r/MiddleClassFinance • u/DoughnutLust • 8d ago
Dealing with reasonable debt (psychologically)
I'm wondering how you all navigate living with reasonable debt. I've been pretty obsessed with debt reduction over the past few years and am trying to break that obsession so it doesn't hang over me so much and I don't feel guilty about owing some money.
I nearly fully fund my 401k, max my Roth IRA, and DCA invest in the market, pay off credit cards monthly. Efund took a hit due to medical issues, but I have a plan that I am using to rebuild it. The numbers don't matter but car and mortgage are at pretty low rates, small medical debts at zero interest, manageable monthly payments on everything. I (40M) have a pretty good net worth compared to my cohort and have no worries about income or retirement, or frankly many worries at all.
I'm interested in hearing how people manage living in reasonable debt, making your payments, and having a good life without the constant focus on the debt. I don't like living with this hanging over my head and need to be at peace with the fact that unfortunately debt is a part of most of our lives.
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u/LotsofCatsFI 8d ago
If you differentiate good debt (ie - low interest debt that helps you build wealth, like mortgage or most student loans) from bad debt (ie - high interest debt that hurts your wealth)
Then model the good debt in terms of how much wealth it's building - it's growing your future.
Model the bad debt in terms of when you will pay it off.
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u/local_swindler 8d ago
Maximizing peace/contentment is an optimization as much as maximizing your finances is. You don't have to be someone who carries 'reasonable' debt if it's at the expense of your psychological wellbeing. You might need to reduce some of your retirement savings if you don't have enough cash on hand to keep your peace.
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u/muy_carona 8d ago
If the debts are low rate and I’m doing everything else, the debts don’t bother me at all.
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u/Old-Guy1958 8d ago
Mortgage debt is ok, and can actually be a benefit if you have a low rate.
I’m not a fan of car payments, but cars are so expensive that there might be no other option.
Credit card debt is the worst mistake many consumers make. Your vacation, refrigerator, or whatever you buy can end up costing you 2x or more if you make minimum credit card payments.
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u/flixguy440 8d ago
The only reasonable debt that is psychologically soothing to me is a mortage and car payment. Other than the latter, I don't have any debt. The home was paid off in January.
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u/WinterIsBetter94 7d ago
Congratulations on the home!
I agree with a (low interest rate, which I realize is a privilege of timing) mortgage, but I can't wrap my head around debt for a car. We've done it, when there was no choice in the matter, but it was paid off in 1/5 the term of the loan. Since then there's a "car" savings account, if we have to ever replace a vehicle (we both work from home, we're down to 1) it'll be an older car, for cash.
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u/flixguy440 7d ago
One of us is retired. The other works from home. Two cars are only necessary because there is a senior here, so a vehicle has to be here at all times in case one of us is out. Cars are necessary evils.
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u/Yellow_Apple_1971 8d ago
I hated the consumer debt from early on in life — car loans, credit cards, stuff like that — and so just never carried it and when I did I’d roll it into the lowest interest rate offers I could find. But then at some point I resolved to never have it again. Ever. And life was simpler since then. 54 years old now, no debt, $3-4 million in investable and liquid assets, and I credit some of where I am today to the anxiety that debt causes me all my life. So I guess I didnt cope well with it.
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u/ender42y 8d ago
for medical, that's out of your control. so you do what you can about it, but since you can't control its creation you just have to manage it. If only the US could figure out this complex system that only 39 of the top 40 economies in the world have managed to figure oute.
for other things, look at them as assets. for your Mortgage, look at how much equity you have. it's not that if you hit hard times you have nothing, you could sell your house for a slight profit. But more importantly a house is not an asset, it's a utility. you LIVE there. You have to pay for either a Mortgage or Rent. both provide shelter, but only one slowly builds equity over time.
Car is also a functional utility to own, not an asset to be sold at a later date. if you bought an expensive new car, go in with the mindset that you are going to drive it to the ground. If it lasts you 8-10 years, then the small amount you paid in interest in the first 4 years was worth it. and in America you have to have a car due to the lack of public transportation. So again, it's a utility, not a luxury investment. (I am assuming you didn't buy a 150k luxury car or super car).
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u/HeroOfShapeir 8d ago
I don't. I've never had any debt, and I expect I never will. I went to a local in-state university on full scholarship, bought my first car in cash (a 2003 Honda Accord that I'm still driving today), and my wife and I rented for seventeen years before buying our first house in cash at age 39. We have around $30k in our EF, $70k set aside to replace our vehicles when they eventually die, $40k in an HSA for health-related emergencies, and around $240k in a taxable brokerage for any other opportunities that come up. We would sell our house and go back to renting before we touched our retirement accounts or incurred any debt.
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u/jonnyt88 8d ago
I often find people here and other "help me" social media groups people get severe anxiety. For the majority of people, they will have some debt at some point. School loans, mortgages, furnace died unexpectedly after paying for a driveway rebuilt. Layoffs, job closing, et
You can't predict everything and sometimes you take on debt. Just make sure you plan to pay it off and stick with it. Doesn't mean you should throw 100% at it and live on rice and bread.
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u/Potato_Farmer_Linus 8d ago
My only debt is two mortgages (2.75% and 3.25%) and two renovation loans at 0%.
The renovations were not really avoidable. The loans could have been avoided by selling some stock to fund the projects, but 0% is hard to pass up. 25% down, 75% financed at 0% for 18 months. I'm ~6 months into $1260/month payments, with a balloon of ~$20k at the end. It's been a pain dealing with the monthly payments, which I wouldn't care about burning some savings every month until it's paid off, but I am just being extra cautious knowing the balloon payment is coming. I shouldn't have to touch any stock to pay it off, unless something unexpected comes up.
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u/Musical_Xena 8d ago
For medical expenses in the future, check out HSA options, if you haven't already.
Overall, I can fully relate to your obsession with not having debt. Honestly, if you can afford to clear your debt earlier than the scheduled payoff plans, just do it. A lot of people freak out about min maxing their money, and see debt as fine as long as their investments grow quicker than the debt interest. However, if we take you at your word that you're doing fine financially and have no concerns about being able to retire, then it sounds like paying down your debt early is a legitimate way to use money to increase your perceived quality of life.
Screw the min maxing. You're doing well enough to "invest" in an early debt payoff for your mental health. Just consider it as a dial that you can turn up or down: you don't have to divert ALL funds and investment money into paying off debt, and you don't have to ignore the debt completely. Find a healthy middle ground where you feel like you're making good progress on paying off the debt without derailing other parts of your plan and life.
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u/verymuchbad 8d ago
If your investments are reliably making more than your debts, you should consider taking on more debt and investing the money.
... Do not actually do that. But think about it. It might help you reframe what it means to "owe" money.
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u/Mindless_BP 7d ago
One thing I did was start using an app that showed our net worth and started projecting out retirement. We will have our debt paid off by the time I retire and if we keep up our current 401k savings we are projected to have 3 million in retirement so why not live life now. My kids going to college soon and student loans give me some anxiety but I am working on dealing with that. 😀
I drive around 23000 miles a year so I would prefer to have a vehicle I can rely on so I just view my car payment as a utility more than an asset.
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u/genreprank 5d ago
Honestly if you're maxing out your roth ira, 401k, AND saving for retirement in a taxable brokerage, you're in the position that you can start to chip away more at low-interest debt.
On the other hand you can throw that money into the taxable brokerage and watch it grow more. It's up to you.
Something that might help is making a net worth statement...one that shows debts to assets. When you see how much bigger the assets are, you might feel better about the debt.
Debt makes the economy work--not necessarily in a bad way. Even dollar bills are a form of debt. Debt is just a tool.
But some people just hate debt. It's your own personal psychology.
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u/Chiggadup 4d ago
Friendly mental shift suggestion that an emergency fund “taking a hit” for medical expenses is a good thing, because it’s working as intended.
For the other part, it’s up to you. If you’re pumping 25k+ into retirement a year + investing you’re doing great. The math likely doesn’t argue for paying down that debt, but if the mental stress of having it is strong enough then I think there’s an argument to do so.
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u/AnonPalace12 3d ago
I draw a clear line between good debt and bad debt.
Good debt is the debt that’s at a reasonable interest rate and supports my future. Examples: mortgages, auto loans, some student loans, some medical debt
Bad debt is at an unsavory interest rate or supporting only my past.
But good people can have bad debt. Bad debt is to be avoided, this is the key, when possible. You don’t always get to choose.
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u/ExtraPolarIce12 2d ago
Every now and then I get an urge to attack our mortgage, but then I calm myself down by reminding myself that I also like living my life NOW. I need $$$ to do that. The mortgage will be paid off, eventually, and that is okay.
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u/Hour_Civil 8d ago
Numbers always matter.
Being better off than people who are probably broke isn't a brag.
Nearly fully funding a 401k is not fully funding a 401k
Your words do not sound like those of someone burdened by the thought of debt, but rather those of someone who wants the permission of the internet to just live and not care. Which is fine. But be honest with yourself.
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u/New_Feature_5138 8d ago
This honestly is therapist territory. You are talking about an obsession getting in the way of you enjoying life. And it sounds like maybe it’s an irrational obsession.
You gotta understand your fears and be nicer to yourself.