May 31, 2008
COST OF LIVING
Paying Off the Debts That Seem Unshakeable

By M. P. DUNLEAVEY

TRYING to shed the last few thousand dollars in credit card debt can be as frustrating as losing those last five pounds.

You have tried everything, or so it seems. You have cut back as far as you can. And while you’re still making progress, the needle never seems to move on the amount you owe.

So my husband and I have decided to attack these last few pounds of debt in a way that can best be described with a phrase from the movie “Pulp Fiction”: We’re going to get medieval on it.

Just so you know what we have been through: When my husband and I were married five years ago, we had a horrific amount of debt left over from various relationships, one divorce, two cross-country moves and a trip to Hawaii I never should have taken. About $24,000.

The situation was daunting, but we threw ourselves into our antidebt crusade with grim determination. At one point we even took on a roommate in our two-bedroom apartment, a move that made some of our friends think we were crazy — and maybe we were. But I’m convinced that a certain insanity is what gets you into debt; digging yourself out likewise requires going to extremes.

Now here we are, finally down to about $4,800 in credit card debt. Unfortunately, in the last year we also accumulated about $1,200 in medical bills that were not covered by insurance.

Compared with what many people owe these days, this is Cracker Jack. But that’s not the point. Most people have a threshold of debt tolerance, whether it’s an amount they are willing to owe or the length of time they can stand to owe it. Mine just hit zero on both fronts.If we had stuck to schedule — paying $300 to $400 a month toward the card balance, which is accruing about 6 percent interest, and $120 toward medical bills, which are interest-free — we would have demolished our debt in about 17 months. But here is another theory of mine about being in the hole: the longer you’re in it, the less chance there is of getting out. As time rolls on, the odds are greater that life will sneak up and thwonk you over the head with other unforeseen expenses.

I was desperate enough to consider one road we had not yet taken. By slicing off a big chunk of what we were setting aside each month for retirement and personal savings, we could add $620 to our regular payments and use the combined force like a cudgel to smash our debt to bits in about six months.

Maybe that doesn’t sound terribly medieval, but surrendering so much of our monthly savings felt like torture to me. Developing savings know-how is one of the hardest financial tasks in life. It has taken me years to meet my goal of stashing away 20 percent of our gross income.

Moreover, I wasn’t entirely sure that a saving hiatus, even for a few months, would be the smartest move financially. By not putting the money into our I.R.A.’s, for example, we would forfeit a tax break, and we’d give up the long-term, sheltered returns on that money.

OF course, by paying off the debt, we would save on interest payments, and resume our savings after we became debt-free.

There are a dozen ways to crunch the numbers, but the ultimate gain wasn’t financial, it was peace of mind.

Is peace of mind worth that much? At this point, for me, you bet it is. During these last five years we’ve let thousands of dollars come and go, spending it on things we deemed more important than debt. Were they? Opportunity costs are hard to calculate.

All I know is that my age, my time of life and the crummy economy have kicked getting out of debt to the top of my to-do list.

On the accelerated plan, we could be debt-free by Thanksgiving and putting more of our money toward living life, which is what money is for.

By then gas may be $16 a gallon, and we won’t be able to leave the house. But at least I will be able to save for those big-picture goals, like going to the A.& P.

M. P. Dunleavey is the author of “Money Can Buy Happiness” (Broadway Books, 2007).