Many people believe–and from what I understand, at least one finance guru recommends–that when digging yourself out of debt, you should eliminate all non-essential spending and put as much money as possible towards paying off your debt. I disagree.
To me, this plan is just like a strict diet where you can’t have so much as an ounce of chocolate until you’ve reached your goal weight. It might work for the most disciplined people, but for others it will be a miserable process and, at the end, it may result in a binge that negates a lot of hard work. Whenever you’re being careful about finances, living frugally, or paying down a significant indebtedness, it’s easy to start down the path of miserdom. A little bit of breathing room in your budget will go a long way towards staying happy and healthy even while you’re paying down your debt.
I have a huge amount of student loan debt and recently started paying it down (at least the higher-interest debt) aggressively. In order to have more money to throw at the loans, I’ve become very frugal in some areas–I’ll dutifully go out of my way to save a few bucks on groceries, and I haven’t turned on my air conditioner even though it’s been really hot and humid lately. But I won’t think twice about putting my sack lunch in the office fridge if my colleagues decide to go out. One way to look at it is that the economies I’m making elsewhere allow me to put more money on things that are really important to me; that’s kind of the theme of this blog, after all. But the bottom line is that I am willing to carry my debt load for a few extra months if it means staying sane during the whole process.
To keep your discretionary spending from getting out of control, it’s probably best to budget a modest amount and stick to it by withdrawing that amount, in cash, upfront. Obviously, if you’re trying to pay off your credit card debt, you should probably not be charging discretionary purchases.
If you do need to–or feel you need to–cut out all non-essentials while you’re paying down your debt, I would encourage you to make a double or triple effort to find activities that are free. Take advantage of the free day at the museum or the free seats at your local theater, meet friends for a picnic, join a book club, volunteer–there are so many ways to stay active without spending a dime that you never have to feel like you’re missing out. And you will probably find that even after your debt is paid off and you have more spending money, you’re still taking advantage of these budget opportunities.