1 Is Debt Management Just Part of Being an Adult? | The Billfold

Is Debt Management Just Part of Being an Adult?

organization is also part of being an adult

Following up on Josh’s post, “We Need a New Kind of Financial Advice,” I’d like to posit the following, to be taught in all schools and financial literacy courses immediately:

For most of us, debt management is part of being an adult.

Right now, the standard financial advice is get out of debt immediately because debt is bad. Or, the more nuanced version: because the longer it takes to pay off your debts, the more you have to pay in interest.

You can snowball your debts, avalanche your debts, or follow Mr. Money Mustache’s advice and declare a Debt Emergency: no discretionary spending, of any kind, until the debt is paid.

Or you can learn how to live with your debt in a way that makes sense to you. For a lot of us, it means regular monthly payments. It may mean monthly payments for decades. But adulthood includes a whole gob of regular monthly payments. No one ever says “get out of Food Debt by learning how to grow all your food by yourself,” or “get out of Internet Debt by building your own servers in your basement or something, I really don’t know how internet works.”

If we look at debt in this way, we can actively teach debt management techniques instead of saying that the only solution is to get out of debt immediately. We can also kick the bottom out of a big chunk of the Personal Finance Industry, the piece that’s designed to make people feel like jerks for going into debt and for daring to pay interest on stuff that they should have gotten at face value.

What do you think? Is this the first lesson in the New Kind of Financial Advice? Or should we still teach “get out of debt as fast as you can?”


Photo: Becky Wetherington



44 Comments / Post A Comment

bgprincipessa (#699)

Debt Emergency sounds terrible. I shouldn’t ever buy a beer until I have paid off my $40,000 in student loans? That’s logical. (I didn’t actually follow the link because I thought it would make me angry, I’m just basing this off what’s written here.)

HelloTheFuture (#5,275)

@bgprincipessa You got it right.

beastlyburden (#6,122)

@HelloTheFuture I’m sure others will disagree with me, but yeah, I think the Billfold misreads MMM. To me, MMM isn’t about denying yourself fun and joy until you have a gorillion dolllar net worth, but about 1) prioritizing long-term security and happiness over short-term material fulfillment and 2) acknowledging that in the context of the wider world and human history, many of us enjoy pretty insane levels of material wealth and comfort.

I get that the dude’s voice turns a lot of people off. It’s brash and punchy and dude-y, but under all the rhetoric is (in my opinion) a really admirable anticonsumerist, pro-environment, self-empowering message. If you want a nicer MMM, I also really enjoy Juliet Schor (she wrote “The Overworked American,” “The Overspent American,” and “Plentitude,” all great books). He’s also pretty in sync with the Center for a New American Dream, a super progressive nonprofit.

HelloTheFuture (#5,275)

@beastlyburden I agree with a lot of MMM’s principles. I really like the part where he talks about “living where you live,” for example. I don’t like Debt Emergency, mostly because cloistering yourself from the rest of the world until you pay off your debts isn’t good for your career, your relationships, etc. etc. etc.

fletchasketch (#6,453)

@beastlyburden I agree with you! I’d disagree with the “no beer until debt is paid off” assessment- I always saw it as “keep drinking the cheaper beer at friends houses like you did while racking up debt at college until the debt is paid off”. I think some people would prefer the short-term “sacrifice” of no/less beer to the long-term payments and interest, and some people are the opposite. Mathematically, the shorter-term sacrifice makes more sense, so it’s a better starting point for the discussion than minimum monthly payments.

beastlyburden (#6,122)

@HelloTheFuture Yeah, I just don’t read the same way! I don’t think any of his advice requires that you shut yourself off from the world; it does ask you to engage with it in a different way, though, in part by reframing your idea of what necessities vs. luxuries are.

I also think that there are two sides of MMM. One is super schtick, where (as in the case of the post you linked to) having debt is compared to having killer bees sting your entire body, and the other is pretty normal, where (same post) he suggests that if you’re in debt, you could eat less meat and travel locally. That seems… not crazy at all? Personally, I have a hard time believing that the former is meant to be taken seriously. It’s just goofy tough-love/bad-cop rhetoric.

loren smith (#2,300)

@beastlyburden Thank you so much for your sentiment on MMM – of all the “financial gurus” out there, MMM is the philosophy I follow most closely, and I’ve struggled to articulate my feelings towards it a lot.

chic noir (#713)

@bgprincipessa – ^^^^ Oh wow I guess thats one way to pay off those pesky student loans.

taekvideo (#6,861)

@bgprincipessa no not at all, MMM would never say you shouldn’t drink a beer till you’re out of debt, that’s silly. Moderate alcohol consumption is very good for your long term health… you shouldn’t sacrifice that. What he would say, and in fact he had a blog post about it a couple weeks ago… is that you should brew your own alcohol! I learned that from him and at this very moment I’m sipping on a “fruit punch” cider that cost a tiny fraction of even the cheapest commercial beers. (the mango cider is my favorite so far… so many flavors I can still try though!).

It’s trivially easy… takes very little time… don’t even need special equipment (can just use the plastic jugs the juice comes in, and put balloons over the top)… a wonderful way to get alcohol for next to nothing.

bgprincipessa (#699)

Thanks all for your responses! Like I said, I hadn’t actually clicked through and honestly I’ve never visited his website, so I’m not familiar with his advice. I’m still not sure that I would agree with it for me personally – beer was clearly my silly example but for me it’s about the experience of having a drink out somewhere over the consumer side of things. I’ll have to actually check out his site and see how I feel about him!

loren smith (#2,300)

@taekvideo Oh tell me more! I just ordered the stuff to do this with. What kind of base juice are you using? Can you still see?

highjump (#39)

@bgprincipessa I like MMM a lot for many of the same reasons beastlyburden points out and fwiw, student loan debt (as long as it is at a reasonable interest rate) doesn’t usually qualify for “hair on fire emergency” levels of denial under the MMM schema.

I guess this thread is as good a time to point out as any – I think there is enormous value in having different perspectives in personal finance. We need to be teaching people that it is fine to pick and choose between Dave Ramsey and MMM (and so on) as long as you feel like you are in control, living below your means, and on a path to meet your future goals.

EmilyAnomaly (#4,238)

I think teaching people to be realistic about debt might be a good place to start: that is, start by saying it is likely that most people will have some sort of debt at some point in their life for some length of time. The next step would be to encourage people to be as informed about their debt as possible. Some people will still make good and bad decisions despite this, but no one should be paralyzed by fear or blissfully ignorant.

@EmilyAnomaly I’d add in, budgeting classes and other basic money management needs to be taught too. This is debt, you may have some, that is okay, but here is how to live within your means and manage your money to avoid consumer debt.

I like this! It does seem more realistic to how people’s lives are currently structured (leaving aside systemic issues that require policy solutions to fix the problem of people NEEDING to take on massive debt loads to do things like go to school). Even my parents, who are frankly some of the most financially responsible people I know, have had debt more often than they haven’t – my father was paying off his grad school loans when they got married, and then they got a mortgage, etc.

I already assume that, even with an aggressive repayment schedule, my husband and I will be paying off our existing debt load for some years. And who knows, maybe someday we will buy a house. And I don’t want to put my whole life on hold just to pay it all off a little faster. We budget for a more-than-minimum payment of all our debt every month, AND we go on vacation and sometimes buy the fancy cheese at the store.

HelloTheFuture (#5,275)

@bowtiesarecool This is also how I manage my debt, which clearly means it is the best way to do it! ;)

Sorbee (#2,256)

@bowtiesarecool EXACTLY. I hate the idea of putting so so much on hold in the name of paying down low-interest debt. As long as I’m on top of payments, and in throw a little extra while I’m at it, I see no problem in having debt while allowing for some fun/life milestones.

milena (#3,288)

I think this is totally sound advice. I have always had a bit of debt, what I call a “healthy amount”, which is whatever I can pay off at a reasonable rate. The world doesn’t really take us seriously as adults if we haven’t had debt and proven that we can pay it responsibly. Try buying a car or a house without a credit history!

But for some people, say those who rack up tens of thousands of $ in credit card debt just buying stuff… These people have proven that they can’t take on debt responsibly. For these people, a “debt emergency”/”avalanche”/what-have-you approach might be the only way.

iseeshiny (#6,178)

@milena nodnod Plus, re: your second paragraph, maybe part of debt management is learning the nuances of when you need to go into emergency avalanche mode. Or the nuances of how to get into debt correctly?

Sloane (#675)

@milena Agreed. As a general rule, credit card balances are not acceptable debt. (There are exceptions of course – dire circumstances, large purchase that needs to go on the card, etc.)

amaeve (#5,095)

@Sloane I make less than $20k a year and my cat’s medications cost $380 a month. (And yes, there are people who would advise euthanasia, but she is doing great on her medications and I’m not gonna.) Credit cards are a way of life! It sucks, but they exist for a reason…

beastlyburden (#6,122)

@amaeve Are there any animal welfare orgs around you that could help? I know the Brown Dog Foundation makes one-time gifts to pet owners (despite the name of the organization, cats are definitely eligible) for things like medication expenses.

Unfortunately debt management is part of being an adult for many, but the bigger question is why these people have debt in the first place? I grew up in an environment where you saved up to buy something,….if you couldn’t pay for it, you didn’t buy it . It’s simple, and that is how i live. I use a credit card to get travel points, but I pay it daily….not monthly, daily. If you are the type of person who runs up $20’000 debt on for vacations, Big screens, credit cards, etc, then are teally the type of person who will pay it off thru a debt snowball, debt emergency, or whatever the flavour of the day is ?? It’s no different than a diet…..a very small % of the population live/eat within their means; the rest will spend their lives yoyoing or being in debt/fat. I realize that in the U.S. Student loans are a big thing, but other loans???? If you haven’t saved for it, why are you buying it??? It’s a one way ticket to being a slave to monthly payments for the rest of your life, & poverty in retirement

@Steve Cole@facebook But we live in a world where research tells us that a college education is the best way to increase our earning potential, and the cost of that college education has grown at many times the rate of inflation over the last 30 years. Add to that the fact that median wages have decreased relative to the cost of living, and you can see how hard it can be to avoid some debt.

AitchBee (#3,001)

@Steve Cole@facebook Is this a parody account? From 1998?

ECW (#2,765)

@Steve Cole@facebook I think its not just student loans though, its car payments and mortgages, personal loans to start a business, medical credit cards. Even if as a “consumer” you never generate debt because you pay off your personal credit cards, very little gets done in a macro economic sense without leveraging investments, be they personal or by a third party, all of which have to be repaid. The personal financial advice world is the only one that seems adverse to debt in general, and it sets up the fallacy that one can never leverage credit to take advantage of an opportunity. Should you go into debt for consumer goods? Probably not, but the financial advice industry has started to equate all debt as equally bad, and that isn’t a strong premise from which to give sound financial advice.

Allison (#4,509)

@Steve Cole@facebook you seem to be extremely out of touch with what the actual cause of debt for folks in their mid 20s-30s is.

@Steve Cole@facebook You are assuming that the debt is do to frivous spending. The majority of the debt we have is due to medical expenses. I have a chronic health condition that cost us hundreds more than our rent monthly. There have been only two brief periods in our lives where we have earned enough to have disposable income. We are thankfully in one now (but that will probably change after this month because I need surgery). The rest of our marriage has been just barely making ends meet. When an medical emergency pops up it has hd to go on a credit card. Add that to student loans and we owe more than we earn in a year. Debt isn’t always due to frivous spending.

I’m a believer in good debt and bad debt. The goal is to get rid of the bad debt and manage the good. So, educating/accepting that you will have some debt in life makes sense because it is the reality. It’s a matter of each person deciding what debt is worth the interest to them. Medical debt & going to a family funeral were worth it to me.

Lily Rowan (#70)

@Steve Cole@facebook Also, the American Dream of Home Ownership generally requires a loan.

But seriously, I do think we should be more explicit about “good debt” vs. “bad debt.” And maybe student loans are bad debt for some people, but not for me.

Goodie (#5,447)

@Josh Michtom@facebook I read what @Steve Cole@facebook to be saying is that student loan debt is fine, as is a mortgage.

But debt for holidays, cars, clothing, ect was not what you should be doing.

I also pay off my credit card daily (or at least every second day) and save for things if I want something new. I do get that everyone has different situation and unexpected medical bills can come up or people can lose their jobs, but it does seem that a lot of people rack up debt trying to keep up with what other people have and spending money on things they don’t need purely because they want that fancy dinner or nice bag

Allison (#4,509)

@nnlsbin I feel like the thought behind this post is that it doesn’t really matter what kind of debt you have (and skipping the moralizing on whether it’s good or bad and how much self flaggelation one deserves for having it) and is trying to just come from a starting point of “at various points in your life you will have it. How do you deal with it in whatever form it takes”.

@Allison Perhaps …..like i said, I understand that in your country you have big student loans ….to me that is a legit debt, as is a mortgage. Probably car loans are legit when you are in 20′s & 30′s. Credit Card debt is not legit …..if u can’t pay it, don’t use it. Medical expenses I don’t understand ….The whole idea that all medical is not covered collectively the same as Fire Dep’t or Police Dep’t is insane. I’ve heard of people in the USA who can’t change jobs or ake a year off because they wouldn’t be able to have medical treatment; or people who could not get a transplant etc because they didn’t work , or not for the right company …..whacky

@AitchBee What was different in 1998 ? I’m surprised how many people are responding that debt other than mortgage & student loans are perfectly fine, & making me out to be the whacky one . It’s seriously quite shocking .

eatmoredumplings (#3,808)

I agree that debt is worth trying to pay off, but it’s also just one element of a balanced financial life, and it shouldn’t always be the #1 priority. For instance, saving for retirement is also important, and it’s kind of short-sighted to direct ALL your extra money to loans if you’re not maxing out retirement accounts, and the returns you can get there are larger than the interest your loans are accumulating. It really depends on doing the math for specific situations, because compound interest works both ways.

Also, sometimes responsible adults need cash flow in other areas, so it can be more important to build emergency or purpose-specific savings than to devote all your money to loan repayment.

I like Emily’s approach at evolvingpf.com – she has loans that (I think) aren’t drawing interest while she finishes grad school, and enough savings to pay them off, but instead of doing so immediately, she put that money in a CD to gain interest. All the while trying to save significant amounts for retirement (much more than I’ve managed, so I’m impressed). That’s debt management!

EmilyAnomaly (#4,238)

@eatmoredumplings You make a good point about retirement saving vs paying off debt. My rate of return on my retirement plan over the last three years has been higher than my interest rate on my student loans, so by forgoing saving for retirement to pay off debt, I would have lost out on potential earnings down the road.

Sorbee (#2,256)

Oh god, I needed to see this today. My husband and I just closed on a house – a reasonably priced one, with enough space to grow a family – despite have massive (MASSIVE!) student loans. (We’re both attorneys.) If we followed the “all debt is bad!” mantra floating around, we’d still be stuck with the lodestone of debt for years and years, even while throwing a healthy amount at the balance every month.

Instead, we split our priorities – paid a little extra on the loans, saved a little on the side for a down payment, saved for retirement – and you know what? It really was the right choice. Our housing expense is always going to be there; we just locked it down while interest rates and housing prices are low. Intuitively, this makes sense. With this financial goal met, now we start focusing on those student loans.

Allison (#4,509)

@Sorbee congrats on closing!!

Taylor (#1,339)

@Sorbee I’m personally in a similar boat (attorney, lots of loans) but with a partner who brought homeownership into the relationship, which adds a layer of oddness. For various reasons he has a lot more discretionary income than I do, in addition to the house, so he/”we” are able to save more for the future than I, either in or out of the relationship, can do individually. SO I’m torn between trying to contribute equally to our shared goals, or knocking out my individual debts, and it’s a constant balancing act.

siouxtse (#4,718)

Nicole, it’s both! We should teach both!

What if we looked at it like sex ed? There are some states that teach abstinence-only–we can consider that the “don’t ever have debt, if you do have it, stop having it now!” equivalent, with no suggestions for preventative measures/strategies to have healthier sex [debt]; and there are some which teach a more balanced perspective–”the only guarantee to not getting pregnant/having an std [read: having major financial problems] is to completely avoid having sex [read: completely avoid getting into debt], HOWEVER, if you are going to have sex [get into debt], you should know how to protect yourself [protect your wallet].

Just like abstinence-only education leaves out a huge chunk of the picture and does a disservice to kids who have no other source for sound information, any financial education approach that only takes one stance is not going to help all of us. Teach it all!

Marille (#5,933)

@siouxtse This is an excellent analogy, and I thank you for it.

honey cowl (#1,510)

@siouxtse Thumbs-up!!!!

Worgchef (#6,838)

Yes, adults must deal with debt. You need a credit history to live in normal society. You probably need leverage set some point, e.g. to buy a house, or you need to accelerate future earnings, e.g. to pay for college or handle an unexpected auto expense.

The folks who get screwed by debt seem to be the unmindful spenders who rack up CC debt on a lifestyle they can’t afford; folks who paid too much for college; and folks like Ms. Darigol above who got sick and had to go into debt to pay for treatment. Can’t do much about the last one, but the first two can be avoided ex-ante.

j a y (#3,935)

Food debt? Internet debt? That doesn’t make sense to me because you actually get something when you pay for those. Debt only gets you access to money sooner… You still have to pay for the item itself.

Sometimes that’s necessary, but it should be kept in mind that the slower you repay it the more you end up paying. So in effect, consumer debt prevents you from heaving more things that you want which is counter productive.

Other forms of debt might give you things you need… Medical debt gives you the possibility of living, education debt is supposed to buy enlightenment or opportunity, housing debt can give you stability. But those are things where timing is more important than money.

dahanaha (#6,871)

I’ve always had a little bit of debt, When I was younger my parents would always let me borrow money that I would pay back through chores, allowance or even future birthday gifts. My first car was bought with a loan from my parents that was paid in full with interest in two years. In adulthood I’ve always had some form of credit card debt but always manageable.
I once mentioned to my friend who is an accountant that I consider my interest on credit debt to be “my cost of living”… she was not as amused as I was :)

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