing out on some gains. The risk of a rift is too great otherwise. I noticed that there is a comfortable neutral area that is tempting to fall into, its the zone between having only mortgage debt as your only debt and not yet reaching early retirement. April 18, 2012, 9:13 pm. If you can get approved, set yourself up with a personal line for about 6 months’ worth of expenses, and then blast 4 months of your current savings into your highest interest student loan. He went over his balance sheet with us and we were floored.