Slaying a debt dragon is warrior code for paying off a debt. What will you do with that new-found money? Here are some good choices ….
We know how it feels to have slain a debt dragon.
We know the pleasure of watching the carcass rot in our front yard. We know the pleasure of seeing the greenish-blue smoke from its nostrils disappear, never to return.
This was the experience we had as we made the last of eighty-four biweekly loan payments on our Toyota Sienna.
We paid off the five-year loan nearly two years ahead of schedule by rounding the payment up to the next $100 and making biweekly payments much the same way you can on a mortgage.
From fire-breathing to breathing room
This debt was consuming $100/week.
It no longer is. I rather like the feeling!
Getting rid of any kind of installment debt puts breathing room back in your budget. That chunk of your paycheck is no longer spoken for. It's free to go towards other things.
This creates another problem, albeit a much preferable one: How do we allocate that payment now?
You might think, “We don't have to allocate the payment.”
Except … we do.
The money no longer goes toward that loan, so it has to go somewhere else. Not choosing is still a choice. Not choosing could be why the debt showed up in the first place. I'm 96.3% sure (roughly) that trying to budget by using The Force increases the chance of having to go into consumer debt. Especially if The Force is not strong in you like it wasn't for me.
Purposeful allocation is wise
Here are worthy uses for that payment that no longer services that debt:
Towards another debt
This is a classic debt snowball play. A great way to hasten the demise of another debt dragon is to add the freed-up payment to the payment for the next debt.
(Which debt should be next? It depends!) If you have a $10,000 credit card balance at 13%, increasing the payment from $200/month to $400/month cuts the number of payments from 72 to 29 (less than half) as well as reduces the interest paid from $4,450 to about $1,700! You save yourself $2,750 in interest simply by continuing to pay down your debt with the same total payments.
Towards a replacement car fund
A good option for our $100/week would be to save the money to purchase our next vehicle outright when the time comes. Within three years we'll be pretty close to being able to buy a vehicle similar to my sedan, with cash. In another four, we'll be able to replace both my sedan and my wife's minivan. Simply by not rushing out to spend the $100/week elsewhere.
Towards a maintenance fund
Living month to month with little budget breathing room usually means that there's no maintenance fund. Things do break, and without funds to make the repairs, even relatively minor repairs can be budget-busters. A hundred a week can add up quickly to cover a number of repairs or timely replacements.
Towards a “lifestyle protection” fund
I don't mean “protection to live your life how you like” but instead “protection from discomfort” like no heat in the winter, or no AC or a dry well in the summer. A brown-out took out the blower in our furnace last month. If we had had full-house surge protection, it might not have happened in the first place. The van payment money could be re-routed to buy this kind of protection, and other forms of protection.
Towards investment in oneself
How about attending a course or getting professional certification to become more marketable? Or some professional-grade software that will make your work a whole lot easier, and more profitable? Though the larger cost is your time — and in many cases, that's the main cost — for others, it does take money to improve your skills.
Towards a retirement fund
Underfunding of retirement accounts is endemic. Over a third of workers have less than $1,000 saved for retirement. If you've recently killed off some debt, then you can escape this group by earmarking it for retirement.
Towards anything else that you value
What you can purchase with money is basically without limit, and without that debt dragon flying around your financial house, there's more of it! The extra cash each pay period is a windfall of sorts. Spend with purpose and you're good to go!
What purposeful things do you do with the money after your dragon-slaying party?
