Monday, February 8, 2016

Is it always good to put extra money toward debt?



Last week I wrote about an unexpected dental bill and how I thought we would pay for it. We thought we would need to use part of our tax return, which meant less going to our debt repayment, but a few minutes after I published the post, I realized that I had forgotten one other important thing - the fact that we had some money in our HSA (health savings account). I guess I hadn't connected dental bills with health expenses in the middle of processing it all, but once I remembered that we were paying for our son's orthodontist through our HSA, we asked if it could be used for dental bills as well and found out that we could.

I am grateful that we had the money set aside already, and it got me to thinking about a few reasons why we don't put all of our extra money toward our debt. Don't get me wrong - I want this debt gone as soon as possible, but to me, one of the main reasons we are on this journey is for peace of mind - that wonderful feeling you have when you know you owe no one anything else.

However, this is not the only kind of peace of mind that matters in our day-to-day lives. We pay for life insurance to secure peace of mind in the event that something happens and other types of insurance too. Here are some other ways we have chosen alternative "peace of mind" scenarios over the "debt-free" kind of peace of mind.

Purchasing a reliable vehicle
We did actually do this one two years ago. Our 1992 Honda Accord was dying a quick death, and we had a 4th child on the way, so we knew we needed a larger vehicle. I really wanted a Toyota Sienna because they are reliable, and found one used, but we also got a warranty to ensure that if there were major engine problems, etc. that we would not have to pay for those repairs. While I don't like having a car payment, having the peace of mind that comes with a reliable vehicle and the warranty that comes with it is worth it, especially when it's your only vehicle and you have four precious children to drive around.

Saving for health emergencies
We have a maximum deductible of $2900 individual/$5,000 family before 100% coverage kicks in. This means that every year, we bear the risk of paying for up to $2900 per person in initial medical bills. In exchange for this, however, we get much lower premiums, and put the "savings" from lower premiums into an HSA that we can keep if we don't have any expenses. The first year was a bit nerve-wracking as we worked to build up our HSA and deal with over $3,000 in medical expenses simultaneously, but I am glad that we decided to go the HSA route. Not only that, but our contributions are tax-deductible, which saves us even more.

Using savings to invest in things that will save us even more money
It is my goal to come in below budget in our food spending this month, and with those savings, I would like to buy some foods at a bulk price that would save us even more money. If the savings accrued, I would like to use some for a freezer which again would allow us to save more on groceries. Last year, we also spent $40 on CFL lightbulbs that have caused our electric bill to drop by almost $30 a month, or $360 a year. Had I put that $40 toward our debt, we would have saved $3.16 in annual interest.

These are just a few ideas I have. Of course, I hope that most of our extra money can go toward getting rid of this debt once and for all.

What about you? Have you ever put extra money toward something else before paying off of debt? Why or why not?

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