News Flash: Your Debt is an Emergency!!

I like to think of Mr. Money Mustache as an advanced personal finance blog.

We don’t talk about cutting up our credit cards, or clipping coupons to save $5.00 on the newest Swiffer mop, or making a budget that forces us to save 10% of our income while we devote the rest to “guilt-free spending”.

I don’t talk about my own personal battle with consumer debt and how much I struggled to get out of it, because come on, I am Mr. Effing Money Mustache. I was cleaning and ironing my five dollar bills and storing them meticulously in a photo album at age ten*, obviously I was never going to go out and spend so much on my credit card that I couldn’t pay it back at the end of the month!

This unique history and perspective allows me to see some things that are not immediately obvious to people who have been raised in the current consumer/debt society. And for all the Beginner Mustachians in attendance today, I would like to share one of these observations:

Your Debt is not something you “work on”.


Let’s illustrate what I mean with a few examples:

One time, way back when I was a university student, I lent a couple thousand dollars to a friend so he could pay his own tuition. The cash came right out of my own bank account, and since I had already paid my own tuition, I had just enough left to cover my groceries and other expenses for the school year. 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.

I was therefore surprised when the friend proceeded to live a normal university life of partying and eating out, even during the delayed repayment process.

Everything worked out fine in the end and the debt was repaid eventually, since this was an honorable friend. But I still learned something about society’s differing opinions about debt.

On another occasion I was visiting some other friends – a married couple. The guy was showing me his new TV and video game system. As we battled on the Nintendo Wii, the wife came home from working at the part-time second job she had boldly taken to accelerate the paydown of some old personal debts.

On the way home from work, she had picked up a bottle of wine and purchased a DVD containing some episodes of a popular TV show.

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.

The girl thought she was taking a second job to pay down debt, but in reality her second job was going towards wine, television shows, and video games.

And finally, nowadays I receive emails from people who are working on developing their own Money Mustaches. They often detail income, spending, and debt situations. Often, there is a category for credit card debt. Yet these budget sketches also include amounts for entertainment, cable TV, and multiple cars.

The final straw was when I ventured out to poke around on some other personal finance sites last week. I found one that had a post from one of the authors, containing a table like this:

Mortgage: $75,000 @ 4.5% interest
Bank of America credit card: $4500 @11.9 interest
Wells Fargo credit card: $17500 @ 18.9% interest (<-we HATE this debt!)
Citibank credit card: $2900 @ 14.5% interest
We’ve really cut down on our dinners out and Brad has even started biking to work once a week to save gas in his 15MPG F-150 truck…

Do you see the glaring problems in these stories? If not, you have not yet developed the appropriate hatred for unnecessary debt. So let me spell it out for you.

The correct response to this sort of debt is,




Go back and imagine this person about one month after they got that first Bank of America credit card. 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. They realized that they only had $600 in the bank, but that was OK, since the “minimum payment’ was only $75.

In the absolute worst case, it is at this moment that the emergency bell should sound, for anyone in the world. The response should be:


I just totally blew it and spent more money than I earned!

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.

No, I don’t need a “budget” to pay back my debt, and I certainly don’t need two more credit cards.

I simply need to do zero extra spending until my debt is corrected.

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.

If you borrow even one dollar for anything other than your primary house or a profitable investment,  the very next dollar you can get your hands on should go to paying that back.

You don’t space it out all nice and casual with “monthly payments”, and you don’t get “me money”, “entertainment allowance”,  or any other such nonsense. You don’t start a family or get yourself a dog, and you don’t go out for drinks and dinner with your friends.

There will be plenty of time for these things later, and they will feel much better when they are not set against the backdrop of Incorrect Debt Due to Error.

Don’t worry, there is nothing wrong with making errors. They are actually good things, since they help you to learn. But you learn by fixing them, rather than letting them ride.

“Sure Mr. Money Mustache”, some beginners will now say. “Of course you would say that, but I’m still less practiced than you. I still need my Starbucks Lattes and my husband likes TV sports so I can’t cancel cable. Can you please stop punching me in the face and let me adjust my consumption gradually instead of suddenly?”

Wrong Attitude!

Even if you are an absolute Beginner Consumer Sucka and your goal is still to consume the maximum amount of luxury products, you are still cheating yourself out of stuff just by running a consumer debt balance.

Every dollar you pay in interest to the credit card company is stealing dollars away that you could be using for more luxury purchases for yourself.

Those dollars are gone forever, and you’ve permanently lowered your ability to consume luxury products, for the rest of your life. Since you need those luxury products so much, you’d better get out of debt quickly so you can afford to buy more, right?

The credit card debts above are eating up over $4000 per year of your after-tax salary just due to interest payments. That’s hundreds of lattes, several pairs of shoes, thousands of miles worth of gasoline for your SUV, and even some massages at the spa and a couple of cross-country flights that you are foregoing every year.

Or, of course, once you start your Money Mustache, the interest savings could also be used to shave decades off of your mandatory working career..

And there is more good news, since this is an Advanced blog:

Your Debts Are Tiny.

I always have a little chuckle when people talk about a $10,000 debt, or even a $70,000 or $200,000 one as if it is insurmountable.

Sure, these sums of money are big when measured against the cost of groceries, and they are not sums of money to be wasted.

But this is an early retirement blog. Here we are learning how to rake together much larger sums of money to allow us to live our lives free from mandatory work. For most of us, that means somewhere between $400,000 and $1.5 million.

Beginners to Mustachianism find these sums unimaginable, but after a few years, the same people find their net worth spreadsheets increasing at over $100,000 per year due to investment returns and reduced spending.

Getting rich really is an exponential process, a concept that is hard to grasp until you realize that your money can work harder than you can. Once this higher level of financial skill is reached, you will realize that the debts of your youth were indeed small potatoes.

How do you get this elusive financial skill? If you’re still in debt, you get it by getting much more bold about wiping it out. Sure, you can do it slowly, just as you can lose 100 pounds by lifting a 5-pound dumbell a few times each day while you sit on the couch and watch Oprah.

But I recommend the more efficient path: put on your walking shoes and start walking as much as you can. Eight hours a day. Go straight to the most healthy and balanced eating regime and never deviate. Stay on it and let the forward progress accelerate your progress each day. Consumer debt and excessive amounts of body fat have a lot in common.

The more vigorous method has multiple exponential benefits: every dollar of debt you pay off creates a compounding snowball of savings that continue for a lifetime. And every dollar you manage not to waste, builds your skill at saving money and learning to spend it more efficiently. These skills stick with you for life as well.

So if you still have a car loan, credit card, department store or even a student loan debt, you should destroy that as a prerequisite to beginning the more relaxed stage of saving for financial independence.

At the later stages, you can start to take it easy, but right now is the time for some hard work. Depending on your life situation, you might decide to go car-free, live with roommates, eat a vegetarian diet, take on extra jobs, delay parenthood, enjoy only local travel, and do any number of other things to get the job done. This stage will be short and effective.

Then I’ll see you at the next stage, which is really where this more advanced blog begins.

* This is actually true

  • Dragline April 19, 2012, 11:42 pm

    I can’t believe I read all these comments and nobody picked up on the fact that the Emergency Mustache guys look like Ron Burgundy.

    • Kathy P. April 20, 2012, 4:26 am

      Don’t know who Ron Burgundy is, but I think the guy on the package looks vaguely like Tom Selleck in this Magnum PI days.

  • mdpugster April 20, 2012, 6:18 am

    I love credit card debt.

    Borrow at 0% and invest at 4%

    Credit cards are worth around $500+ a year to me. Perhaps the more advanced blog readers can use this approach and use this cash to buy wine and DVD’s.

    • Mr. Money Mustache April 20, 2012, 12:26 pm

      I too like the idea 0% debt that some of the cards now offer for 15-18 months. But the gotchas and the short time horizon makes it less useful for investors than the 30-year debt you can get at around 3% just by using a home mortgage. However, as long as you find the pastime enjoyable and are good at making the deadlines without slipping up, it’s pretty good.

      I’m finding that the big sign-up rewards are more useful than the debt. I’m up $1000 this year by signing up for three cards – two of which I actually needed for business. That’s a reasonable chunk of my $24k annual living expenses, and I’m a pretty low-key participant. Some people go crazy and collect $5k/year.

      But while it’s real money, it’s not as fun as building things out of wood and metal, or writing articles for this blog.. so I don’t think I’m going to be making a long-term habit out of cycling through $400 rewards cards every month. I’d expect the card companies to catch on and close the loophole from people like us, but so far it just keeps getting bigger.

      • mdpusgter April 20, 2012, 5:27 pm

        Hi Mr. Money Mustache,

        As a mid term reader and a first time commenter (on any finance blog!) – I feel really quite chuffed that the big man replied :). I now feel a personal connection with your blog… I digress.

        You say:

        “But while it’s real money, it’s not as fun as building things out of wood and metal, or writing articles for this blog.. so I don’t think I’m going to be making a long-term habit out of cycling through $400 rewards cards every month.”

        For someone that once ironed and filed their $5 bills I’m surprised that this “less than fun” way of making money has passed you by – exploiting the 0% credit card game.

        The difference in approach may be explained by the fact I am in the UK (I use a $’rate for comparison purposes). The reality is that in the UK there are no big sign-up bonuses, but quite a few 0% options.

        I have to say I would be all over a sign-up bonus like a [shaving] rash. In fact a rash x2 as I’d suggest to my wife she also sign-up…

        However although it is not fun – it really is quite simple: All I do is put my monthly spendz on CC (which has other consumer rights benefits above checking accounts) and lump what I would have spent into a ‘high’ interest account.

        A quick calculation tells me that if I: take out an 18 months 0% card with a $10,000 limit (1% min repayment). Spend $600 a month on the cc and invest that $600 in a 4.5% account. When I come to repay that card in 18months time I would have earned a net $320… just for doing my normal spendz. Compound that $320 a year… you know the rest… Thats a lot of $5 bill ironing MMM!

        Anyway my point is.. Be the bank! Banks make money. In simple terms banks borrow cash at a low rate then lend to others at a higher rate. If you have no debt, and have any necessity to spend money this really is a no brainer.

        • Mr. Money Mustache April 21, 2012, 7:10 am

          You’re right – but it still takes work to do that credit-card-signing-up and management.

          When you’re still working and saving for retirement, your strategy makes perfect sense – you are willing to do even boring work, if that’s what pays you the highest return on your time. In the US, these big-bonus credit cards would definitely qualify, since you earn hundreds of dollars per hour of “work”. That’s why I even have that credit cards page on this blog – because I think it can actually be useful to the right people. (After reading the other comments on this article, I’m even more confident MMM readers are not the type to use credit cards to shoot themselves in the foot)

          However, once you reach financial independence and have plenty of money for your needs, you may try not to get sucked into work or other activities just for the money. I recently turned down a huge and high-paying renovation project for a wealthy customer because she was just extremely annoying. That felt better than any paycheck!

  • pachipres April 20, 2012, 8:41 pm

    Hi MMM,
    Great article. Loved it!! It spoke right to me. I have a question though. I don’t know what to do about this 13K we lent a friend who said he would pay us back and can’t right now. Yes, I have beat myself up enough over this huge mistake but now I have been putting $250 per month on the debt which is on the Secured Line of Credit @ 4%. I am continuing to grow my stash while making this payment each month. Do you think or anyone else out there think I should just pay this off asap or should I just keep making the monthly payments. I track it as part of our expenses as a) a reminder to me not to make this mistake EVER again and b) he will likely not pay us back for a very long time or never-needless to say the friendship has gone quite cold between him and my husband and I.
    Any thoughts?

  • Mr RiskyStartup.com April 20, 2012, 9:45 pm

    Lending money to friends and family is sure way to change the relationship. If you must lend money, do it, but in your mind, write off the money as a gift. If they come back with the excuses, you can say – no problem, pay when you can. If they repay, bonus.

    • jlcollinsnh April 21, 2012, 7:42 am

      wonderful strategy, Mr. Risky.

      I’ve also found it gets me off the hook for any future requests: “Gee, I’d love to lend you that $X, but you’ve yet to repay the from the last time….”

      If they have repaid, then I’m comfortable re-lending.

      • pachipres April 21, 2012, 2:58 pm

        Yes but how would you manage the payback – put $250 down on the Secured Line of Credit @ 4% or pay it all back and not use that 13k of the loan as part of your stash until my dh and I can pay it all off?
        I am not sure I am explaining this right but I hope you can respond to me. Anyone really!

  • Paris H. April 22, 2012, 2:41 am

    Thank You!

    No one my age (26) seems to understand the real problem I have with my debts (personal and student loans). They aren’t much ($45K total) but I did the math, and it equals at least $400-600 I will save a month. I have been following you for a while (and NHMD) and I am glad that people out there in America realize the game being played around us.Soon as I get a job, i vowed to eliminate $10k of that debt this year (CC, perkins loan and Car loan) leaving only a student loan.

    Also I like the part in the article where the wife asks you to let up cuz her husband likes sports tv. I imagine you standing over her with your glorious mustache repeatedly pounding in her face with money covered hands. Not in a violent way of course, but more like a silly Looney Tunes way. And every one of your windups were emphasized by a financial lesson: “YOU will not BUY!” Wham! “Drop those shoes!” WHAM!.

  • Jamie April 23, 2012, 7:33 pm

    It always amazes me as well how indiviuals claiming to be living frugally or “trying” to get out of debt find a small amount of debt acceptable. It’s like saying a small amount of a disease is acceptable! What?

  • asango April 30, 2012, 3:58 am

    If I lend money to a friend, I prepare myself to lose both, because a friend that does not repay me is not a friend anymore.

  • XcaliburGirl May 5, 2012, 6:53 am

    Awesome post; I’ve read it 3 times already. After the second time, I immediately logged on to my credit card sites and paid off some debt. Then I went on Mint and adjusted my budget for the month to allow for more debt destruction.

    No smartphone for me, until this debt is gone! (actually now that I’ve spent more time on this site, I am thinking of changing that to “No smartphone for me.”)

  • Megan E. July 19, 2012, 11:09 am

    I found this article through GRS comments – I know it’s old, but I do have to say I’m glad to have read it!

    We are just about to pay off my student loan, even though the rate is low, since it’s debt and I’m sick of it. That’ll just leave us with a mortgage (under $100k) and we are STILL IN GRAD SCHOOL! Of course we’ll be going down to bare bones budget for the last few years, but it’s motivation to get through the program!

    I almost had a panic attack once because I thought my credit card payment was late by one day (yeah, it wasn’t) and I had a whole $25 on it! I don’t understand how people can sleep, eat, or function with $5k+ balances that they carry on them!

    But we’ve also been lucky in that we’ve never been “really poor” so perhaps I’m a bit of an elitist, although it sounds like a lot of other people here are too so I guess I’m not alone. (“Really poor” is hard for me – I made less than $15k while doing my MS and I still lived in an apartment, had a cat, drove my car, and ate lamb when I wanted – plus I saved up over $5k within two years and flew to see BF, now DH, every 2-3 months so I don’t know exactly what people mean when they say that, but I’m sure it comes about when you add in a lot of “required” payments, like debt, mortgage, car loans, etc!)

  • Margaret April 30, 2013, 11:34 am

    Amen!! What a fabulous post! We’ve paid down about $20K in debt in 3 months from selling things, picking up extra work, etc. Every time I see the interest I’m paying on our debt it makes my stomach physically sick.

    We used to live like everyone else and do stupid with zeros behind it. Now we are radical..absolutely no extra spending..no restaurants, no mindless grocery shopping (saving $500/mo and losing 23 pounds, hubby 40 pounds), cooking everything from scratch, no buying clothes (used if absolutely necessary), no phone lines, no cable..nothing.

    I’m sick and tired of being in debt and look forward to making myself rich instead of the banks and credit card companies.

    Thanks again for the reinforcement!

    Margaret @ Live Like No One Else

  • Charlotte June 10, 2013, 6:23 am

    Hi guys, I’m new to MMM, just found it today! Gradually working through the articles, but would love a bit of guidance.

    I’m 24, just paid off my student loans and have a decent little emergency fund saved in the bank. I have just started a shares portfolio (it’s tiny but it’s a start), started investing in bonds, and have two superannuation schemes. One I pay the absolute minimum into basically in order to get tax benefits, the other I’m putting in 14% of my income but am able to withdraw in 5 years.

    I have life insurance with income protection and a permanent disability benefit.

    I plan on saving 40% of my net income to a savings account with 4% interest. I don’t currently have any debts. When I have a big enough deposit I thought I could invest in property.

    What could I do next to maximise my growth potential? Please bear in mind I’m in New Zealand, so I don’t have access to a ROTH or 401k. Am I on the right track? Thanks!!

  • tkurkcanoe October 3, 2013, 12:48 pm

    Moustachian noob here. I just wanted to say that this article inspired me to pay off my student loan debt over the next few months. I just made an $8000 payment, and it feels good. I’m lovin’ this blog, and hope to be able to practice many more elements of it.

  • Leslie October 21, 2013, 10:07 pm

    I agree, except… (I mean, come on, you knew it was coming, so why delay it) If I do things correctly (i.e. follow the rules and make the required payments) i won’t have to pay off some of my student loan debt. I am totally avoiding consumer debt like the plague, and living extremely frugally. I’m watching interest rates and avoiding interest on everything I can, BUT if I can pay only half of my student loan debt because the federal government likes the kind of work I do, I’d kinda rather do that.

    I did the calculation you mentioned, and it’ll take me a decade to get enough to retire. If I do this loan forgiveness program, I have to work for 10 years. I think it’s a win-win, or well, I win, and nobody loses, exactly.

  • Helen March 3, 2014, 12:11 am

    I thought I was debt free until I had to buy out a business partner at the end of last year. That saddled me with a high interest business loan and a loss of the money earmarked for investment outside of my business. My remaining business partner and I have stabilized the business, but we still cringe at the amount of debt we took on. There is basically no investment that will pay 10%, so paying down the debt supersedes all other priorities. I should have it finished off in the next 10 months by allocating about 50% of my income. The positive is that my fiancé sees how stressful this is for me and is taking baby steps to improve his own (positive net worth, but not by a lot) finances.

  • Fuchsy44 March 13, 2014, 4:17 pm

    Hey MMM,
    This is a fantastic article. Definitely in my re-read and remember section! I understand the benefits (monetary wise and psychological) of paying off debt first but what if paying off debt first isn’t the best mathematical option?

    In my situation I am “consumer” debt free, but I have a mortgage ($46K) on my condo and an investment loan ($24K), both considered “good” debt (really all debt is bad but bare with me). Do I (1) pay down the mortgage @ 2.85% interest, (2) pay down the loan @ 3.5%, or (3) invest for the long-term @ 5% (being more conservative than the 7% return you mention). I generally don’t opt for an all or nothing approach and instead I’m focusing on savings and my mortgage. The reason I’m not paying down the loan is because I can write off the interest on the loan and not on my mortgage.

    Moving forward I plan to buy a house and rent out my condo. Until then, I’m planning to switch to saving as much as I can in my TFSA so I have enough money for my Phase 1 retirement (age 45-60, Phase 2: 60-100 will be handled by my RRSP). Once I’m in the house someone else will be paying the mortgage payments on the condo and I’ll have more saved up. Does it make much sense for me to pay down the condo now when I can put more into my TFSA instead?

    I’m really curious what your, or the Mustachian community, thinks about this.


    • Blaze September 11, 2014, 12:53 pm

      When the condo becomes a rental property is that a write off? I know we can’t write off mortgage interest here in Canada on our primary residence but I think investment properties are different. If that’s the case it would come down to the math. What will you spend on interest and does it make sense to have it as an expense as a rental? When is it due for renewal and based on your crystal ball what rate will you get at that point? Does the math still work? Knowing you own the roof over your head would give me huge peace of mind. For a rental property it would come down to the math.
      In terms of the loan debt, can you still sleep well if your market returns are suddenly 3% rather than 5 or 7%? Sometimes the “right” answer is more about knowing your personality and than straight math. Your first sentence sums it up exactly – from someone who lives and breathes spreadsheets this is not an easy thing to say.
      Personally I know mathematically our investments are waaaaay out performing the 3.3% rate on our mortgage. We maximize our RRSP contributions each year but that doesn’t stop me from paying our mortgage every two weeks, rounding up the regular payments by nearly $300 each and making an additional $12k/yr in extra lump sum payments. Mathematically it may not be the best choice but knowing we will have it paid off in under 3yrs makes me happiest. If we weren’t trying so aggressively to kill the mortgage we’d be putting more in our TFSAs after we max out the RRSPs. Once the mortgage is done we’ll redirect the entire amount going to the mortgage catching up our TFSAs, building our retirement travel fund, and completing one last round of house repairs/replacements before we pull the plug on our salaries. We don’t do an all or nothing either. Every week we skim off the excess and depending if the markets are having a sale or not we either contribute to our RRSPs or make an extra mortgage payment. As long as we contribute our full target amounts for both by year end we try to time the RRSP contributions to the markets that day and don’t worry beyond that.
      One question, why do you plan to use your TFSA first and RRSP from 60+? We’re thinking we’ll do the reverse and pull from the RRSP when we are early retirees (45-60) and have no other pension or government benefits, and then once that’s gone dig into the TFSAs since they won’t be taxed and won’t impact our tax paid on pensions/gov benefits income. Maybe we’re missing something, I’d love to hear your logic.

    • Gerard September 29, 2014, 7:06 am

      My comment may be too late, but be careful with the tax implications of your plan. Like, talk to an accountant or tax lawyer ASAP. Often in Canada if you move out of home A and rent it out, and buy home B, you don’t get the tax deductions on mortgage interest that you’d hoped for.

  • Bob Werner May 16, 2014, 11:14 am

    Reread this one. Way out of debt now myself but I started wondering, shouldn’t we (and I’m not being my usual sarcastic self) treat not having reached FI the same way? As in, we could all be free and not slaves very quickly but instead we rent DVDs and drink expensive bottles of wine. How quickly do you want to get out of slavery?

    • Mr. Money Mustache May 17, 2014, 12:34 pm

      That’s a good question and probably depends on how much you like your current working setup. This is why I advocate a middle road – the 50-75% savings rage, which allows you to sample from most of the luxuries of modern society – instead of the hardcore route of living in a tent on $3k/year.

    • IAmNotABartender March 23, 2015, 6:58 pm

      I figure get expenses down to the minimum that you would be happy to spend for the rest of you life, then wait until investments can cover it. No sense living on much less and getting to the target and realizing that you don’t actually want to keep living in a tent for the rest of your life. Just make sure to reexamine periodically once you hit that comfortable bottom.

  • HappyWithStudentLoans May 18, 2014, 6:05 am

    I know many people have student loans with higher interest rates, and of course those should be paid off before investments, but I have to say I (respectfully) think in the long run this HBS gentleman could have done better than paying off at least some of the student loans to invest in equities, because he has shown himself through this process to be a disciplined person and therefore might have done even better to adopt the same frugal ways but max out that 401k and buy additional investments instead of repaying the loans. My student loans range from 0.4% to 6.6%. For the 0.4%, I could buy a us treasury bond and pocket the difference instead of repaying. Instead of repaying, I’ve bought equities through index funds since graduation. As you might expect, I’m averaging about 10% per year IRR on equities purchased throughout the time span since graduation (a bit more now, actually as the market up, but you would expect about 10%). Had I paid off my student loans instead of buying stocks, I would have forfeited that 9.6 to 3.4 percent spread and be down many tens of thousands of dollars by now. Putting off repayment of the federal loans also functions as a sort of life insurance, since they go away if you die, while if you pay them off you have given up this benefit. For really disciplined savers who would not change asset allocation and have a 30 year investment outlook, which does apply to many college or business school grads, historically this has been the correct answer. No guarantees about the future, but if you have to gamble (and you do in fact have to pick one side of this bet if you go to school, since you either borrow or don’t and/or either invest or repay), you might as well pick the side that has been right throughout known history.
    For the HBS guy, kudos to your new discipline, consider whether you might also be a disciplined equity investor!

  • jasno June 4, 2014, 5:26 pm

    For me, owing someone money feels like leaving a 100W bulb on in a closet. I don’t know if this makes sense to anyone, but we used to have a small closet with a 100W bulb with the little hanging chain. This was the 70s! And it was all too easy to leave that light on and close the door and it would sit there burning away for nothing. As a kid, this drove me nuts. The very idea! So this is what it is like when I owe people money. Like I know the light is on the the closet!

  • StudyOfWealth July 2, 2014, 10:56 pm

    I feel the same way: Debt is just a light word tossed around. And just because we all have some of it somehow makes it ok. I think part of the root problem is that many people fundamentally may not know the difference between GOOD and BAD debt.

  • Fishheadman July 16, 2014, 11:28 pm

    I accidentally discoverd this website by miss clicking from a video game subreddit (Marvel Heroes) to the main reddit front page (first time there). I curiously clicked a few threads in various subreddits I came to a thread titled “$105,000 paid in full”. After reading the main OP and reading some of the comments I started skimming and found a link to this page.

    I am currently in a financial emergency (for me) owing about $10,000 (credit card) and about 4-5 years behind filing my taxes. I have started a young family recently and am facing the fact that I can’t find a rental property for my family (due to credit checks and income history requests) and we may very well be homeless in the next few months.

    This site is what I needed but as a life long worrier, procrastinator and someone who has difficulty making decisions I feel it may be too little to late for me. I don’t know if my girlfriend and children are ready for such a drastic change but it is what we need in my opinion. If you are replying to this blog post still I would greatly appreciate any thoughts on “what to do next” in my situation. I am working some what steady with decent pay for how long I do not know. What your site offers is similar to what I have always wanted but I just never knew how to get there.

    Thank you for making this site I will be scouring its pages in the days and weeks ahead. I have always hated the feel of a mustache on my face but this mustache just might be the perfect fit.

    PS. in Canada

    • Jetd July 30, 2014, 8:47 am

      I don’t know about where you live, but here our local councils have free financial advisors to help you get on track with debts and finances, they can call companies and get lower repayments and consolidation etc. Good luck!

    • whydavid September 29, 2014, 11:58 am

      It sounds like you guys are headed down the road of frugality whether you like it or not. You can either dodge taxes, avoid bill collectors, live only in areas where they’ll take you with no credit check, and generally feel stressed out all the time as you are dragged into forced frugality…

      …or, you can look at this as a chance to get your life back and to discover a different way to be happy. I, too, was in a debt emergency with a young child and wife at home when I discovered MMM. My biggest mistake was to try to convince her that we had been wasteful and now had to pay the price for it. DON’T DO THIS! My wife didn’t want to hear that we ate out too much, but she was elated when she realized I was serious about making and eating meals together as a family with no electronic distractions (aside from the occasional dinner/movie at-home treat — $1.29 from Redbox). She didn’t want to hear that we were spending too much at Starbucks, but she was very happy once – after some experimenting – we finally figured out how to make coffee at home that she absolutely loves (she is making a second batch for the day as I type this!). She didn’t want to hear that we weren’t going to visit the bookstore and drop $30 every other week, either, but she is loving all of the extra trips to the library with our son.

      We are happier now than we have ever been in our lives. We are still shaking off some lingering debts, but we are on the right path. Just knowing that I can retire before I’m decrepit is a huge weight off my shoulders. I used to sit and worry that I wasn’t “making it big” yet and felt that, unless I did, I was going to work until I was in my sixties. I felt that I was guaranteed to leave no impact on society, because I was just going to pour all of my energy into working until I was useless. Holy shit, things are different now…

      I don’t know what you bought with the debt you now hold, but I’m guessing it didn’t make you happy. Time to try something else. Congratulations…mis-clicking a link on Reddit might have been the luckiest event of your adult life outside of putting together that wonderful family. Best of luck…and keep us updated. Even if you haven’t thought one more second about MMM since you posted this…it is never too late. Search ‘stoicism’ and ‘hedonic adaptation’ and realize that you aren’t giving anything up except your misery.

    • Patrick September 29, 2014, 5:17 pm

      Since you mentioned reddit, consider posting to reddit.com/r/personalfinancecanada for financial help. Posting your monthly expenses for trimming suggestions is a good idea.

  • Marco July 30, 2014, 3:56 am

    Hey MMM.,

    Your bottom line message is no doubt not only great it is pretty much essential and would help the majority of the people out there. Never the less, we should keep in mind that Debt is also an essential element of economic growth and makes life much easier and “profitable” if applied correctly.
    95% of major companies and 99.9% of all nations hold debt. The reason for this, is that there is a significant economic advantage of building wealth or a prospering nation (or household) with debt. However of course, there is an optimal debt level (amount you borrow) and an maximum interest rate ceiling where borrowing is not advisable anymore.

    How is this relevant in respect to your article?

    I believe it should also be noted that Debt can be viewed more like a weapon. A weapon can be used for good things such as protection or for the hunting of food (survival) or it can be used in horrifiyng way such as war or threating somebody.

    Most Consumer debt seems indeed econimically very hard to justify (there is a few exceptions depending on the interest rate environment). However, many other variations of debt, especially the one on your house (mortgage), is for many people the only chance to achieve a certain quality of life in a reasonable time span. Working all your life long just to pay down your mortgage can not be the goal. Instead from an ecnomic perspective, leverage should be managed in order to expand your wealth. There is nothing wrong with also letting your “good debt” grow over time as long as it is in an appropriate proportion to your assets (just like all goverments).

    I am very well aware of the fact that this is not for everyone and debt is a tool that has to be handled responsibly. While Consuemr debt is a no go, from an economic perspective paying down your mortgage (especially in full) is not advisable in all scenarios for optimisation of your economic well being.

    I am an Investment banker from Switzerland and while some of our big banks have not applied Debt very wisely (UBS, Credit Suisse) the nation has applied its debt management and a very fortunate pace which has lead to properous wealthy nation even during troubled times.

    So maybe an article that also emphasizes on the potential good sides that debt does for a household or individal would be interesting to see on this site as well.

    Great Blog and all the best,


    • Gerald October 24, 2014, 2:34 am

      I agree with this comment very much. I also enjoyed and agree with the blog post. But as a practical matter, while it’s always good to avoid paying interest if possible, some debt can be useful like student loans and mortgages. Can be useful. Unfortunately, we’ll have scam artists similar to Countrywide and University of Phoenix for the foreseeable future…

      What I wanted to add is that, not only is some debt very useful (and, sadly, as with medical debt, necessary or involuntary), but there are some debts that you really shouldn’t pay back at all. I’m new to this blog so I would be surprised if you didn’t discuss some of these things elsewhere, but it’s relevant here. I’m no mustachioed wizard of finance (hope you know the tune), but here’s a few circumstances where the soundest advice is probably to not repay certain debts.

      If you have few assets and your income is so low that most or all of your essential property can be protected by claiming statutory exemptions, then your (unsecured) creditors cannot garnish your income or take exempted personal property.

      For anybody who live exclusively on retiree / disability / survivors / SSI and/or other benefits that are protected from creditors, I would not recommend that they make sacrifices to repay unsecured debts. I suspect that many retiring baby boomers will bury their toxic debts in this way. And I’m pretty sure I’ve seen some dead student loans walking, but we’re not past mourning stage one…

      A limited number of people who have a steady income, equity in something they want to keep like a home, but unsurmountable debt, might consider Ch. 13 bankruptcy. A more limited number of people with few assets but lots of debt might consider Ch. 7.

      Generally speaking, if your unsecured debt has been sold to a third party debt buyer, then you should think twice and probably consult an attorney before going further (same obviously applies to bankruptcy). Debt buyers buy charged-off debt for on average 4 center per dollar of debt face value, then sue for the full amount plus substantial interest and fees. Mostly they buy credit card debt where there have been multiple prior unsuccessful attempts to collect. They’re also super shady.

      Because they buy thousands of debts and flood courts with just as many lawsuits, they don’t actually submit evidence or check if the debt is beyond the statute of limitations, if it was previously disputed, an identity theft report, etc. Often times, if the supposed debtor just files a simple response that generally denies the lawsuit (in some states, not a lot more than checking a few boxes on a form), then there’s a decent chance that the debt buyer will withdraw the lawsuit (or try to settle then give up)? Basically, debt buyers love default judgments like hogs love shit. It’s not worth it to pay people to review and prove their entitlement to collect a debt (if any) when fishing for unsophisticated people who won’t show up is so much more profitable.

      Hospitals and their collection agencies are sometimes willing to negotiate less-than-full settlements and payment plans. This actually applies to most creditors – it never hurts to ask for a deal. Remember, your creditor’s options are: (1) collect it myself; (2) pay lawyers to sue for it, then pay them to enforce the judgment (with uncertain results); (3) pay debt collection agency a substantial commission to (maybe) get it; (4) short sale it to debt buyers for (sum-certain) pennies on the dollar; (5) settle directly with the borrower, for a sum-certain that is certainly more than a debt buyer would pay. The biggest obstacles for the borrower are the information asymmetries (how much will the creditor bend) and the high-volume nature of lending and collection, which can sometimes make bargaining frustrating and cumbersome. But it can and does happen and is worth pursuing more often than actually occurs.

      One last note to qualify the last point – never pay a “debt settlement” or “debt negotiation” or “debt consolidation” or “debt management” company to make payments to creditors on your behalf, and negotiate with them for a fee. These are evil predatory scum and it’s an outrage that more states haven’t banned them outright.

  • Andrew August 17, 2014, 11:12 pm

    I’m going totally off topic here.

    Just took in a tenant and that means an extra $550 monthly in my pocket. Wondering what I should do w/ it?

    1) Put towards payoff of house. I owe $165k. Not sure this is my “forever home,” but it’s very safe, and I figure more equity can never hurt. I’m not upside down either.

    2) Park in cash. I have a good cash account, so I don’t need more for a rainy day fund, but I could hold it here till the market makes it’s inevitable 10% drop.

    3) Dump it into my non deferred retirement account. This money won’t be used till I stop working, but I sure as hell won’t be working till I’m 60. I’m hoping 50 at the latest. I’m 42 now.

    Other than the house, I have no debt. Feedback is appreciated.

  • Mary September 1, 2014, 4:18 pm

    I’m paying off my $40,000 private student loan as quickly as I can. I’m currently at $24,000 after 11 months of a good-paying job. Still, it’s hard. I live in a very affluent part of Monterrey, Mexico in a house that my company pays for. I shop as cheap as I can in downtown Monterrey. People have made it clear to me that I do not shop, look like, or vacation like my social class. I know I have a debt emergency but comments are hard.

  • Michael September 5, 2014, 8:52 pm

    I need help here.

    I’m not carrying a ton of debt. Between us, I believe my wife and I have about 10,000 in non-house, no-school loan debt. Her car is close to paid off and my car is budgeted for. But we still seem to be broke at the end of each month and we cannot seem to permanently pay down our debts. No sooner do we pay off one bill does something break or a kid gets sick. So advice please on where o start on getting rid of the 10000 grand in debt. If I could do that it would be great.

    • Helen September 8, 2014, 10:43 am

      Hi Michael! Congratulations on getting started. While many on this board don’t think that Dave Ramsey is hard core enough – he isn’t trying to get propel to save enough to retire early – he is probably the best at helping you get out of debt. Go to the library and check out the Total Money Makeover. Set Dave Ramsey’s podcasts to auto download and listen to them – new ones practically every day to help keep you motivated. I haven’t taken his Financial Peace University course, but if you work well in a group environment it would be a great help. You and your wife need to get on the same page and establish goals first. Ambitious goals will get you much farther that wimpy, pathetic, how-can-I-get-out-of-real-work cop outs. You and your wife need to set a budget. You also have to mentally retrain out of a lot of bad habits. On this site there are plenty of people who have no problem with low house debt or investment property debt, and the use of cash back cards. That is not for you! You have a debt problem that is kind of like an alcohol problem, and that kind of debt for you is like going to the bar and saying “I’m only going to have a soda and lime”. Do you really need that second car at all? Are you in too big/expensive of a house? Kids certainly can share bedrooms. You absolutely must set up an emergency fund of at least $1000. However, kids get sick all of the time. This is not an emergency. Set up an account for car/home repairs. Don’t do any repairs that are not absolutely needed. Many people confuse a dated ugly kitchen with a necessary expense. If your house is a huge money pit you may want to sell it and make it someone else’s huge money pit. Remember: each after tax dollar that you spend took minutes/hours of your work and your life to generate. What *things* in your life are worth your *life*?

  • Texas Jim September 8, 2014, 1:08 pm

    One thing that is often times overlooked is the enormous emotional impact and freedom that results from being debt free.

  • Juliette September 11, 2014, 3:40 pm

    So far this is my favorite article you have written.

    We have friends that go on two or more vacations a year and charge it to theirs CC and don’t even have it paid off before they book another one. They think it is necessary since they work so hard! I really want to shake them until the CC’s fall out of their pockets.

    We have zero CC debt (we pay it off every month) and save for what we want and research prices and reviews ahead of time before buying. We go on vacation but save for that too.

    I knew early on (age 19) that I did not want to work until I was 60-65. With this said, I always made sure to but something into investments…even if it was only 25-50 dollars a month (when I wasn’t earning much) since I knew I had set an early retirement goal for myself of 45. I know this is not early compared to many of you but I felt this was definitely a doing goal.

    Luckily my Wife and I are one on the same page of not being on debt. We do still have a mortgage payment but are working towards paying this off within the next 10 years. When we told our friends that we wanted to pay off our mortgage, one of them looked at us funny and thought that this was crazy since “nobody pays off their mortgage anymore. That’s something they did in the 50’s.” This is the same couple that take vacations and charge it to their CC. My wife and I just looked at each other without commenting….I really felt sad for my friends at this point. I just hope they don’t teach their kids all their bad debt habits.

  • KJ December 16, 2014, 11:03 am

    I need some advice. I currently have 10k sitting in a saving account. (I know this is a no no) I have recently been thinking of investing it and opening a HELOC as my emergency fund. My question to you guys is…….. I currently have about 20k in student loans left at 7% interest. Should I invest the 10k and open the HELOC for emergency funds, or should i put the 10k towards my student loans and reduce the principle thus reducing the amount of interest i am paying. Is this basically giving myself a 7% return on money since i wont be paying as much interest?

    Second question. If my credit union offers a HELOC at 2.4% interest for the 1st year and then at varying rates, should i open a HELOC and us it to pay off the student loans since its rates are lower. (the varying rate is currently at 4%)

    • Mr. Money Mustache December 16, 2014, 12:15 pm

      Hi KJ,

      I’d definitely pay off the loan with your 10k first, because of the high interest rate. Then use your next string of paychecks to eliminate the rest of that debt.

      The line of credit will be your unlikely-to-be-needed emergency fund, and you can start investing further once you get out of debt.

  • jocall December 30, 2014, 12:39 pm

    This is only the 3rd of 4th article that I’v read on this site, but I so wish I could pound it into some of my coworkers. Being a 20-something in NYC can be a very tough game. You’ve got access to everything and very few commitments, but with a low starting salary and some of the highest costs of living in the country. Nonetheless, its a kick in the ass that I would recommend to anyone for a couple years.

    I was lucky enough to have no college debt, so I must admit that I’m already in a better position than many of my friends. But, I pay off off all my CCs and contribute to my investments and savings every month. I can’t stand when my coworkers (also 20-somethings) complain about living paycheck to paycheck, but then walk in with a latte every morning, or talk about paying $50 covers at the club on Saturday night. They act like they are above living in Brooklyn or Queens, and have to pay exhorbanent rents on the UES or UWS. YOU’RE DOING THIS TO YOURSELF!!!

    I’ve learned to sit back and watch, knowing that I’ll be coming out ahead in the end. Even if I do spend a few nights a week at home, and try to bring my lunch a couple times a week.

  • James March 28, 2015, 6:39 am

    Just had a thought as I was looking out on the latest snow flurry we’re experiencing here in the northeast – after the snowiest winter on record. If you’re buried in debt, with no plan to escape, it’s like you’re forced to sit and stare at the 108″ of snow on the ground, with Starbucks latte in hand, forever. No financial spring, and certainly no summer, in the forecast. Getting out of debt can feel like the snow melting away. It seems like it takes a long time but, if your whole life was measured by a calendar, and you spent January and February accumulating debt, it’s now the end of March and what are you going to do? Do you really want to look at this dirty, trash laden snow any more? You can’t possibly let it last through April and May!! Or are you going to do whatever it takes to make it disappear? Remove the ice dams, expose the asphalt on the driveway (with a SHOVEL of course, not a snowblower you baby) and shovel your roof. Nature can help with the rest. Sure, there might be a flurry in late March but looking back at the 9 feet of snow-debt you’ve already destroyed what’s another 2″ when the days are getting longer, the sun’s getting hotter and the spring flowers are poised to bloom?

  • Laura March 30, 2015, 2:58 pm

    This article and the millionaires are made $10 at a time article are my favorites. So good and they really light a fire under you! Luckily, I’ve never had credit card debt, but I hate my student loan debt with a passion. So I’m paying almost $3000 per month lately and it feels so damn good and the end is in sight! I used to feel really down about the money I was “missing out on” due to the student loan payments, but since I’ve changed my perspective and looking at it as the best way to improve my life right now, the amount I’ve been paying has increased exponentially and I am a much happier person. I have no idea what I’ll do when I don’t have those payments, but I know it’ll feel great!

    • Trifele March 30, 2015, 3:26 pm

      You go girl!!!!!!! It will feel great when the loans are paid off. I am currently doing the same thing with the mortgage. Just getting to the point where the end is in sight (about 24 months away) and I cannot WAIT. It feels great to make those extra payments each month.

    • Helen April 2, 2015, 11:36 am

      That’s great! Making that final payment will feel fantastic. And if you keep banking that 3k, you get to have interest/growth working for you instead of against you. You could start a car fund for when yours isn’t fixable anymore, buy a little rental home, start a side business…just make sure not to get taken in by the wealth effect.

  • Patrick May 6, 2015, 5:09 pm

    Awesome. Love it. Preach it brother!

  • Steph August 4, 2015, 9:40 pm

    What is considered a student loan emergency that needs to be paid off before anything? In the article it talks about No More Harvard Debt paying down his 90k loan before anything else, but in one of the comments MMM says that low interest student loans should be paid off as soon as reasonable, but aren’t an emergency.

    The remaining principle on my student loans is $19,471 and the interest rate is between 5.75% and 6.55% (there are several loans). Is this emergency debt that I should pay off basically as immediately as possible like my hair is on fire, or should I keep paying it off as normal and invest my extra money simultaneously?


  • Nathanael September 22, 2015, 8:23 pm

    “If you borrow even one dollar for anything other than your primary house or a profitable investment,”

    Even borrowing for a profitable investment is risky. If the investment doesn’t turn out profitable… you have an emergency on your hands. And even if it’s profitable, but not profitable enough to pay off the interest on the loan… you have an emergency on your hands. So evaluate default risk for bonds or risk of loss for stocks…

    I do know people who were in situations where they needed to borrow for a (used!) car. This was the situation where they absolutely needed the car for work, and the job they needed it for paid enough to cover the car loan costs (and more)… and they were starting with literally zero savings because of a previous medical disaster. This is a calculated business-decision car loan, and it was paid off in about 2 years. 99% of car loans are *not like that*.

  • Ryan December 4, 2015, 7:05 am

    I read this post 2 months months ago with $4,000 credit card debt. That number turned to zero this morning! Thanks for the inspiration!!

  • Drew January 22, 2016, 12:46 pm

    I understand that debt is the enemy to early retirement BUT…

    It’s hard for me to rationalize why removal of all debt should precede saving for retirement.

    For example: My wife and I graduated from grad school with a combined $120K in student loans ranging in interest rates from 4.8% to 6.8%. We’ve been throwing everything we have at the 6.5% loan (amounts to approximately $6,500-$7,000 per month), but we are also, simultaneously maxing out our 401Ks because I can’t get around the math:
    $1 into the 401K is worth $1.07 next year (assuming historical average of the market and ignoring any company match)
    $1 into loans is actually only approximately $0.69 because of taxes. Which means, it adds about $0.74 to my net worth next year (at 6.8%)

    Can someone explain to me why all financial bloggers insist on the destruction of debt above all else despite the fact that it’s not always the most optimum use of your funds (in the above situation, I get 44% more efficiency from every dollar that goes into the 401K instead of paying down our loans even faster)?

    • HeadedWest January 23, 2016, 8:16 am

      They don’t. In fact, on this site, it’s been repeatedly acknowledged that maintaining debt with a low APR can help you attain wealth faster by investing the money that would be used to retire the debt. The decision is personal because some people just feel better paying down the debt, and that outweighs the numerical advantages. I on the other hand am comfortable with an old student loan at 2.8% APR and I won’t be paying it off until I absolutely have to.

      I think the “emergency” argument is simply directed against debt with a high APR (credit cards, auto loans, etc..).

      • Drew January 23, 2016, 10:54 am

        Direct quote from above:
        “So if you still have a car loan, credit card, department store or even a student loan debt, you should destroy that as a prerequisite to beginning the more relaxed stage of saving for financial independence.”

        My argument (and I think you would agree based on your policy off not paying off your low rate student loan) is it’s a more optimal solution to place funds in a tax advantaged account instead of aggressively paying down any loan with an interest rate of less than 7%.

        This of course comes with the caveat that you are still eliminating all excess spending and not funneling these funds into added consumerism.

        • HeadedWest January 23, 2016, 6:02 pm

          I think you’re right – and I think most would agree it is perfectly sensible to choose either way. I am just pretty sure the comment was directed at people who are paying higher rates (also, car financing usually brings other expenses with it like excessive insurance). I know MMM has said elsewhere that low interest loans can be justified. It’s probably pretty difficult to stay absolutely consistent when your blog has 400+ posts.

          • Jeffrey W November 3, 2016, 10:55 pm

            There are two reasonable arguments to be made for paying down your debts before choosing to dive deeper into investing. The first is that over the short term we 100% know for certain what the interest rate on the debt will be over the next year. The same cannot be said for the market. We know what the historic average return of the market is but the short-term returns can vary greatly. If we are averaging 7% returns in the market, that still means 50% of the time you have returns below 7%. 100% of the time you are seeing interest rates of 6.5% on that debt. That is a guaranteed cost every year that will not change with variable market conditions.

            The second reason is the fact that paying down debts has a cascading effect on your overall cost of living. As your total amount of debt decreases, your credit score will increase and your access to cheaper lines of credit will increase as well. This can mean the difference of tens of thousands of dollars over the course of your life so it is an investment that pays off long after the debt is removed. Not to mention the fact that many employers check credit scores as part of the hiring process and it can cost you a significant pay-day if they see you as a debt risk.

            I agree that there is a logical reason to consider pouring more money into investments rather than putting it all into paying back loans but I think the theme of this site is to increase the freedom in your life through money mastery. Keeping high-interest loans in your life is not the quickest way to achieve independence in your life or your finances. Hope that helps provide a different perspective on the matter.

            • Mikey November 4, 2016, 9:31 am

              I’ve heard that some employers check your credit score, but it never made sense to me. How is the fact that one’s employee is a “debt risk” relevant to an employer? If anything, wouldn’t crazy debt just make said employee more reliant on his income? Isn’t this a desirable thing for employers? I’m probably missing something obvious here. Please tell me what it is so I can kick myself.

            • Jeffrey W November 4, 2016, 8:33 pm

              Hi Mikey. It’s a good question and I agree that it would be nice if your personal spending habits were not relevant to your employment. The reason that it matters to potential employers is that your credit history is a strong indicator of your ability to handle company money and be fiscally responsible – just like a college degree indicates your ability to jump through hoops and commit to something for 4+ years. I wouldn’t say it is something most people should worry about though. This is mostly relevant for mid to higher level corporate rolls where managing an annual budget actually matters. Don’t stress out about that point too much. Having a good credit history is far more likely to impact you when it comes to getting interest rates on a mortgage than getting employed.

  • Susanne January 31, 2016, 11:57 am

    You gave me the kick I needed to pay of my student loan — a lot of money.
    Thank you!

  • Brenda February 7, 2016, 7:57 pm

    Great!, I want to share my review on Dr Adams.. I was being treated badly in the company where I work all because I took a loan and I have to work for it for so many years. I was living with depression all because of the loan and the way the company was treating me. I spoke to a friend about it and she introduced me to Dr Adams that he will help me clear the loan and the company will start doing whatever I want or asked for and I can also request for another loan. At first i doubted if it was real but I decided to give it a try, when i contacted this spiritual doctor via his email, he asked me to fill the form and I followed all the instruction. He told me I will get the result within 48hours. To my greatest surprise before the end of 48hours my company called me and apologised for all the emotional trauma I went through and asked me whatever I want that they are ready to grant it. They never asked for the loan anymore and I got salary increment. After 4days I requested for another huge loan. They gave me without any stress. And also my car company never asked me for the car loan anymore. Dr Adams helped me cancel debt worth $62,000 plus $41,000 I collected later. All thanks to Dr Adams. Contact this great doctor via his email dradamsjohnsoncentre12@ gmail . com “He can cancel any amount of loan or debt and solve any problem” you have my word.

  • Fiona February 29, 2016, 4:16 am

    Hi there! I would like some advice about whether I should pay off my housing loan earlier or later? I have a housing loan of about $500k with about 25 years left and the interest is 2.6%/annum. The installments of about $2.5k a month is currently being paid solely using funds from my husband’s and my CPF account (something like the US 401k). There is a compulsory contribution of about 20% of our income to the CPF account and we are not able to withdraw any money from it (with the exception of a few things like for paying off the housing loan). I really don’t like being in debt, and want to pay off my housing loan with any spare cash I have from my savings, but everyone around me says I should save the money instead and just let the CPF account pay for the housing loan, but that would mean I would have to keep working for at least the 25 years to pay off the loan, since I would have to keep working to keep contributing to the CPF account. What do you think? Should I just use my cash to pay off the housing loan as soon as possible?

    • Ben June 20, 2016, 9:06 am

      it sounds as though you have a really low rate, but you are investing outside of the US. If you are comfortable taking on some risk, you should be able to divert excess funds into a stock investment that would return something higher than your mortgage rate. Over time, the growth in that pot of money would eventually allow you to “lap your debt”, and you’d have little trouble retiring your mortgage with less effort than if you just started making extra payments now. You may wish to set a target time in the future of something like 10-15 years for this.

  • Anke September 2, 2016, 6:25 am

    Ok, so I have just cancelled my Audible membership – that saves me a chunk of change per month. It was harder than I thought – there was the option to pause the account for 30, 60 or 90 days (A trick I tell you!), or the option to move down from a Gold Account to a Silver Account, OR even the option to completely change your mind about cancelling and keep the membership because they bribe you with one free credit to try get you not to cancel. Haha. If I cancel this AND don’t get my hair or nails done for 5 months, then my smallest, but highest interest debt will be paid off.

    Thanks for the informative and insightful website.

  • Wendi S October 12, 2016, 3:26 pm

    This is a new comment on an older article, so I hope it will get seen. I am wondering what your opinion is on student loan debt that is expected to be forgiven. I’m a brand new Mustachian, saving and earning like crazy to remedy our past stupidity!!

    My husband is 40 and has student loan debt of $100k (a bad decision, we realize now). He is a public service employee and is enrolled in the loan forgiveness program. We make the $74/month payment required by our Income-Based Repayment Plan, and in about 5 more years what is left will be forgiven, tax free.

    I have student loan debt of $3k and am NOT a public service employee. Under the Income-Based Repayment Plan, my payment is $0 (yes, that’s $0), and in about 23 more years what is left will be forgiven, but it will be taxable. The interest on both loans is 3%.

    I once read another financial adviser say to keep acting as though you are paying off the student loan, but instead of making payments directly to the loan, put them in a high-interest savings account until you have saved the full amount of the loan, in case something like a disability makes it impossible to continue in a public service career, or the government discontinues the plan, etc. If loan forgiveness does not happen, you have a stash to pay off the student loan. If it does end up being forgiven, then you have a savings account to invest!

    The payments are low because our combined gross taxable income is about 55k, and we have 5 kids! (Our gross is closer to 70k but we have many pre-tax paycheck deductions like pension contribution, dependent care reimbursement account, health care reimbursement account).

    Would you agree with that advice to save instead of paying it off? And if so what kind of account would you put the savings in – CD? money market? Roth IRA?

  • Trevor November 2, 2016, 11:06 pm

    I have about 35k$ sitting in my bank at the moment and a 35k car loan, that is the only debt I have are you saying I should spend all my money on that first? Then change my life style to save more and waste less? (Which I can absolutely do)

    • Mr. Money Mustache November 3, 2016, 3:12 pm

      That’s a great start Trevor – much better than leaving the idle cash in the bank. But to make the plan much better:
      – pay off that loan immediately so you have the a clear car title in hand
      – meticulously clean and photograph your car, and put up an ad on Craigslist to get it sold
      – use about $5000 that money to grab one of the “top 10 cars for smart people” also from Craigslist
      – invest the remaining $30,000 or so in index funds via something like a Betterment account.

      Search Google for site:mrmoneymustache.com to find more details on any of these ideas and good luck!

  • Bad Decision Dinosaur November 26, 2016, 5:38 am

    During college I spent frivolously, taking on a sizable amount of student debt and some private debts. Stupid.
    I was already planning on paying them off as fast as I “could”, but after taking a hard look at my finances I can probably shave off a few months extra over what I was planning on doing.
    Thanks MMM.

  • Kathryn December 8, 2016, 11:39 am

    Hello MMM! Thank you for this blog! I have a question about student loan debt. To be succinct, since starting to read your blog in June of this year, I have paid off $10,000 in credit card debt and have now moved onto my gigantic student loan. The interest is 7% and the total is currently $110,000. Undergrad, grad school, bad decisions and interest have led me here. And now I want to demolish this debt.
    I have no savings to speak of. And my question is… do I keep putting 60% of my take home pay to this debt? Or should I diversify that 60%, put some away into savings and perhaps invest some into a Vanguard account? OR, is it more prudent to keep plugging away at the student loan until it’s gone (even though it feels like it will take 800 years)?
    Thank you for any insight. You’re a true inspiration!


    • Mr. Money Mustache December 8, 2016, 11:44 am

      Hi Kathryn,

      YES – I’d prioritize things like this, if your student loans are stuck at that horrible 7% rate:

      – Employer 401(k) up to their matching limit into a low-fee index fund
      – Student loans with all remaining money
      – no other savings or diversification until the loan is cleared.

      However, if you can refinance to under-5% with something like SoFi (http://www.mrmoneymustache.com/2015/05/06/sofi-review/)

      Then you might want to do the 401(k) contributions up to the annual limit, then a Roth IRA, then the student loans with all remaining money.

  • thefestivalway March 21, 2017, 6:51 pm

    Could not agree more!!

    I finished my undergraduate degree in 2015 with $60,000 in debt. This month (March 2017… 1.5 years after starting work ) I will be making my final payment :)

    I started out with a very decent salary ($80,000 + 25% annual bonus) which is largely why I have been able to pay the debt off so quickly, but it is also because I adopted to mindset that paying off my debt was my #1 priority.
    -no car
    -no expensive phone / new phone
    -no new electronics/tv/gadgets
    -no new clothing
    -cheap rent in a shitty house with roomies
    -no expensive vacations

    The only thing I spent a decent amount of money on was part-time film classes and concert tickets.

  • Garrett May 7, 2017, 9:59 am

    After reading this article numerous times from August of last year till now, I successfully cleared off 100% of my debt (which, total put on my cc, had been around $6-10k) as of early April 2017. I feel SO much better, and i’m working towards SWAMI status. :) It’s going to be a fun road. Life is way better without debt!

  • Ray in Dublin May 24, 2017, 9:45 am

    I owe €3000ish on my credit card. I paid €1500 off it today – payday. It usually recycles a bit.
    I have children. I saw a festival camping weekend that would just bloq

  • Ray in Dublin May 24, 2017, 9:52 am

    I have a €3000 credit card bill. I just paid €1500 off it today / pay day.
    I have 2 children 3 + 7. I saw a festival camping weekend that would blow their little minds. I was hovering over the purchase button. It was €199 + car rental €100 + food and bits €100 so €400 minimum for the weekend. This post stopped me. “Do nothing else until the debt is paid off” I am a bit disappointed not to take them but sure it’ll be better off going into the future and they’ve plenty more years to go out of trips.

    With children I am so motivated to give them the best possible childhood. That’s the excuse. The reality is they just love to hang out with me so instead we’ll kick a ball about the park and they won’t be any worse off.

    I wonder will it lash rain that weekend?

    These things always seem to work out. :)

    • Ray in Dublin May 24, 2017, 9:53 am

      …the credit card usually rebounds but I’m concentrating on that now :|

  • Jason August 4, 2017, 3:22 pm

    This is a great and timely post for me. As a physician who graduated from residency with over 250k of student loan debt, a mortgage, a couple of car loans, and carried balances on my credit cards, I was completely debt numb. It took me 4-5 years to finally understand how stupid I was being with money. After waking up and taking control i was able to get rid of my bad debt very quickly (all high interest student loans, car loans, credit cards). However, once I was left with just low interest student loans and a mortgage, I got debt numb again and ended up slipping backwards a tiny bit when i bought a new car with a loan. It’s been a learning process but I’m confident now it won’t happen again. My wife and I have committed to a goal of being COMPLETELY debt free as quickly as possible, including mortgage debt. We’re planning on selling our house and downsizing to a much smaller place and using the proceeds to pay off everything. We’re sick of being slaves to our jobs and want to live without debt. This site is a big inspiration to us and helps us stay focused.

  • HeatherS February 8, 2018, 10:55 am

    Thank you for writing this. I am a recovering ultra luxury consumer / credit card balance carrier and I finally got sick of it. I am 4 months in to a commitment to myself to pay this shit off and grow my money mustache. It has been a bumpy road mentally to change my consumption habits – but I have this article bookmarked on my phone and I refer to it quite a bit. My husband and I also make finger mustaches to each other when we talk about any purchases to remind us of our goal. I might be at step negative one, but I’m determined to get there.

  • Louisa January 11, 2019, 5:22 pm

    I LOVE this post and couldn’t agree with you more. Six years ago I started with a $200k mortgage and I am now down to $99k, hopefully I’ll get it paid off in the next six!


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