financial health is more than numbers it is also about motivation

April 18th, 2008

Financial Health is More Than Numbers, It Is Also About Motivation

Sometimes, looking at one piece of the puzzle, it may seem obvious what the best move to take is. But once the entire picture is brought into view, it isn’t as clear cut any longer. All the aspects of a decision need to be considered, not just the financial ones. And that is where motivation can come into play.

Back when I was still deep in credit card debt, I talked about how I assumed transferring my credit card debt to a 0% interest limited duration offer (that we could pay off within the introductory 0% period) was a better deal financially than to a 2.99% interest fixed for life of transfer offer. Which it is on the surface, but once I took my entire financial picture into consideration, that simply wasn’t the case as far as dollars and cents were concerned. Financially, it would have saved us money in interest to transfer the credit card debt to the 2.99% offer, and then aggressively pay off our two student loans and then the car loan before tackling the credit card debt past the minimums. But for us, we couldn’t ignore that there were more than dollars and cents at play here. Paying off the credit card, above all else, was an important motivating goal for us, and delaying that while paying off other debts didn’t make sense for our emotional well being and commitment to our long term goals, past our financial one.

When we moved our credit card to that 0% offer, we had that 0% rate for the next 12 months – it would expire in September of 2008. Yet, instead of banking the extra money above the minimum and earning a little interest, we also moved aggressively to pay it off and finished with that debt in February of 2008. Why? Again, for us, it was the best way to keep us moving forward, on track, and motivated. We needed to push ourselves and strive to attack the debt as fast as possible. Would we have saved as aggressively as we paid? I don’t know. I’d like to hope so, but at the same time, I’m not completely sure. For our entire financial picture, the choice we made felt like the right thing to do.

And now, we are playing the interest rate game, and paying off my spouse’s student loan (at the highest interest) before paying off our much smaller car loan (the lowest interest debt). This makes the most financial sense as far as spending the least amount of money to wipe out the debts, yet in the poll I put up Tuesday about which debt to put my Revolution Money Exchange referral bonus towards, the car debt has garnered a significant amount of votes. Not enough to knock my spouse’s student loan out of first place, but it is close. And I understand completely where those voters are coming from. It would feel great to knock our non-mortgage debts down from 3 to 2. It feels great to even say we have 3 non-mortgage debts now versus 4. And the reduction in monthly obligations would provide some breathing room we may need. I can see that being a more viable choice for many situations. And I even understand where the voters who picked my student loan are coming from too. That’s *my* debt, and we’re focusing so many resources on my spouse’s, that it would be nice to give me a little reward too. My spouse and I are both still happy with the path we’re on as far as debt elimination order, but I can’t rule out changing course in the future if something else changes.

The people who voted to buy a monkey though – you’re on your own. I don’t know what motivates that. :)

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10 Responses to “Financial Health is More Than Numbers, It Is Also About Motivation”

  1. An excellent post dealing with motivation, but could I make a suggestion? At one point you state that some debt is *Your* Debt, and you want to work on *His* debt at this point.

    You both are in this together. It’s *Our* debt. If you look at it from “Our Debt” perspective as opposed to “His” and “Mine” I believe that will build a slightly stronger force of motivation and will probably help you feel more rewarded when you’re paying down your husband’s student loan.

  2. I totally agree with Zachary — while the debts are legally separated, it’s not helping anything to look at it that way when dealing with it together with your spouse. I’d suggest putting them together in the same category under “student loans” which would take a bit more work (calculating the average interest rate for example) but might help fight the emotional reaction to paying his first.

    As for the monkey — monkeys are just amazing! Of course, my wife says she doesn’t really want a two-year old for the next few decades (one year per child is apparently enough) but I’m not sure I see the downside!

  3. I do have a little bit of “emotional reaction” that I didn’t expect to the “my loan” vs “his loan” thing – but, honestly, mostly it is fine, and I use the classification to tell them apart when I talk about them. At one point we even considered consolidating them together (but didn’t because in the unlikely event one of us die, the surviving spouse would be liable for both if they were consolidated).

    I’m still paying everything there is to pay towards “his” student loan so I don’t think I lack motivation. I can call it “our” debt, but, in reality, it isn’t.

    I often call it *all* my debt though, when referring to the total lol.

  4. I certainly don’t know the numbers, but I’d imagine some of the support for the Car Loan debt comes to do with the tax implications of student loan interest versus car loan interest.

    Certainly not all debt is created equally, or we’d be paying off our houses before we paid off our car.

    I’d think that 9% of the student loan versus the 4% of the car loan would make the car loan a second choice, but I’m not quite savvy enough to know how this breaks down.

  5. Well, I know last year we paid about $2100 in interest to our student loans, and since we are in the 15% tax bracket, that saved us a little under $400 in taxes (so a net payment out of about $1700, interest wise, if you subtract the tax savings). In that same time period we paid a little under $200 in interest to our car loan.

    So to me it seems that I would pay the student loan before the car.

    I’d pay off the house before the car but the car loan will run out before I get to it :)

  6. I take a similar perspective on this one, pay off the loan with the hgher interest rate first if the amounts are similar. The only exception to this for me is if a have borrowed a larger amount at a lower interest rate but that amount is accumulating more interest, than borrowing a lower amount at a higher interest rate. Hope that makes sense??

  7. me and my husband don’t want to have this similar dilemma that is why we acquire loans one at a time. So that we have our focus on paying the existing first.

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