There’s been a lot of chatter lately about handling debt. On one side, some believe you should stop enjoying life until you’ve paid off all consumer debt, pouring every extra dollar into your debt snowball. On the other side, some argue that life is too short, and debt shouldn’t make you miss out on good times. Let’s break it down with some numbers.
Imagine a family of four with $20,000 in consumer debt. That’s a bit more than the average American credit card debt, which is around $15,950, according to CNN. Their debt comes with an average interest rate of 15%. They’re thinking about a one-week vacation. They could either go on their usual vacation, choose a cheaper one, or wait until they’re debt-free.
### Debt Details:
– **Capital:** $20,000
– **Interest Rate:** 15%
– **Monthly Interest Payment:** $250
– **Monthly Minimum Payment:** $200
– **Total Monthly Payment:** $450
– **Time to Clear Debt:** 33 years and 8 months (404 months)
#### Taking a Usual Holiday While in Debt:
The family decides to go to Disneyland, costing $6,000 for the week. They’ve wisely saved $500 per month for a year. However, those $500 could have gone towards their credit card debt. If they saved the $500 for a trip, they’d have one Disney holiday but stay in debt until 2047.
Instead, if they increased their debt to $26,000 and made $950 monthly payments (the original $450 plus the $500 they saved), they would be debt-free in 34 months.
#### Taking a Cheaper Holiday While in Debt:
The family opts for a more budget-friendly holiday by purchasing an $80 America the Beautiful National Parks pass. They also use free lodging options like a Home Exchange network or Couchsurfing, and bring picnics to the park. They only spend around $700 for the week, including a few nights in motels, gas, and some outings.
Even if they charged the whole $700 to their credit card and only made minimum payments, they’d push their debt-free date by just a couple of months. Making $950 monthly payments like they would for a Disney trip, they could be debt-free in a little over two years.
#### Taking a Holiday After Becoming Debt-Free:
Assuming they can save $500 a month for a holiday, what if they put that money towards their debt instead? They’d be debt-free in 25 months. Afterwards, they could save the $500 plus the $450 they used to pay towards debt, allowing them to take a fully-funded holiday in just six months. In total, they’d be debt-free and enjoying a holiday in 31 months.
### Conclusion:
While I’ve never carried consumer debt, if I were in that situation, I’d probably forgo luxury items, including vacations, to break the debt cycle. Every non-essential purchase delays financial independence. During my aggressive saving period, I didn’t stop traveling, but I did it cheaply, often extending work trips or finding ways to offset costs.
If I had significant debt keeping me up at night, my first step would be to cut out any luxuries, including travel and dining out. How about you? What would you do in this situation?