The challenge of lifestyle deflation

Written by Trent Hamm, The Simple Dollar is a popular personal finance blog that chronicle's one man's road back from overwhelming debt to financial security. Hamm declared the contents of the blog to be in the Public Domain in 2008 and available for sharing when attributed properly. We will share a couple of posts a week.

 

The challenge of lifestyle deflation

 

 

It’s a pretty common story. Boy (or girl) wants something. Boy discovers that there’s easy credit available. Boy convinces self that they can just pay the debt later. Boy buys that thing on credit. Boy gets more credit and buys more things. Boy starts realizing the bills and interest are drowning him. Boy decides to start repaying debt.

 

That’s the point when people often discover sites like The Simple Dollar. They’re in a financial pickle and they want to start getting out of it.

 

So, they set up a sensible debt repayment plan. They start making triple payments on their highest interest debt and before long the balance of one of their credit cards is empty. They’re happy. They keep paying down their debts.

 

Along the way, though, they begin to face what I call the hidden side of debt repayment.

 

When you’re accumulating credit card debt, you’ve experienced a level of lifestyle inflation that’s beyond your means. If you’ve suddenly switched to repaying those debts with any level of speed, you’ve suddenly switched to a lifestyle that’s a bit below your means.

 

In other words, you’re experiencing lifestyle deflation.

 

Lifestyle deflation is a very challenging thing to deal with. It means you’re losing some of the creature comforts you’ve become accustomed to. You’re now having to make very careful buying decisions, ones that were handled without thought before.

 

For some people, this change happens easily. They adjust themselves to their new levels of spending and even revel in it. This was the case for me, for the most part. I took it all as a personal challenge and, after a while, the changes just began to fit.

 

For others, that change is much more difficult. After several months of debt repayment and lifestyle deflation, they begin to reassess their situation. Their head is well above water now and they have credit cards with low or zero balances on them. What’s wrong with a little indulgence.

 

There are two real problems here.

 

One, doing this just makes for a neverending debt cycle. If you simply look at a debt repayment plan as something to do for a few months to give yourself some breathing room, you’re always going to have a big fat monthly payment that goes straight to your lenders.

 

Every extra monthly bill you have is a stress in your life. It raises the amount of money you must have each month to keep yourhead above water, which means that you have less career freedom and your employers have more power over you. It’s awfully hard to walk away from a miserable job if you need that extra pay.

 

Two, your lifestyle can easily inflate a little without debt if you just hold on until you’re debt free.

 

Let’s say you’re dumping $2,000 a month into your debt repayment plan (including your cars and your mortgage). that money’s being used to make minimum payments on all of your debts and a big extra payment on whatever your highest interest debt is.

 

What happens when all of your debts are paid off? Suddenly, you have $2,000 more a month to spend. That might enable you to switch jobs to something that fulfills you more or allow you to start investing for the future or it might just let you indulge in a healthy bit of lifestyle inflation without debt hanging around your neck.

 

Giving up on a debt repayment plan just because it’s making you “miserable” due to a bit of lifestyle deflation is a double mistake. Not only are you simply committing to debt payments for a very long time (which gulps down money every month and makes the professional tightrope that much scarier), but it also denies you the chance to eventually enjoy life without debt. You might get to “rebound” from your lifestyle deflation a little, but it costs you now every time you’re miserable at work and every time you have to write another check that just keeps the wolves at bay, and it costs you later when you’re not free from debt and enjoying the perks that come with an absence of debt payments.

 

My philosophy? Embrace the deflation. Use it as a reason to try the many, many things out there that don’t cost much of anything but that you’ve always wanted to try. Fill your time with all of these new activities and before you know it, you’re free from the weight of debt and the opportunities of your life are wide open.

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