Pay Debt Away But Keep New Debt At Bay

One of the things I love most about being a personal finance blogger is reading stories about other people who have reduced or eliminated their debt.

Our debt is pretty simple:

  • A mortgage – We re-financed our original 30 year mortgage (set to pay off in 2037) with a 15-year mortgage in late 2011.  This will put us on pace to pay that off in 2026.
  • A student loan – My wife has one outstanding student loan.  It is a private loan with a rate lock of just over 2% and a payment under $100 per month.  It’d be nice to pay this off early but we’re not changing our current strategy to do so.  Additional cash flow would have to open up.
  • Credit cards – None.  We use credit cards simply to earn cash back rewards
  • Car – None. We have two cars, both fully paid off.

It’s great as I see a lot of bloggers write about paying down debt, paying off debt, or discussing their personal debt payment strategies.  For the most part, they’re usually pretty good.

However, there is one thing that I usually see left off, and that’s to have a ‘No New Debt’ provision, and a plan to reach it.

If you start off with $100,000 in debt, work hard, and pay off half of it, that’s awesome!  What if you have $10,000 in debt, and you pay it all off.  That’s great, too!

And, with most debt payment stories, that’s often the ‘end’, so to speak.

What it doesn’t address is to make sure that number never goes higher.  In other words, if you pay off half of that $100,000 debt, you should make sure to do everything possible to avoid having that number go higher.

If you pay your debt off, congrats, but resist the urge to go splurge, financing a new car, vacation, boat, or whatever that’s going to get you right back in debt.

In other words, here’s my debt payment plan that you should adjust every month.

  1. Calculate your starting debt
  2. Make your payments
  3. Calculate your new debt total (it should be lower now)
  4. Set the new debt total as your debt ceiling

That’s right, every month you need to make sure that you set a goal to make your current total your maximum.

What that means, though, is that your debt payment strategy should plan for this.  I have read many articles on whether it’s advisable to save or to have an emergency fund if you are paying off debt.  The answer, based on my advice is: It depends.


Well, if you are in a position where you are risk of emergencies, then yes, you should have an emergency fund.  Do you drive an old car that’s prone to breakdowns?  Do you live in an old house with a furnace or boiler 15 years past it’s expected date?  If these or something like these are in place, then you need an emergency fund.  If you live in an apartment and drive a bike to work, you might not need this as much.

Same goes with savings goals.  If you buy a house and you know you’ll need a new roof in 5-10 years, then start saving along with paying debt.  Otherwise, when that roof goes and you’ve paid every dollar toward debt, you’re going to have nothing left to pay for that new roof.  As good as it is to have paid off more debt, you’ll be violating your debt ceiling’ rule.

That’s not good.

So, make sure your strategy is complete, and if you focus 100% on paying debt, you have the best of intentions but you’re leaving a blind spot, and just like with driving, those can lead to peril in the blink of an eye.

Readers, what is your strategy to pay away and keep new debt at bay?

22 thoughts on “Pay Debt Away But Keep New Debt At Bay”

  1. A little planning does wonders! I plan for the things I want to do and I definitely for the things I I know will happen. The rest fall into either an emergency fund or savings in general. For example, when I refinanced 10-11 years ago, I went with a 15 year mortgage. I knew I wanted to have it paid off when I retire in 4 years.

  2. After I paid off my HUGE debt I knew I never wanted to go back to the days of struggling. Now I save for everything and keep building up my savings. It feels great to be debt free, I sure can breathe easier!

    • A mortgage at today’s rates for your primary home can be considered ‘good debt’. I prefer to have a mortgage plus a diversified portfolio of assets. My latest addition is Bitcoin and a few Bitcoin mining rigs. Google ‘coin mining rigs’ and you’ll discover what I’m talking about. I see this new currency as having a great future and have roughly 10% of my ‘working capital’ currently invested in it.

      • Interesting. I’ve been reading more and more about bitcoin currency but am not well versed at all. Sounds like you’ve got a lot of information!

  3. After a house, a car (or cars) is the next biggest item on most people’s list. Instead of making car payments, we put a “car payment” into a separate savings account. A car is a mechanical thing. It will need to be replaced. If your budget can stand a car payment, it can stand a monthly payment into a replacement savings account. That way you don’t have to scramble when the engine croaks.

    • Very well put. If you make the payment to yourself after you’re done paying for your car, you can eventually eliminate a car payment altogether!

    • I agree completely, and this is what we do! (Except we actually transfer it once a year.)

  4. We are determined never to take on any new loans, except possibly for rental property if it made sense to finance it. If you have no plan to end the debt cycle, I think you’re right, you are at high risk to run it back up. I would tell anyone who pays off a debt to sock that extra money toward the next debt or even into savings, anything to avoid buying something new. I think seeing your wealth grow, is a huge positive, and is a good incentive to stay out of debt.

  5. I have never really had a problem with paying off debt it but have always had a problem with accumulating more debt after doing so. However, I am making the commitment to pay off my current debt and keep it off from now on.

  6. This is so true. It can be so tempting to spend as a “reward” after getting out of debt. Setting new financial goals after paying off a loan is a good way to reset and keep yourself from going off the rails.

  7. Really like that idea of making the current months debt the debt ceiling. I hear stories often of people paying off debt only to credit a new one. Just doesn’t make much sense.

  8. I’m great at paying off my debt, but terrible at staying out of debt. Of course, I only realized this problem this year (My debt cycle is 5 years long so it took me a while to see it). Now I’m on a mission not to rack up credit card debt once I get caught up. I’m making a plan and sticking to it!

  9. This is right on. One thing that I do is talk a lot about reducing my debt, but now I have started to put up some work about how to keep it off. That is the difference between those that get out of debt, just to get right back in, and those that get out, and stay out.

  10. Reducing debts is an on-going process, you simply cannot achieve it overnight. You have to work very hard at it. No matter how good we are at keep debts at bay, we will have some setbacks so it is always better to set up an emergency fund instead of putting all your money on paying off debts. Creating a workable budget is the key to living a debt free life.

  11. Interesting point you discussed here. Too often we are focused on getting rid of debt, but we should also focus on keeping it at bay and make it a new norm of not having debt!

  12. Almost two years ago, I refinanced my mortgage from a 30year to a 15 year and cut my rate by 55%. I’m still making payments according to what I was paying on the 30year and I’ve calculated it to be paid off in 10 years. I pay additional on my car also so that it will be paid off early. Same with my student loan. Wow, a 2% rate on a student loan is great. Mine is at 6%! (I wonder if I can refinance that?) I only use credit cards to the point they can be paid off in a month. Excess money goes into the emergency fund. I have enough in my EF that if I lose my job, I’ll have enough living expenses for 6-9 months. Getting out of debt is a wonderful thing! 🙂

Comments are closed.