Friday, September 7, 2007

Can you become too obsessed with your debt?


So my wife and I were sitting down last night discussing a few of our current money problems. Namely, a couple a medical bill forced us to dip into our emergency fund and we have a follow-up that is going to cost us again. We still haven't replenished our emergency fund, mainly because I haven't taken our debt repayments to reimburse it. Instead, I've been nickel and diming the fund to slowly bring it back up - using any spare income we have.

Needless to say, our fund is not back up to $2,500 yet. Actually, it is $1,900 now because of that bill. This new bill will set us back another $600. Ouch. Not a good month for the emergency fund.

Of course this discussion lead to how we are going to repay our emergency fund and pay our upcoming medical bill. We have very different approaches.

1) Her plan. She wants to take our debt repayment amount (about $1,200) for this month and pay these medical bills with it. That will of course cover the whole thing and bring our emergency fund back to where it should be, but it leaves us with little extra to put into the debt (not including the regular payments - our debt is a closed term loan and a student loan) for the month of September.

2) My plan. I want to pay the bill out of the emergency fund and slowly build it back up out of our discretionary income without reducing our debt repayment amount.

This lead her to the following conclusions about me:

1) I am too obsessed about repaying our debt.
2) I am wrong.

I don't like the idea of using our debt repayment to pay these medical bills because I feel that's what our emergency fund is for. I don't see the debt repayment as optional. In reality, this would only set our goal of being debt free back a month. Not the end of the world.

This also lead me to once again showing her a simulation of our debt payoff plan, how much we are sinking into this debt, and how wonderful it will be without debt. None of this affected her conclusion that I am wrong.

So, we compromised. We will wait it out until the end of the month and put as much as we can into the emergency fund to bring it back to snuff and save extra for the upcoming bill. If we're short, we'll use a portion of the debt repayment.


Jim said...

Yes I think it's possible to become too obsessed with debt that you'll go to great lengths to make it go away. Sounds like medical bills are getting in the way of your plans. The problem with medical bills is they expect full payment right away which is much different than a term loan with a payment plan. I would be leaning away from repaying debt and get the medical bills paid and EF built back up. Then I would come back and tackle the debt again.

Anonymous said...

Hmm... my wife and I got into a little medical debt a few years ago. We spoke with the hospital and they agreed to take monthly payments from us with no interest for the first year (free loan, assuming we continued to pay at least a minimum amount each month). You may want to try to talk to the service provider.

Not that it helps, but I otherwise agree with your proposed method. That's what emergency funds are for... emergencies. But, like you, I understand that no matter what, if you disagree with the lady then you're ultimately in the wrong.

Good luck!

Angeline said...

Hi, I agree with your partner. Having to pay the medical bills might be a pain (no pun intended), but they're not an *emergency*. They're not something that will land you out on the streets or threaten your job. Save the emergency fund for when you *really* need it.