If you’re working on climbing your own debt mountain, I’ll bet you’ve said more than once, “I wish I was out of debt” or maybe “I’d love to have no debt.” I understand those thoughts. Yesterday’s expenses are a pretty heavy weight to shoulder as you climb toward some big goals. Improving your debt ratio will give you more cash flow and flexibility. Just don’t call getting out of debt a goal. It isn’t.
Back in “the day” when I was an advisor, at the beginning of the first meeting with a potential client, I used to tell them we’d do two things: find out what their goals were and then talk about how they’re managing their money. These two parts of a financial plan should work together, but in most cases aren’t.
In many of these meetings, when I’d ask for a list of goals, a client would lean forward and say, “I want to be out of debt.”
I’d answer, “What do you want to do once you’re done getting out of debt?”
Most of the time people were so stuck on their debt problem that they’d never stopped to think: what if it wasn’t there? What should I do then?
Debt Is a Gigantic, Ugly Hurdle With Pimples
Did you watch the hurdles at the Olympics? Getting out of debt is a hurdle, but the world’s ugliest one. Each athlete has a series of problems in their way to find the finish line. Athletes don’t say, “Man, I’d like to get over that ugly-ass hurdle.” They say “I want to win the race.”
“Retirement” “new house” and “education” are some of the finish lines. Your debt ratio is keeping you from that goal.
Why It Matters
When you reach the summit and actually get out of debt, you shouldn’t be surprised when you bellow out a gigantic “WHAT NOW?” You have more money, more freedom and more flexibility. What do you do with it all these new resources?
Doughnuts? A sports car? Create a life-like statue of a car on a mailbox?
While those are excellent possibilities, I know what you’d do: use it to reach some goals.
You’re more likely to win if you focus on your goals. Here’s what I mean:
Anyone who listens to our Two Guys and Your Money podcast may not be surprised to learn that I’m a stutterer. They called me “The Jackhammer” in first grade. People would say over and over “stop stuttering” as my face contorted into an ugly grimace and all I could muster was “Th-Th-Th-Th-Th-Th-“. The phrase “stop stuttering” did nothing to help. In fact, if I thought about NOT STUTTERING, all I thought about WAS STUTTERING. Ironic, isn’t it?
Instead, I had to quietly think about the point of my sentence. I needed to look at the finish line. After two years of speech therapy at Western Michigan University, it’s barely apparent that I stutter. Some brilliant teachers taught me skills to make sure that you rarely know when I’m struggling to get the right words out. Mostly, this is because I was taught to focus on the end game, not on the hurdle.
It’s the same when someone says “I want to lose weight,” isn’t it? You could even substitute “I should stop eating ice cream” or “You shouldn’t pick your nose.” In itself, these only point out the negative that you SHOULDN’T focus on.
Why Debt Returns
Every once in awhile, we see a person keep the laser focus it takes when getting out of debt without real goals. Once they reached the top of debt mountain, though, they often don’t have anything to push on toward, so what happens then?
They jump right back into debt.
In short, their debt ratio sunk because they didn’t have a real goal for their newfound wealth. There was nothing the get-out-of-debt wagon was really driving toward.
It’s the same for what we’d call “shallow goals” in our office. People who wanted to “leave work” struggle during retirement. They cope with the fact that they’re getting older and there isn’t any reason to wake up anymore.
Those people didn’t have a goal to “retire.” They just wanted out of THAT job!
How to Stay Clear of the Ugly Debt Monster
It’s been written so often that you need to write down your goals that it seems trite to repeat here, but it’s true. When you focus on buying a new house, you’ll have to eliminate the debt hurdle to get there. Instead of being flustered by your debt ratio, you’ll watch it melt away because you can’t get the new house without the debt being gone.
By following a clear set of positive goals that you’re steering toward, it’s easy to focus on paying down debt. There’s something tangible now behind it. You can pick out curtains, look at furniture, imagine landscaping. It’s real. Tangible.
You might be thinking that finance guru Dave Ramsey has helped people clear the debt hurdle by celebrating it. He sure has. He’s turned “getting out of debt” into a celebration, where people want to be able to cheer about that finish line themselves. They want to holler on the radio. Maybe this is an easier way to fight the “debt as goal” problem that America has. If people want to be able to say “I’m debt free” enough, they’ll stay motivated to reach the finish line. While it works (you turn the celebration into the finish line), I believe for most of us the easiest path to a lower debt ratio is to focus on what you really want in your life, and the debt will melt away. You’ll be cheering, too.
Photo: Alan Cleaver
When we got out of all consumer debt, we kind’ve had that “What now?” feeling. We had been paying so seriously on it that when it was finally gone it felt really weird. But now we have shifted all of our energy to paying off our mortgage. After that, who knows? I do know that we will never go into debt again!
Hmmm….is the absense of debt going to be enough to make you want to stay out of it later? What do you mean by “who know?” Does that mean there are no goals behind paying off debt?
Yes, the absense of debt will definitely make us stay out of debt later. Why try so incredibly hard to pay it off to only get back in debt again at a later time? That would be totally pointless!
Of course there are goals behind paying off our debt. I never said that there weren’t.
Our debt is a little different because it is student loan debt not consumer debt. I have asked my girlfriend multiple times what she wants to do when we are out of debt. Other than catching up on her retirement savings and saving for an eventual car replacement we haven’t come up with much yet but I am sure that will change as we get closer.
This is so true. When lots of people get out of debt, they see that as a reason to be able to afford to finance a car upgrade or maybe they finance that boat they always wanted. The problem is that they don’t have a set plan for that extra cash they suddenly have. Maybe they won’t jump back into debt right away, but instead let lifestyle inflation use up all the extra money on things like vacations or dining out. Either way their finances aren’t much better off. So those long term goals are super important. It’s when there aren’t goals that you feel entitled to start blowing your money.
Good article this…and made me think. I would agree that getting out of debt is not a final goal. But how about an intermediate one? It certainly is not a plan – to get out of debt takes much more than the half hearted intention to get there. It takes dedication, intelligence, changing your thinking, feeling and actions, and generally re-visiting the foundations of your life. Hard, I know – been there.
Nice hurdle analogy – I like it. “You just paid off $100,000 in debt? Great work! Now save $100,000 10-20 times and you’re done!”
Getting out of debt is definitely a goal for us but it’s just a means to another end (i.e. other goals): financial independence.
I don’t mind people listing getting out of debt as a goal, but it’s important to know why it’s a goal. Most Americans only see the here-and-now and have trouble planning (which is why they need advisors), so the majority of them feel the burden of the debt and therefore make it their first goal. I think that’s okay, but it’s important to push them to see the overall picture.
One step at a time though.
Looks like we’ll disagree on this one, Newman…I mean Jason! It was always frustrating getting people to look past their debt and toward their real tangible dreams. Looking at it as a hurdle helped people get through the WHAT NOW? struggle that everyone faces. You’ve built up momentum, now you have to keep the ball rolling….
We just paid off our consumer and student loan debt and I must admit I am currently dealing with that “What’s next?” feeling. Getting out of debt, even though it was a significant amount, always (mostly always) seemed doable. There was a light at the end of the tunnel.
Like PK said above and you alluded to, we paid off $100,000 in debt, but now we need to save many times that in order to be at the finish line.
Retirement seems so far away that it begs to be redefined as a specific goal. Rather than trying to accumulate some ever-changing pot of money, I may focus on more tangible goals, like building a fully-sustainable retirement compound, with off-the-grid power and a large garden and animals. This is something I can wrap my head around easier than trying to predict how much money I will need in 30 years, and whether the US dollar will still be the world’s reserve currency.
I think it’s awesome that your post and this one appeared on the same day, John. Two sides of the same issue. When you ran that guest post about the off-the-grid compound I thought you said you weren’t sure if it was for you? Looks like you’re closer to acting on it. Awesome!
Getting out debt is my way to achieve my goals of being able to have a house, go on vacations worry free and have a family. I would also like a car that I’m not afraid of breaking down and a few other things. I dislike the monkey on my back currently but I’ll get rid of it slowly!
There it is, Bog. You’ve looked past the hurdle toward the “real” goals. You’ll blast right out of it and into financial security.
I love this post — I hit that realization a few weeks ago, several months before my “what now” situation. I don’t know if I have all the answers yet, but I’m happy I have time to think about precisely what I want once I have more options with my money.
You’re getting so close. I can’t wait until your I’M OUT OF DEBT! post. It’s right around the corner.
I’ve really never thought of it this way before. I mean, I know what I’d do with money if we didn’t have debt. But looking at it as a hurdle rather than a goal (or anti-goal) is a new concept to my brain. One that makes total sense, though.
So you’re saying getting out of debt is a step toward your real goal? I like it! Your goal will give you the motivation and the steps give you the action plan.
Yes sir! It blends together MUCH better than just “I want to get out of debt.”
I think getting out of debt is a fine goal! Just so long as it isn’t your only goal. If it is, you’ll find yourself right back where you started. I have goals to be able to pay for my kids’ braces, help pay for cars, and pay for their college educations without financing, pay for vacations BEFORE we actually go anywhere. Crazy, I KNOW. I also want to learn more about investing! We have lots of goals, but one of our first (and a necessary one) is to kill this debt and then continue to live frugally and mindfully so we don’t find ourselves back in this mess ever again.
It may seem like semantics Michelle, but I think it’s a “fine” hurdle. Braces, cars, education and vacations are all goals, and debt is keeping you from achieving those. It’s the absence of resources to get those. Like an athlete, you have to focus on the hurdle to reach the finish line….but it’s still just a hurdle.
I know it sounds like word-play, but for many families, it’s an important distinction or they never reach their true potential.
I think I get what you are saying, but bare with me… Do you believe that what we focus on expands? So if we focus solely on our debt for example, even as a goal to get out of debt, (for many of us, not all) our debt will simply grow.
But instead if we focus on our goals, such as being able to afford a new home, or a new car, or to actually pay for a vacation in full before we leave, we stand a better chance of reducing our debt in the process of working towards those goals?
Sicorra, I’d prefer it if you rewrote the piece! Lovely shrinking of my point. I see people focus on debt and don’t go anywhere (“don’t think about elephants!” that’s all you’ll think about). But to have true goals, you have to clear the hurdles. Thanks!
Interesting way to look at getting out of debt. I guess it’s kind of like getting up each day and saying I’ll stay alive today without any thought to what you might do. I’ll maybe rethink my goals to add getting out of debt as a step to my goal of working less and because I want to, not because I need to.
I never had much debt outside of when I owned apartment buildings. When I paid off my car loans roughly 12 years ago, I never wanted to have debt again. I took out a car loan for my new car, but it is 1.99% for 5 years. I set up a repayment to finish in 4 year.
Paying that off definitely isn’t a goal. If inflation skyrockets, that 1.99 looks brilliant!
This the reason why I like Dave Ramsey.. The math of the debt snowball may not be the best option, but the method is amazing. It turns debt into an enemy and getting rid of it and event. This small change has allowed tons of people to get out of debt. Great write up joe.. I think if more people think of eliminating debt as an event over a goal/thing to do.. we wouldn’t have so much of it.
Honestly, debt doesn’t bug me as much as it does most people. Maybe it’s because I have more than enough money to pay off debt AND save (in our living situation right now – though obviously I’d love more money). My debt only entails payments of a couple hundred dollars a month which is not bad in my opinion. BUT – i want to get out of debt fast so I can start saving more agressively for other goals – mainly home ownership.
The “…so I can start saving more aggressively” part of your comment, Daisy, was the whole point of my post. It’s a speed bump for you (and not a big one, it sounds like!).
I know exactly what you are talking about! When it’s about retirement they do shout that they just want to get out of THAT job. But they don’t have a specific goal or even know what their lifestyle should be like.
I have to say, you are pretty funny! Debt is is like a gigantic ugle hurdle with pimples…lol…you just want to pop it!
Seriously, this was a really good motivational, but the point, post. You are so right..people too often see debt as a goal and don’t look any further than that.
So, so, so true! I made this mistake recently while striving to get out of debt. Then I got slapped in the face with the reality of “now what?” just like you mentioned. I’ve had to learn over the past few months that becoming debt free isn’t an end goal, it’s just part of the financial freedom journey. Great post Joe!
I love your hurdler analogy. As you said, people put so much focus on getting out of debt, they don’t see the rest of the picture and what happens afterwards.
Well put. I want to get out of debt to be able to put that same amount that now goes towards debt to savings and investments. Of course, I’m a little nervous because I want to buy a house (mortgage) and invest in a business (SBA loan) and both of those are debt after all, however, I think I am finally responsible enough where those things won’t mean I’ll get back into credit card debt or feel the need to lease a G-wagon because “I’m a business owner! I gotta look the part!” I do have a bunch of concrete non-debt goals but debt is that first big hurdle, just like you said!
While debt may be bad for some, I like it! I use borrowed money to enhance the returns of my portfolio. (Call me crazy, question my parenthood, and/or lack of sobriety if you will)
I can borrow for less than I get in my returns. So how is that crazy?
People borrow money to buy rental properties, and since my investing is heavy on real-estate management type companies how is it any different?
Since I’m exposed to a lot LESS risk than doing it myself, I’ll take my debt. Heck, I’ll even take more too if they would give it to me!
Full disclosure: I could liquidate today and be completely debt free. But my monthly income would drop by a lot!
I like the point of your post – I have a fairly large debt load, and it just doesn’t seem to bother my husband and I enough, probably because we haven’t refined our future goals enough to realize the debt is holding us back.
We’ve broken it down into smaller pieces, and a couple of those pieces are on our radar, but the concept of being “debt free” is so foreign to us that it’s difficult to imagine.
From experience in other areas of my life, i know goals are important driving forces. We need to work on our goals!
Great post!
I think not having a goal is why most people go right back into debt again once they’ve paid it off. It’s habitual and with no other direction, it’s easy to fall back on old (bad) habits.
Thank you for that post – it’s so true – focusing on the end result is so much better than focusing on the unpleasant tasks before the end result. It’s how I was able to lose weight and fight off cravings. And quit smoking too. I really appreciated your stuttering analogy. Glad to find your site!!
Holy guacamole Joe, I wrote a post on EXACTLY this topic about a year ago! Birds of a feature, you and me.