Category Archives: Debt

Would You Gain 25 Pounds To Get Rid Of Your Debt?

Appearances matter, but how important are they to you?

If you were given the opportunity to get rid of all your debt but have to gain 25 pounds, would you take it? Or would you keep your current debt and stay the same weight?

A recent study by Credit Karma showed that 72% of respondents would rather keep their current debt than gain 25 pounds and be completely debt free.

That may sound like a high percentage to some people, but let’s break this down a little more:

  • In almost all cases, we earned the debt. It seems like cheating to get rid of all the debt, so maybe there is some guilt involved with getting rid of it all at once.
  • 25 pounds is a lot of weight. It can be pretty life-changing and it happening all at once can be a lot to deal with.
  • Nobody sees your debt balance but everyone sees your weight.
  • We have no idea how much debt the people who were polled are in. Maybe it’s not that much?

Lauren and I have about $50,000 in student loans left. While I would love to get rid of it, would I be willing to gain 25 pounds to get rid of it? I don’t think so. That would change my life in a few ways:

  • I wouldn’t be able to run as fast and that would affect my performance while playing basketball, something I really enjoy doing. Straight up, I would be worse
  • I’d never look good in anything I wore and would have to get a completely new wardrobe.
  • My wife would definitely be less attracted to me.

If I could lose the weight quickly, then yes, I’d be inclined to do it. But I don’t think that I deserve to have the debt forgiven, even if I have to pay the price of added weight. The reality I live with isn’t so bad now, so why change it? The risk of changing my way of life might be worse than the debt we currently have.

I posed this question to Lauren, who is smarter than I am, and this is how she responded:

Of course I would gain the 25 pounds to get rid of the debt. Then I’d hire a personal trainer to lose the weight.

While this isn’t a perfect study and isn’t representative of Americans (it was an online study that wasn’t truly random), it does provide an inside look to how many people think.

If you were given the choice, what would you do?

Information for individuals with large amounts of student loan debt:

Do You Make Monthly Payments or Lump Sum Payments?

Many personal finance bloggers encourage readers to set up automatic monthly payments. This results in fewer missed payments, fees, and maybe most important, it ensures that we’re making progress on our debt payments. If we commit to paying extra on our student loans, an automatic payment is great because it happens without us being actively involved, so we are less likely to miss that money.

This year, we’ve been doing the exact opposite. Since January, we’ve made student loan payments of $7,000, $16,000, and $10,000. We’ve also contributed 4 payments of $5,000 to our Roth IRAs and my individual 401(k) accounts. That’s a lot of lump sum payments!

Our monthly bills like rent utilities are automated, but our retirement and debt repayments are not.

Why We Make Lump Sum Payments

I’ve gone through a ton of life events over the past year, which has made automating our bills seem like a bad idea: I am paid a salary but most of my compensation from work comes from commission, so scheduling payments monthly doesn’t make much sense.

I also am running a small business with blogging and other online ventures, so projecting my income is even more difficult. The amount I’m allowed to contribute depends on how much I make, so every time I hit a big milestone in income, I contribute more to our retirement accounts.

Why do we let our checking and saving accounts get so big before making payments? Part of it has been because we’ve been lazy, but a big part of it is because parting with our money is difficult. We worked hard for it and now we have to give it away?

Readers, do you make monthly payments towards your debt and retirement accounts or do you wait and make large payments?

Secured and Unsecured Loans, What Are The Differences?

As with any type of financial product, there are pros and cons to taking out any loan, whether that is secured or unsecured. No matter which type of loan you end up getting, a loan is a big commitment that will require monthly payments until the amount is paid in full.

Secured and unsecured loans are very different from one another. Both come with their own sets of rules and advantages. Each also comes with its own disadvantages as well, so it is good to know what you’re getting into before applying for any loan.

Secured Loans

A secured loan requires putting up some kind of asset as collateral. This asset could be a car, furniture, or even a home. For example, mortgages and auto loans are secured loans, so you may already be aware of the disadvantages involved with these.

Secured Loan Disadvantages

In the event that you cannot make your payment, you can expect a repo man to come collect those collateral assets. With a home, this means entering into the foreclosure process. You lose the asset and all of the money you put into the payments, leaving you with nothing to show for it.

Secured Loan Advantages

Even though there’s always a chance you may default on a loan and lose your home or automobile, secured loans have lower interest rates than other loans. This is because there isn’t as much risk to the lender because, if you fail to make payments, they will still get their money back by repossessing the asset.

Secured loans also tend to have longer repayment periods. Even those with poor credit may be able to qualify for a secured loan, although you need to ensure that all past financial problems are taken care of before entering into a new loan agreement.

Unsecured Loans

Unsecured loans do not require collateral. The lender merely relies on your word and contractual agreement as a promise that the loan will be paid back. This creates more risk for the lender, so repayment periods tend to be shorter than with secured loans. One form of unsecured loan is a personal loan taken out from your bank or credit union.

Unsecured Loan Disadvantages

Along with shorter repayment periods, unsecured loans come with higher qualification standards. The better your credit history, the better the loan terms will be. This can mean a high interest rate for someone with less than perfect credit, which means paying back more money over the life of the loan.

Unsecured Loan Advantages

With an unsecured loan, there is no risk that you will lose any kind of asset or property. What’s more, a personal loan is generally cheaper and comes with better interest rates than a credit card or department store card. Some people choose to take out an unsecured loan to fund purchases for which they would otherwise use credit.

No matter which loan type you choose, increase your chances of getting the best rate possible by improving your credit and practicing responsible financial habits.