I Hate Debt, But the Reasons Why Might Surprise You

Editor's note: this post was originally published in October 2014. Our stance on debt has remained unchanged, but we did update this post with a pretty doodle and some shiny new debt-free resources.

At YNAB, we're all about setting your priorities and making your money line up with those priorities. And in that quest, I often abstain from opinion. I don't always share what I think, but I do have some thoughts around debt. And being the adult that you are, I'll let you take my thoughts as you will.

I hate debt. I think it's lousy. It takes away your cash, it limits your creativity, it hampers living beneath your means, and debt lines the pockets of lenders.

And I'm not saying I hate debt from a moral high ground—like a lot of people, I've carried debt before. No, this is about the simple fact that debt restricts your freedom. But, don't just take my word for it.

Let's take a look at debt through the lens of the YNAB Method. These rules, after all, form the foundation of a method that is really successful for me and so many others.

What Do The Four Rules of YNAB Say About Debt?

On the surface? Nothing.

But when we dig deeper, it turns out to be a whole lot.

At its core, the YNAB Method is a personal finance approach that's all about prioritizing: YNAB helps you align your money with your priorities, goals, and values. When you do, you’re in control of your money, and you have a broader range of choices and more leverage (not that kind of leverage!). Let's look at how each rule sees debt, starting with Rule One: Give Every Dollar a Job.

Debt Gives Jobs Before Dollars Exist

When we say "Give Every Dollar a Job," we mean only the dollars you have, and then spending based on those decisions. It’s simple, powerful, and assures that you’re spending less than you're earning. It’s the only way that you will really get ahead.

On the other hand, debt is committing yourself to spending dollars you don’t yet have. That’s a big part of where my skepticism of debt comes from. Especially when we’re talking about using high-interest credit cards to spend more than you have, which allows you to ignore the prioritizing that is the core of the YNAB Method.

Check out our comprehensive guide for more information about how to pay off debt.

Debt Restricts Your Choices

The other way that debt impacts Rule One is that the monthly payments need to be prioritized ahead of a lot of other jobs for your money. YNAB works so well because it helps you get control of your cash flow—how you use and direct your money in the day-to-day and month-to-month. But when you carry a lot of debt, a lot of your cash flow is already prioritized for you. Before you even start, your choices are restricted. You’ve got jobs you’d really like your dollars to do, but because you have debt payments, there aren’t enough dollars to go around.

Of course, Rule One is also the perfect tool for solving this dilemma. Rule One’s laser focus on prioritizing is exactly what’s going to help you find the dollars you need to get out from under that mountain of debt. But I’m getting ahead of myself.

Debt Pays for the Past Instead of the Future

Rule Two: Embrace Your True Expenses is assigning money you have now for expenses that will happen later. It helps you smooth out large, irregular expenses so that you’re prepared.

Debt repayment, on the other hand, uses money you have now for expenses that have already happened. When I rail against debt, that’s what I’m thinking about. I want you making choices for what’s happening now and in the future, not the past.

Debt Leaves You Without an Umbrella on a Rainy Day

When a rainy day comes along—and it will—you’re less prepared for it when you’re hamstrung by debt. The amount of money you could have been setting aside has been going to your debt payments. In the worst case, you might need to incur more debt just to get by.

Debt Impacts Your Flexibility

YNAB’s Rule Three is all about flexibility and accountability. When you overspend (and, hey, you will), you need to be flexible and deal with that overspending right away. YNAB is great at this. It’s built for it.

But your debt repayments severely impact your flexibility. If thirty percent of your cash flow goes towards stuff like student loans and credit card debt, you simply have fewer options for changing plans. When things aren’t flexible, they break. I don’t want you or your budget to break.

Debt Stunts Your Buffer

One of your most powerful tools for staying out of debt and being in control is aging your money, YNAB’s Rule Four. This gives time to deal with whatever life might throw at you. You can plan for the whole month at a time, and really appreciate the big picture.

But it’s awfully tough to save up a month's worth of expenses and live on last month's income when you’re writing big checks to credit card or auto loan companies every month. With debt, it simply takes longer to get there.

The Big Picture on Debt

These are really good reasons for not borrowing money, and why I wrote last time about being selective about what makes for “good debt.” If it’s going to impact your cash flow and your decision making in these ways, I sure want it to be something important, and something that adds value to your life. There’s plenty of room to engage in friendly debate about how mortgages, student loans, car loans, home equity loans, and other debt fit into that. The important thing is that it's about your priorities. I think using YNAB makes you a lot better at identifying what those are. When it's possible and makes sense for your situation, becoming debt-free can be a powerful personal finance goal that creates space for the priorities that matter most to you.