Age of Money vs. Debt Payoff

Hey fellow YNABers!

 

I'm finally getting my debts under control, and am making pretty aggressive payments on them with the goal of being 100% debt free in two years. 

 

As much as I love the idea of these debts being gone, I'm worried that it's at the expense of aging my $$$. If I were to hold off on the extra debt payments for a month or two, my money would easily be over 30 days old. However, that would delay my debt payoff goal. 

 

So, should I prioritize paying off the debts in the large chunks as I've been doing, put them on pause for a month or two to age some dough, or just trek along and will the money (kind of) magically age for me as I stick to the budget? 

 

Thanks for your help!

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  • Debt costs you money in terms of interest. Age of Money is just a number in the upper corner of your screen that does not in and of itself do anything to improve your finances.

    However, by throwing all your money at debt, what will you do if 2 minutes after you send off the payments you get a flat tire? Are you going to take on more debt for the car repair? In that scenario, it might be a good idea to perhaps build up a small emergency fund of $1000 before throwing everything at debt.

    Reply Like 10
    • jenmas I am in a similar situation here. I have a rather small debt load (Several thousand dollars for a personal loan). I am able to make redraws on any advance payments whenever I choose, and on top of that, the loan is a "variable" product.

      This means two things for me.

      1. I can pay as much extra as I want, whenever I want, without incurring any kind of fee or adjustment for "lost profit" or any other excuse the bank might want to use
      2. I can redraw these extra repayments if the aforementioned flat tire situation were to surface.

      To gear my finances appropriately, I keep my credit card close to the limit, and will probably increase its limit, that I may achieve some kind of "negative gearing" against the credit card's interest free period.

      If your debts allow you to redraw any advance payment without penalty (other than your principal going back up, of course), it may be a better strategy to put as much against that debt as is possible, and use the redraw as a kind of "savings" account.

      Everything you have sitting in redraw is saving you a pile in interest.

      Of course, to find out if ANY of this is relevant at all, you'd definitely have to look up the terms and conditions of your finance product(s) and see what they say about advance payment, redraw and "profit adjustments"...

      Reply Like 1
    • May2020
    • Sea_Green_Case_23308cd0
    • 1 yr ago
    • 1
    • Reported - view

    Thanks jenmas ! I have exactly that in my emergency fund, so it sounds like I should just keep plugging along :) 

    Reply Like 1
    • Hi May2020 ! 

      I agree with Jenmas here. You shouldn't delay paying off debt for only the sake of aging your money. 

      You want to have enough in savings that, should something happen, you don't have to go back into debt to deal with it. As long as you have that saved in your emergency fund, and a small buffer in your True Expenses wouldn't hurt, tackling debt is a great way to go!

      It sounds like you already have a debt plan, but I would recommend that you attend our Aggressive Debt Pay Down workshop - it might be helpful! :)

      Reply Like 2
    • Ky Woman
    • Cornflower_Blue_Horn_57
    • 1 yr ago
    • 2
    • Reported - view

    Hey there! I came to the Forum today with exactly the same question -- I desperately want to age my money, but whenever I have anything left at the end of the month, my first impulse is to make extra credit card payments.  As a result, I've been using YNAB faithfully for about 9 months now and have a much clearer financial picture for myself, yet my Age of Money is very unimpressive. I do have an emergency fund and a debt payoff plan. My monthly budget (including all the "smart things" like realistic True Expenses and future bills) is pretty tight, and if I do have anything left over, it's usually no more than $100-200. So...should I continue to make those extra CC payments, or start aging my money now? Maybe split the difference? 

    I appreciate any and all advice!

    Reply Like 2
      • HappyDance
      • YNABing consistently since 2014
      • HappyDance
      • 1 yr ago
      • 6
      • Reported - view

      Ky Woman 

      Hi, Ky Woman . I personally found greater value in building a cash position before aggressively paying down debt.  Every person's situation is different.  I set aside around $1200 or $1500 for an emergency fund, and I continued to pay minimums on debt until my bank account was a full month ahead, using March income to budget and spend in April.  This was before I found YNAB.  My situation was one of rather deep doo-doo. I basically had to cut up all my credit cards, and that left me swinging without the saftey net of easy credit.  This is why I thought it was critical that I have some cash liquidity to deal with life before  it happened.  Getting a couple of paycheques ahead was so that I could stop hyperventilating about paying my rent or utility bills on a paycheque cycle that was every two weeks (so not always aligned to arrive in time).  Then I want after my debt with determination.

      The Age of Money metric in itself is not a particularly critical element.  As you set aside funds for irregular expenses -- Christmas, car insurance, emergency fund, medical fees -- you can't help but begin to have a little more in your bank account. The AoM # will eventually begin to climb as a result of building up some of your balances.  But I don't know that anyone would counsel you to delay paying off debt in order to have a bigger AoM.  If paying off your debt aggressively is more important to you right now, that is a fair strategy to use, and that means you just ignore the AoM at this point in your journey.

      You might find looking at your NetWorth graph more encouraging than age of money number.

      Reply Like 6
      • Ky Woman
      • Cornflower_Blue_Horn_57
      • 1 yr ago
      • 2
      • Reported - view

      HappyDance 

      Thanks for your input! It definitely would ease my mind to be a month ahead...I have had the occasional setback when paying a huge chunk on a credit card and then having an unexpected expense rear its ugly head.  Gives me food for thought, and I appreciate it!

      Reply Like 2
    • MsTJ
    • Gray_Nomad_f6eeb59e1a1c
    • 1 yr ago
    • 4
    • Reported - view

    Let me start with saying I'm out of consumer debt and haven't had any for a while.

    Debt can be expensive, depending on the interest rate you are paying.  It's important to eliminate throwing money away on interest.

    And, it's important to have money put aside for things that come up, like the tires suggested above, so you don't have to go back into debt when you have to spend on things.  

    I would like to recommend you keep a little, instead of sending everything extra to debt repayment.  Maybe something like taking 10% of whatever extra you plan to put toward the credit card, and save it for future spending?  This would help your AoM increase, and pay down your debt.  

    Reply Like 4
      • Ky Woman
      • Cornflower_Blue_Horn_57
      • 1 yr ago
      • 3
      • Reported - view

      TryingToGetAhead 

      That makes a lot of sense. This month, I'm sending something extra to debt repayment, and also beginning to build up that buffer. Thanks for sharing your wisdom!

      Reply Like 3
  • Hi May2020  and everyone!

     

    I agree that plugging ahead on debt is the right thing to do.  I've been using YNAB since September (of 2017) and all this time, my money has never reached 30 days old.  What I HAVE done, is pay of a very large amount of my debt.  (I went from 3 cards, and now I'm only down to paying 1 card.)  What this has done is free up the amount of money I've needed to "budget" for interest and fees.  (Went form $300/month to about $100/month.  

     

    Obviously it's a personal preference, but I think that plugging away at the debt takes away more stress at the end of the day.  

     

    Also- Since I'm planning for less frequent expenses, my average bank is well over $1,000 which is "sitting and waiting" for those events to happen.  Although that money has a purpose, if there was an "emergency" like that "flat tire. I could always move $1,000 around to roll with the punch for that and then re-budget for my upcoming less frequent expenses later.  (That hasn't happened I'm very thankful.  But it's a good thing to know is an option in the back of my head.  

    Reply Like 1
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