A friend of mine who, like me, has always lived a debt free life recently ran into a perfect storm of disasters. He was diagnosed with an illness and, despite having good medical coverage, ended up with bills that threatened to eat up much of his non-retirement savings. As if that weren’t bad enough, he went through that period we all know: The time when every appliance in the house opts to die, one right after the other and then the roof leaks, to boot. Then he had some other major expenses crop up, his wife lost her job, and before he knew it, everything he had was just about gone, except for his retirement accounts which he was trying desperately not to touch. He was taking extra work to make ends meet for a while and cutting everything in his life that wasn’t necessary, but he was still getting perilously close to the bottom.
We were talking about this the other day and he said words I never thought I’d hear out of his mouth:
“You know, I think I may just take on some debt and go on vacation.”
I was floored. Here is a man who preaches to only do what you can afford, to avoid debt at any cost, and to let the optional stuff slide in the face of disaster. So I asked him why.
“I’m tired. It’s been a long two years and I just need to get away. I want to go on a cruise, but the only way is to put it on a credit card. I’m at the point where I”m ready to say, ‘@#$% it, and take on some debt.’”
If anyone has the discipline to pay this off quickly, it is this man. Now that things have calmed down in his life and his wife is back at work, I have no doubt that he’ll be able to recoup most of his losses very quickly and pay down any debt that he does take on. But I asked him why he didn’t want to just save for the trip, knowing how fast he’d probably be able to get that money together.
“Because I’m more aware than ever that life is too short. I want to do it now. I’ve always been so disciplined and good, I just want to blow off some steam.”
I told him that if that was what he really wanted to do, then he should go ahead and that I knew he wouldn’t get himself in trouble. But privately I wondered if this was such a good idea. Is there ever a point where its okay to say, “@#$% the budget, I’m going to do something and I don’t care if it results in debt?”
There are times when you may have no choice but to take on debt. My friend got very close to the place where he would have to take on debt just to pay his bills. Fortunately he was able to avoid it. But sometimes you just have to. It makes sense to do what you have to do to live when all other avenues (extra jobs, budget cutting, etc.) have beenexhausted. But what about when it’s optional? What about when the debt is just for something you want to do, like a vacation, a new car, or a fun gadget?
In truth, only you can answer that. It depends on how comfortable you are with debt, how much you don’t mind being saddled with it, no matter how temporary, and how much you value the optional thing over the money you’ll have to pay. Sometimes it can be okay. If anyone needed a vacation, it was my friend. He was comfortable with the idea of taking on some short term debt and was confident that it wouldn’t lead to further debt issues. Maybe in his case it’s okay.
I know someone else (also previously debt free) whose father was diagnosed with a terminal disease and she blew a big wad of cash taking him to Australia for three weeks, which had been a lifelong dream of his. She incurred about $10,000 in debt, but paid it off in less than six months with hard work and diligence. In other words, it didn’t derail her all that much and she had a great time with her dad.
For those that are already debt free, taking a hiatus from being “good” and taking on some debt for a want may not be that detrimental. Most of these people have the discipline to pay off the debt quickly and get back to being good. The problem is: What if something goes wrong and that debt lingers longer than you’d like? Will you end up regretting whatever you blew the cash on in that case? I doubt my friend with the terminal father would regret it, but the guy who bought a plasma TV might. Only you can judge that and it has to weigh in your decision to take on the debt or not.
The risk is higher for people who already carry a fair amount of debt. They may say, “Oh, I’ll pay this off quickly,” but chances are it will just become an additional debt that adds to their total. It probably won’t be paid off quickly and will just be mixed in with the other debts. In this case, taking on more debt for wants can create an even bigger spiral of debt and is probably best avoided. Sure, it may be great to take your terminally ill father to Australia, but if it means sticking yourself with $10,000 of debt on top of $20,000 you already have and with no discipline or large income to pay it off quickly, it might not be such a great idea.
There may be times when it’s okay to say, “@#$% it,” and take on debt for something you want, even if you have always been debt free. However, it is something best approached with caution and with full consideration of all the implications. Even those with no other debt should think very carefully about whether the debt is the best use of their money.
In the end, my friend decided not to take the vacation until he can pay cash. He said that he realized he’s got a lot of rebuilding to do and that the debt would only add to that burden. He’s going away to the mountains for a few days and staying in a friend’s condo to get away on the cheap. He’s working extra hard to rebuild his life and put away some extra for the cruise at the same time. He estimates that he’ll be able to take that cruise in about six months.
“I just couldn’t do it,” he said. “I’ve never carried debt in my life and this just didn’t seem like the time to start. Not for something like a cruise. I’ll still get there. Six months isn’t long to wait.”
I had to applaud him for the decision. Taking the trip might not have derailed him financially for long, but not taking the trip shows why he has been as successful as he has been. He knows the value of a debt free life and that it’s more valuable to him than a week long vacation. Would he have had fun and relaxed? Undoubtedly. But he would have come home and regretted it when the bills came. He knew that and decided to wait.