There has been a lot of talk lately around the PF-sphere, about what people should and shouldn’t do while in debt. In the first camp, the debt-free extremists argue that you should stop living until you have paid off all consumer debt, and send every bit of extra cash towards your debt snowball. On the second camp, the YOLOs argue that life is meant to be lived (once), and you should not deprive yourself because you are in debt. Let’s have a look at the numbers.
Say our family of four is $20,000 in consumer debt, a notch above the average American credit card debt of $15,950, according to CNN. And their debt carries an average weighted interest rate of 15% (CNN says mid to high teens). They are considering a one week holiday, and could either opt for their usual holiday, take a cheaper one, or wait until they get out of debt.
Debt specifics
Capital $20,000
Interest 15%
Monthly interest payment $250
Monthly minimum capital payment 1% $200
Total card payment $450
Time until balance clears 404 months, or 33 years and 8 months.
Taking a usual holiday while in debt
Our average family is taking the YOLO approach and wants to go to Disneyland. According to My Money Design, it will cost them $6,000 for the week. Since they have learned their lesson about not financing new stuff, they saved for it for a year, at $500 per month. While very noble, those $500 stopped earning them the 15% p.a.it would if they had paid their credit card, then financed the trip on a 0% card and paid it over the next 12 months. Or even accrued their $20,000 card balance. Since they are so diligent about finding $500 to go on holiday, once they have gone, they can keep making the $500 extra payment on the card and get out of debt sooner.
By keeping the minimum payment and saving for the holiday, they will stay in debt until 2047, and have one Disney holiday to show for.
By accruing the amount of debt to $26,000, and making $950/month payments ($450 + $500/month), they will be debt-free in 34 months.
* I know the principles but am not smart enough lazy, so Bankrate made all the calculations. If you have a disagreement, ask them.
Taking a cheaper holiday while in debt
Our average family still wants to go on holiday, but follows one of my awesome travel tips to get more bang for their buck while doing it. They buy a $80 America the Beautiful National Parks pass, that gives them free access to all National Parks and more beautiful attractions for a year, use a Home Exchange network or Couchsurfing to stay for free, or stay with friends and family, and bring picnics to the park. Let’s say they still need to pay for a couple of nights in a motel on the way to/from their destination ($200), gas for their car ($200) and visit a few paying attractions, or have a couple of diners out ($220). A whole week of fun for $700. I did not account for groceries since they would eat at home anyway.
Sure, the kids may not see Mickey Mouse and have no bling to show off to their friends when they come back. But this is as good a vacation as any. Without even saving for it and charging the whole $700 on their card, they would delay their debt-free day by a couple of month if they kept the minimum payments going (still around 2047 but who cares if it is July or October?), or could be debt free in just over two years if they put the $950/month towards debt like they would for a Disney holiday.
Taking a holiday until you are debt-free
Assuming they are able to save those $500/month for a holiday, how about they put it towards debt straight away? They would get out of debt in two years, then when the debt is gone, keep the $500 payments AND the $450 that used to go towards debt, to take a holiday in six short months.
Time to get out of debt with $950/month repayments 25 months
Time to save for the holiday afterwards 6 months.
They could have a paid for holiday in 31 months, and live happily debt-free ever after.
Conclusion
I have never carried consumer debt, so I couldn’t judge the urgency to take a holiday while in debt. I would still express concern if someone on a diet had an urgency to eat a family sized pizza. If you are trying to break a vicious debt circle, you shouldn’t go on holiday, or it will be ‘’it’s just a holiday’’ followed by ‘’it is just a $500 handbag’’ and so on. If this is a mature decision and you understand the implications, go and have a blast.
My financial goal was to reach financial independence and save aggressively, and that could be compared to extreme debt repayment. Every day I would spend in the office would be one less day towards my goal and every non essential item I would buy would take me away from that goal. I never gave up traveling while doing this because I did it on the cheap, generally my job would send me somewhere and pay for the flight, and I would stay there a couple more days, crashing with friends in exchange for buying them dinner. I also started writing for a few travel blogs that would cover my travel expenses and beyond.
If I were to carry so much debt I had difficulties sleeping at night, I would certainly get rid of ANY luxury, travel and eating out would go first.
What would you do?
This post was featured on The Frugal Farmer, thanks!
I am definitely in the camp that you SHOULD be able to take some sort of vacation, even while in debt. Especially if you are working hard and somewhat depriving yourself to pay down debt and possibly working longer/harder to maximize your income, I think taking a break is well worth it. Should it be a blow-out vacation? Maybe not, but if you have been depriving yourself everywhere else and it’s in the cards, I can’t really judge anyone for making that choice.
Sure, it all depends of the terms of the deprivation. If you have taken a second job, and not gone out to eat in six months so you can afford the holiday, why not go for it. Some would feel deprived just because they removed one small thing and the savings will not make up for the holiday.
I think that if a family deprives themselves of any Holiday until they are debt free that they will eventually burn out. you need to take a break away from the daily grind. You really don’t need to spend a lot of money to do so! Staycations are becoming more frequent. I did that last year. I took a week off from work and we went to the beach one day, $120 in gas and food, A water park another day, $175 in gas and food plus a few other local activities (Free Natural History Museum being one of them). If I remember correctly, I spent around $600.00 that week and we had a decent time and more importantly, I got refreshed!.
Oh sure, you should take some time off to breathe. Like you say it doesn’t have to be expensive.
I think you need to take a break every once in a while, otherwise what is the point in living?
My wife and I like to get away at least every year for a week and plan bigger getaways every 2nd year.
Absolutely. But you have your finances together…
Good post Pauline! I think that it comes down to what you want most. Do you want a vacation and prolong the debt, or do you want to be debt free? I am in the camp of getting rid of that debt as soon as possible, especially if it’s consumer debt like credit cards. Taking a day trip is one thing, but going on a big trip is another. You’re in that debt because you made unwise decisions in the past, don’t make it worse by throwing a big vacation on top of it. I know that it’s important to live life and have fun, but at what expense do you do that? If it’s to prolong or to put off debt repayment then it’s never worth it.
Especially since you could get rid of it in just two years in my example, but people see immediate reward.
Success coaches I worked with always mandated “free days” and “vacations”…not because you deserve them but because you’ll take one mentally if you don’t. So, I love the idea of a parks-based vacation. Take some time. Recharge the batteries. Think about just how much being in debt sucks so you can come back home and attack it with a full head of steam again when you’re rested.
You can take a break without digging your debt hole further. Be it park or staying with family, everyone deserves to go breathe some fresh air once in a while, and that shouldn’t take you much apart from your goals.
Great article and insight. The specific calculations are great to see!
Great post! I can see how this scenario would spark quite a debate. We do have to reward ourselves and take breaks to avoid burnout. I think this can be done without taking a major holiday though. In my opinion, a family who is spending $6,000 on a Disney trip or even $1,000 on a cheaper trip while they are still 20k in debt, hasn’t truly committed to getting out of debt with full intensity.
I am with you on that one. You can take a break at home, sunbathe in the garden, go to the lake or local swimming pool and have friends over for barbecues. I don’t think I would be able to be hardcore enough to take a second job during my main job’s holiday and time off, which could be considered as an addition to the cost of the holiday, but in this case I do think humans deserve a break from working.
Agreed!
But most people don’t work that way…and they would just go on vacation and put it on their credit card =)
they could do that… interest free, 30 months from now, when all is paid off.
From my perspective it’s a balancing act Pauline. Anyone who’s swamped in debt and yet lavishly spends on unnecessarily extensive luxuries, simply is self-deluded if they believe that their spending is justified on the grounds that ‘you only live once’. More often than not, that’s the mentality that gets people into trouble – and to continue to justify such behaviour in any form is simply a case of lesson not learned.
But having said all that, grinding oneself into the ground through an attitude of total austerity is a recipe for burnout – the human mind is incapable of such Vulcan like logic. So I think it has to be a balancing act of frugal enjoyment and consistent debt reduction.
Just like you say, the problem however, is that so many people then slide back down a slippery slope of extravagant spending when they cut themselves some slack – just like the ‘dieter’ who stuffs himself with pizza. And if someone’s inclined to fall into that trap of self-justification, they really will just never improve I guess…
Balancing act of frugal enjoyment, well said Gareth. Once piece of chocolate won’t make you fat but the whole box will. Debt is unbalanced. You overdid it. To reestablish balance, you need to under do it for a while. And the faster you correct the sooner you’ll get there. What you absolutely need, deserve or can’t live without is a matter of personal judgment.
I agree with your here. You can’t NOT do anything and live in your home and never go anywhere because you have debt. Anything can happen during the course of that time, like an illness, and you are screwed. I hate that sacrifice everything mentality, but of course going the complete opposite direction is also poor decision making. While I have very little debt, I’m starting to go a bit sir crazy because I haven’t done anything adventurous in a while (subject of tomorrow’s post), and so I need to come up with something and was thinking about a home exchange type of deal. Good post!
Home exchange is a great idea, sure your place would get demand. And since you can be flexible on the dates it should be easy to organize.
That was an excellent break down. It should be given out with credit card statements!
I could be your example, except we had $30,000 in debt. When we got to the point where the debt was cut in half, I had a 0% credit card offer for 18 months with a 1% fee that we transferred the remaining $15,000 to. Then we took a vacation. However, the vacation was planned well in advance and under the condition that no dept repayment money could be used. We funded it with a combination of reward points and things sold on Ebay. Yes, we could have used that money to pay toward the debt, but you get really burned out when you are so focused on debt repayment. It refreshed us for the final push to pay off that debt you might say.
The smartest thing, however, is to never get into debt, then you can choose how to spend your money without worrying about interest rates and payments. Hindsight is always 20/20, though.
Since you still repaid the $15K before the 0% deal expired, your holiday did not take you away from your goals. Good point about getting motivated for the final push.
I am definitely taking a vacation while in debt. Granted it is to visit my wife’s mother in Ukraine for like 2 1/2 weeks. This is her first birthday since my father-in-law passed last year and she turns 60. This is a big deal in Ukraine, so we decided to take her to Holland for a few days to visit a friend of the family. These trips costs us roughly $2.1k just in airfare but I guess the best part is while we are there, we have free accommodations. We typically do not eat out much there either and spend minimal money for being away from home. Someone else offered to pay for our train ride for a day in Paris. I think the worse part about being married from someone from another country is that you have to use travel money to visit them and bypass a real vacation that year.
Visiting far away family can be very costly, any trip back to France costs me at least $3k. I have a post this week about having a cheap holiday in Paris!
Honestly, I`ve never understood the whole credit card use that`s so big in the US. Why use more money than you`ve got and get in consumer debt??? But getting back on topic, I also suggest doing a frugal holiday. It`s important to have some kind of holiday, even if it`s only a roadtrip to see some friends or family.
haha one point for Europe! I don’t get it either, looks like it is just how it works over there… you start college, they give you a t-shirt and a credit card, and the cycle begins. I would love to see the same benefits for people who use credit card wisely that they have in the US though (free airmiles, hotel nights, cash back…) but credit card companies would probably go bankrupt if they were that generous in Europe.
When I’m working with clients who have significant debt, we try to eliminate debt as quickly as possible, but I still encourage them to find ways to have fun, affordably. It doesn’t mean going on an expensive trip and creating more debt, but looking for free events in your community or saving money to go see a big summer blockbuster or visiting relatives or a day at your local amusement park.
good thing opening their eyes on the fact that fun and entertainment can be free or cheap.
Well we see holidays as a break and an investment, time to recharge the batteries and time to get some memories. Staying at home while paying off debt, particularly with a family, just makes you miserable.
OK if you are on your own, a little hair shirt doesn’t go amiss but if you have kids, you owe them something in life so go for a holiday. Just don’t be stupid about it.
While we were paying down our mountain of negative wealth we never didn’t have a holiday of some form.
Local holidays can be very affordable, or in the case of Europe a 20 pounds easyjet ticket to some cheaper destination won’t break the bank, and if it does make you more productive when you come back rested, it is worth it. Great point about not making your kids pay for your previous mistakes.
Really interesting article and comments. I think you should probably not take a holiday you cannot pay for. If you are borrowing for the vacation, it isn’t wise.
I wouldn’t borrow more, for sure, but would try to get a cheap break, camping nearby and enjoying free activities.
Before I went back to graduate school, my husband and I saved for three years to go on a $11,000 once-in-a-lifetime vacation to the Galapagos. Then I realized that money really could be better spent on, oh, tuition. It was a hard decision, but I’m glad we decided to postpone the big vacation. I’m not dogmatic in “no vacations EVER when you are in debt” because you have to strike a balance between enjoying life and being responsible.
wow I think I would have taken a vacation, since the rate on student loans are usually quite low and interest free until you graduate, that shows strong willpower!
I probably would hold off going on vacation and then once I was out of debt make it the prize for being debt-free.
wise choice, such a prize can help you cross the finish line even faster.
I don’t think I have a hard fast rule on this one either.
Families doing Couchsurfing/hospitality exchanges – I would be sceptical about how much luck they would have finding hosts. I suppose it depends where you go. But to be honest, as a host, even if I had room for a family (which I do not) I would be inclined to think that they should probably not be travelling if they are solely relying on others’ hospitality. It’s one thing to host an adult or two; it’s very different when there are kids in the mix. Again, it probably depends on the area.
Actually there are CS groups and even a badge you can put on your profile if you are family friendly. Usually those are other families taking you in, the kids all bunk together, and they do family stuff. My friend has two kids and they often host families. Sure it is another mindset and different kind of holiday, people should use it if they are interested in getting to know other families, not just saving on housing.
I think it’s easy to “burn-out” when sacrificing to pay off debt. All the pinching pennies and staying home all the time can make one a bit stir-crazy. However, you can “get away” and recharge without going into debt. You gave a great example above, and a few months ago, we went on a trip up to Santa Barbara for a few days and we had saved up for it. We paid cash for everything and 3 days was just enough to recharge and come back home 🙂
you don’t need much to take a small break, it can be done without digging your debt hole deeper.
I’m in the vacation on the cheap while in debt. Our vacations typically run about $600. I know that money could be used for debt, but the renewal we feel is pretty uplifting.
We wouldn’t take a more expensive vacation though.
We all need a break, and the cheap holiday won’t be to harmful, $600 sounds reasonable, I have seen justifications that $2K was a cheap holiday.
I suppose that it’s all relative. However, spending 1 months salary on a vacation while in debt is probably not justifiable.
If it were me and I had to choose between paying down consumer debt or a vacation I’d get rid of the debt. Once that debt is gone I am free to save up to pay to go on vacation wherever I desire. There’s no point piling more debt on top of debt just for a one time trip and like you said at the end all you would have to show is a trip.
you have a stronger will than most. I would wait too, or take a super cheap holiday but many do not see the consequences of ”just one week holiday”.
I am a debt-cation kind of guy. You need to focus on getting out of debt, but still get a break. If you save for an expensive vacation while paying high interest debt, then you are not making a wise financial decision, but purely emotional one.
that is not very wise indeed, or the will do get out of debt isn’t really there.
Since we are new to this getting out of debt thing, I am thoroughly enjoying the debates on this post. Pauline, your stats here are fascinating and very useful! We haven’t had a real vaca in 5 years, and are contemplating this very question right now. We haven’t made a decision yet, but we may possibly use credit card rewards and take a nice little weekend trip here in our state. Or maybe do a stay-cation. We’ll have to see. Thanks Pauline for a great post, and thanks, everyone, for your input!
I am sure there are lots of free things to do close to home, and even a camping trip would look like a fun adventure for the kids. Add the rewards and you may get a free holiday.
Well put, Pauline. It seems like a no-brainer to someone like me, but I come from a family of people who will take the Disney vacation every time over paying down the debt. They just cannot say no to themselves or to each other. And, no child need see Mickey ever. How about a canyon or a river or a mountain or all in one trip? Fantastic article and thank you;)
this is how needs, wants and value mix in. I know kids who wouldn’t trade the nature holiday for any impersonation of their TV idols but they are dime to a dozen. I hope if I have kids they will be the exception!
They’ll have an excellent example 🙂
Over the 3 1/2 years of our marriage, we have had 2 vacations, both back to NJ to visit friends and family. We stayed with my mother both times. Total airfare and other expenses: ~$1500. The money came out of savings, nothing borrowed (although we did pay with the credit card to get the free car rental insurance). That works out to three months worth of debt payments. I can live with that.
sounds pretty reasonable budget-wise and deserved considering it was over the course of three years.
We took a few vacations while we were getting out of debt, but they were not excessive. I can’t imagine paying off debt for years and never taking a vacation. As long as you keep it low budget I think it will give you more of a boost in your efforts than anything.
I agree with Glen. We are full of stress all the time worrying about paying off the debt but I think we deserve a break once in a while. It’s all about personal finance and managing your expenses because if you really want to, you will find a way to make it all work, pay your debt while enjoying life.
I like the idea of working a second job to pay for the vacation (if that’s the decision that’s made). I personally didn’t vacation until my student loans were paid in full (just couldn’t justify it to myself), but I wouldn’t judge someone else who did take a vacation as long as they didn’t put themselves in more debt to do it. Like you said there are lots of free and cheap options. And if you’re working a second job to pay for the vacation, it wouldn’t be setting back your timeline for becoming debt-free.
well the second job is a good idea, technically it does set you back since you could also put that money towards debt but at least you keep the current pace.
I’m sure there are two camps of argument: One, people should not feel that they deserve a vacation or are entitled to a break, because people before them didn’t and they are just being lazy or asking for too much. Two, people work hard enough as it is, work has become life and we are constantly connected to work. Holiday’s and vacations are paramount for people to be healthy mental and emotionally.
I guess I’m really blessed to have family spread out all over North America. Family vacations are easily excuses to visit them. When we visit them we take advantage of vacation opportunities that others might ignore – such as scenic visits and natural wonders. Being easily pleased by being outdoors, camping or site seeing historically rich places helps too.
I love nature too, or just walking around and exploring a city, I don’t need to pursue further entertainment. Holidays as breaking away from work are important but while in debt there is no reason to overdo it.
We’ve taken a cheaper holiday while still in debt. It can lead to stress spending money when you owe a lot of money but sometimes an opportunity is too good to pass up. I think having your goals in mind is insurance you’ll reach them. It’s not always a straight path.
I’m with you 100% here!
I don’t think it is wrong, but you can’t do a huge blow out all the time.
We are taking the kids on a mini-vacay next weekend. It will be under $500 for the whole thing (probably closer to $400).
There are certainly a lot of details like that to take into consideration. That is a great point to bring up.