Dealing with debt: frugality is not the answer


It has been some time now since I have written about frugality. The last time I did this, I suppose, was when I made my position on what I call ‘extreme frugality’ (cut your own hair, don’t spend anything on fun and use £4 of petrol to save 4 pence on a can of beans kind of thing) clear; and my position is that it makes absolutely no sense. In the same article I also mentioned something that I called ‘frugality as an art form’ – this is the case where one gets maximum value for their money.

Now, irrespective of not having any more consumer debt (we still have to pay the mortgage off, mind) I am still very much sensitised to anything to do with debt. Reading personal finance blogs (reading quite a few of those actually) I have noticed that: a) quite a few are about more or less ‘extreme’ frugality’; and 2) the frugality that entails great sacrifice, deprivation and, ultimately, suffering is linked to paying off debt in a reverent relationship. This made me think, is really paying off debt through sacrifice more honourable, commendable and admirable than paying off large amounts of debt by using your gifts (anyone has those), working hard and smart and increasing your income?

You know already which path we took and that we did pay off debt; a shameful amount of debt in three years. When we started out we were faced with a total debt of over twice our after tax annual income so before thinking “well that’s OK for you guys”, translate it into your own situation – owing a consumer debt of 200% of your post-tax income. We had a mortgage to pay, family to support and all the regular bills; there was no way on earth that we could pay that sort of debt down.  And I had just lost over £10,000 (over $15,000) of my annual pre-tax pay. We were looking at over £2,000 ($3,000) monthly negative cash-flow and our only option for getting out of the hole was a consolidation loan; this was over 10 years and to start with we could only just manage the payments.

Did we do frugality? You bet! But we did it as an art form. You want examples? Here they are:

  • We changed all insurance so that we ended up better insured at lower premium;
  • We changed all utilities, the last being to install a water meter (thanks Pat); the water meter saves us about £60 ($92) per month. But you know what? Some young people don’t even realise that water isn’t free.
  • We more than halved our food bill by changing where we shop, how we shop, eliminating waste and…cooking from scratch and baking (have a look at the picture – these are the rye bread loafs I just baked).
  • We went skiing but we started using the house of a close friend instead of hotels and package holidays.

So you see, we lowered our expense a lot with very little loss of quality of life; well, life as we see it anyway. And we always tried to keep the fun in it, to make a bit of a game of it. For instance, we made a bet with friends that we could serve three course French menu for dinner for £1.50 ($2.32) per head and we won the bet. I learned to bake (artisan bread) and this was a game my friend Elaine and I played.

Oh, and:

  • I had my expensive haircuts (hard to do what I do and cut my hair myself; I am not a mathematician).
  • We kept our gym membership(s) – it is important to keep healthy.
  • Had a lady to do the ironing (if you are cringing in protest at my indulgence do the arithmetic – an hour of my time costs about ten times more than an hour of hers; and I did work 13-14 hour days).

So we did frugality but…we did it differently and it would have never been enough. So, my good blogging buddy Edward is right: the best way to pay off $50,000 debt in a year is to earn $50,000 more than you normally do and apply it all to debt repayment. But let me illustrate this by using scenarios.

Scenario 1: Frugality is king!

After finding ourselves in £100,000 debt we would have had to cut expenditure severely so that we could meet the close to £1,000 ($1,549) monthly payments and the payments for what was left on the credit cards (estimated £400/$619 monthly). To do this we would have been able to afford little more than food and it is likely that we would have not been able to start pulling out of debt. I could see two options:

One, we couldn’t start reducing our debt (or even covering the monthly payments properly) and would have had to sell our house. There are many problems with that but the main one is that we would have learned little else than that we are highly educated failures.

Two, we could manage and start slowly paying the debt off. Doing this by frugality alone would have meant ten years (or even longer since the credit cards could not be paid without additional income) of extreme frugality and debt repayment. During this time:

  • I wouldn’t have been able to go to my Dad’s funeral;
  • We would have been unable to provide educational opportunities to our son;
  • Very likely, because of the pressure this kind of thing puts on relationship we would have ended up separating.

More importantly by the time we paid off the debt, I would have been 58 and John in his late 60s. This means no chance of paying off the mortgage and really miserable and deprived old age (remember the ‘point of lost hope’ I was telling you about; no, it wasn’t as theoretical as it sounded at the time).

We worked all this out and we didn’t like the kind of life it charted; this is why we took the other route!

Scenario 2: Financial health highway

This is the one where lowering costs of living (without deprivation and loss of quality of life) is combined with a cumulative increase of income. What do I mean? We hustled like mad. In the first year of debt repayment we earned enough over our regular monthly income to pay off the credit cards completely. Each following year our side-hustle earnings increased by about 45% on the year before. And we put it all on paying off the debt.

Someone told me that their debt is a very high mountain so they can’t do what we did; we are people having large debt and large income so it couldn’t have been that hard. Let me tell you, guys, our mountain was high enough. We just became fit fell runners who traversed it cleverly!

This scenario brought us back to the ‘ideal healthy profile’. We are in our ‘autumn’ and we are ready to accumulate and invest aggressively. We shall see how wealthy we become – this is fraught with many uncertainties. But what we made sure is that we will have some fun time together and when (if) we get into the winter of our lives we will have enough income for more than a hot-dog for dinner and to keep our room in the old people’s home warm.

I have no problem with that!

Final words

A line from a movie went: ‘I grew up in a rough neighbourhood and learned that with a good word you can achieve a lot. But with a good word and a gun you can achieve so much more.’ (Yeah, imagine Robert De Niro saying that :))

Paraphrasing, I’ll say that when paying off debt (particularly relatively large one) you can make some progress relying on sensible frugality. But you can get there so much faster if you increase your income as well.

The lesson we learned is clear – control your cash, increase your income, work together and don’t despair.

29 thoughts on “Dealing with debt: frugality is not the answer”

  1. A thought provoking post Maria!
    I think extreme frugality comes about either:

    as a necessity, when circumstances or choice mean that increasing your income by the amount needed to lift yourself out of a hole quickly isn’t possible, or
    because it’s ‘in the genes’. I’m not a *truly* frugal person, but it really pains me if I think I’ve wasted money –  it’s just the way my genes are I think.

    What you said about having some fun together is *really* worth saying. It’s all too easy to race through the years achieving things and then look back wishing you’d slowed down sometimes just to appreciate what you actually have.

    1. @Stewmoney: I would agree that ‘extreme’ frugality may be necessary at the early stages of financial shock. But…staying with it for any longer than needed, I believe, locks one in a mentality of scarcity and deprivation also known as mentality of poverty. It sounds that you fit in the ‘frugality as an art form’ which is not about sufferring through denial but about getting value and eliminating waste.

  2. Although I never really had any debt except mortgages, I do some of the same things.  I am better at finding people to do repairs than the repairs themselves.  I am value conscious vs. frugal.  I try to extract maximum value with minimum expense.

    1. @Krantcents: There, there Krant. Couldn’t have said it better myself – I am also better at finding people to do manual things rather than doing them myself (especially ironing, dusting and gardening).

  3. Good thinking, Batman!  Balance is everything.  Cutting out things that really matter can lead to  becoming dissatisfied with life in general and, even more importantly, quality of life.
    If the problem is desperate, extreme measures are needed but I become concerned when the solution becomes an obsession which I would find difficult.
    I may be wrong!
    We all have a finite life span and need to take that into account.
    Our efforts to increase our income are important so long as they do not interfere with out satisfaction with our life style – and we all have different with our vision of our future.

    1. @Pat: Thanks, Pat. Since you ‘met’ me virtually when all this ‘paying debt off’ fun was starting (before TMP) you also know that it was never only thinking – all the thoughts I shared on The Money Principle were applied (even the ones that seem far too abstract). And the main factor, I believe, was the change of mentality – from ‘I don’t have’ to ‘how to get it or sunstitute it’; from ‘I can’t’ to ‘what are the conditions under which this is possible’.

  4. Make your bread and make more dough! I focus on making more, but also like to learn skills and be less dependent on shops. My splurge is travel and food, although now that I make so much from scratch I have a hard time going out and spending on overpriced bad food. Like KC I think it is about the value you get out of what you pay. I gladly pay for a handyman to do all the heavy work for me, even if that costs probably more than your haircuts and gym membership combined!

    1. @Pauline: Glad you agree and you know what I was thinking today? Every time I decided just to save several pounds it has costed me dearly. Example: buying cheap heart rate monitors – this is how you get a reading 0 while you run and you know that the saving was not worth it. LOL, we paid/pay quite a bit for things to be done to the house as well.

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  6. The issue I have with “extreme frugality” is that it is so damed cheerless!! Sure in the beginning everything was cut to the bone – but by engaging a shed load of creativity we actually have a better lifestyle than we ever did, just at a fraction of the money (Yay!!!) Frugality as an Art form – not as a punishment.
    I totally get what you mean about the multipliers of debt/income – that is the important ratio to consider rather than the amount of debt, but inevitably when you are a higher earner you will get the “It’s OK for you because” naysayers ………….. actually even on a much smaller income the same naysayers appeared at the Debt Free Date – like somehow the debt clearance was easier for me because I was “different”.  TOTAL CRAPOLA!!
    You move your expenditure down, you increase your income and you apply every penny you can to the debt until it is gone ……………… it’s not rocket science, but for some people they are not in  a place where they think “I can do it too” and instead make excuses for their own inaction by listing fictional reasons about why it was easier for you.  It’s a cop out pure and simple.
    I know how hard it was for you – and I whooped with joy when you reached your Debt Free Day because I know that although our journey was different – our hurdles were the same.
    Nice bread BTW LOL  …… wonder if I can get you knitting next? Not in an “Earth Mother” way – more a Mme Guillotine ironic kind of way LOL 

    1. @Elaine: I love you, you know that (now many people know as well :)). But no knitting! Thinking about it though, I said the same about baking.

  7. Good post! There is a fine line between being frugal and being just a bit crazy and all too often we see people cross that line. I view being frugal as making wise choices and being value conscious. You’re going to get nowhere if you take cold showers in order to save money. It’ll take you years upon years and who wants to take cold showers? I look at it at as two parts of an equation. Being frugal is great when paying off debt and you can save some money if you make some good decisions, but will only take you so far. Once you add making more money to the equation then you have something to really work with.

    1. @John: Quite right! Cold showers and not heating your place will only get you ill (most often). Intellectually, I believe people realise that it is combination between searching for value and increasing income. But somehow extreme frugality (and the discomforts it can cause) has become a virtue in its own right. Life is for living and the sole function of money is to sustain life as we want it – there is absolutely no other point to it.

  8. Great article! Frugal is definitely the way to go but too many people think that means sacrifice.  It’s kind of like dieting.  Diets are BAD but fundamentally altering behavior is good.  You don’t have to give up Starbucks completely but just don’t have it every single day.  You can treat yourself, you just have to be smart about it. 

  9. Love, love, love this post!! You are so right, life is for living and depriving ourselves of the things we enjoy might save a few quid but it’s just a sad way to live. The side hustle is the way to go. I have very little debt and also little money, but more important – I have the opportunity to change my lifestyle to one that suits me now and for the future so that is what I am planning now.. watch this space.
    It has been inspiring reading how you both tackled your problem, worked on a solution, and helped people like me to realise we could do it too, so thankyou.

  10. Frugality is part of the answer.  As someone who is occasionally too frugal, I can say that frugality can be a powerful tool to up your savings rate, but it can get out of hand, especially when your frugal habits start alienating you from the rest of society or start making your quality of life go down.
    I could live off ramen noodles every day and I would save a ton of money.  But I don’t, because eating a well balanced if more expensive diet is better for my health.
    I could go car-free.  But I don’t, because then my mobility would be so limited as to render life miserable.

  11. Nice post! You make some good points. Yes, there is such a thing as cutting too much and it’s best to take a two pronged approach.
    I am in a similar situation that you were. I am also in debt that is over twice my income, so it will be years before I have any freedom. I’m taking both approaches and plan to shorten my time in debt as much as possible.

    1. @DDSW: Good luck paying your debt off – it feels great when it is gone. It feels great watching it going down I found :). And you may find that with ingenuity, resolve and smart work it can go very fast.

  12. Have recently found your website and have been working my way through most of your old posts. I am totally with you on the extreme frugality thing, I like to save money as much as the next person but some of the things some people blog about is way out of my league. I could not cut my own hair it is one of the things that makes me feel good about myself even if everything else had to give I would fight to keep that one. We have saved by not eating out so much and cooking 99% of meals from scratch, we actually eat better and save money at the same time(win, win). But if you are going to do without absolutely everything it is going to get you down and eventually you crack and then you end up spending because you are so fed up.
    Love the blog, I will definately be looking forward to new posts

  13. I love this post – because for me a healthy money mindset is important as well. Not only did we increase our spending when I started my own business, but we bought our first home, and then my husband lost his job shortly after I quit working at my full time job. So we went from 3 incomes to 1 with increased expenses. I had to hustle like mad, but our debt has crept back up and I just decided ENOUGH – I will go back to work, because the negativity of debt in my life is the worst thing ever. So we’re finally learning to budget and save AND I’m increasing my income (he’s employed now as well – not making as much as he used to, but it’s getting closer!) I’ve been reading a LOT about getting out of debt and the poverty mindset that is attached to a lot of the extreme frugality worries me…it’s not an abundance mindset. I love that you made a rule that you had to spend your fun money – I think that’s important! I will definitely be following this website. Thank you!

    1. @Bethany: Bethany, great to see you here and welcome. In my mind, healthy mindset is THE most important thing when sorting out money. And it is not about mysticism and conjuring wealth; it is about thinking in ways that allow you to formulate and solve problems. Glad to hear that you and your husband are making progress – don’t focus on the debt. Just concentrate (and work on) increasing your monthly positive cash flow and put it all (or most of it) against the debt. Watch what happens :).

    2. @Bethany: Glad you found it helpful and entertaining :). Bethany, extreme frugality worries me as well; it worries me in the same way as self-mutilation and the glorification of suffering worries me. I believe that life should be enjoyed; that money, when wisely spent, helps us enjoy our lives and make other people’s lives full of joy as well. Oh, and John (my husband) and I still have pocket money (this is for small personal spends and some of it goes on our son probably) and a ‘I’m so worth it’ fund each. It is entirely up to us what we spend it on – I can buy and do things that please me; John is pleased by making contributions to the Labour Party. Each to their own, I say.

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