Pay, Spend, Pay: The Common Debt Mistake You Can’t Afford to Make

Marisa Torrieri

moneytrapWhen it comes to making debt payments, most of us probably fall into three categories: those who pay the minimum, those who try to pay a little more than the minimum—and those who are like Jason Vitug.

After Vitug graduated from college, he found himself saddled with $40,000 in combined student loan and credit card debt. That figure weighed on him so heavily that he took drastic measures to get rid of it quickly: At times that meant making double his minimum debt payments, to the tune of about $2,000 a month—on a $45,000 bank branch manager’s salary.

“My primary goal at that stage was: ‘I just want to pay it off. I don’t want the debt looming,’ ” says 34-year-old Vitug, who launched the personal-finance resource site

He lived with his brother and portioned the bulk of his paycheck toward the debt—enabling him to pay down all of his debt in about four years. But there were two potential problems: Vitug never stashed away any money into an emergency fund for a rainy day, nor did he rein in his lifestyle spending.

So when he decided to go back to business school, he had no savings to help cover tuition, forcing him to take out a new set of loans. The result? An even bigger debt hole of $80,000.

Vitug became caught up in what LearnVest refers to as the “pay, spend, pay” cycle, when well-intentioned debtors excessively overpay their loans or credit cards in order to help unburden themselves of debt faster. But, in doing so, they may deprive other areas of their budget—and may often run up their credit cards yet again because all of their cash is going toward loan payments.

“Pay, spend, pay” is similar to the pattern so many yo-yo dieters engage in: To lose massive amounts of weight quickly, they may suddenly change their eating habits or exercise until they drop. But while that helps them shed pounds at a fast clip, the diet remains unsustainable—and they ultimately pack on those pounds again.

But it is possible to help break the cycle. Our suggestion? Knowing how not to let your debt put you into an emotional tailspin—and creating a plan that helps make debt repayment a stable and consistent part of your budget.

RELATED: The 3-6-9 Rule of Emergency Savings

  • Diana

    I feel as though this is bad advice–if you can pay off debt more quickly, then why not do it? Why pay interest to the credit card companies any longer than necessary? Of course, with paying off debt, one must be mindful of what got them into debt in the first place. Don’t live beyond your means, and also don’t waste your money on an expensive graduate school. There are many options for affordable graduate programs–it’s really the internships and the personal drive that will make the difference in the end.

  • Robin

    I can sympathize how debt can be stressful and make you feel guilty for even having. I graduated with $100,000 in student loan debt and has become a “Vitug” in the sense that I’m paying 3x the interest in a single payment (with student loans at %8 – you do the math). And it took me 2 years to get 3 months worth of emergency fund saved. But I agree with Diana – I feel better for it. I already calculated I’ve saved over $10,000 worth of interest. So where’s the happy medium? 10% of income toward debt is too low for us that don’t make 6 digits a year and still graduated in the millennium generation.

  • mostlywentzel

    Yeah, I have to agree with Robin and Diana. I see the point of the article – that you do need to have some cash for emergencies, but putting money toward debt is very important and saves you money in the long run. I think that had Vitug perhaps waited another year to head off to school again, that may have been the smarter move. After paying off all of his debt, taking a year and putting that same amount toward savings would have drastically reduced his new debt. We have become such a “NOW” civilization, that we don’t want to wait and take our time to do the right thing. We need to get that degree NOW. We need the dream house NOW. We need that awesome new handbag NOW. Our parents understood the need to BUILD a life. Not immediately acquire it.

    • Sherry

      Well said!

  • cc11782n

    Thank you so much for this article! I was just discussing how I am this type of person with my fiance! I didn’t have a plan to save aside from my regular 401(k) contributions at work a few years ago, and a combination of overpaying on my credit card payments and moving into a higher rent situation put me deeper into a credit hole – especially when emergency car repairs cropped up. We’re getting married at the end of this month and our first priority post-wedding is to get back down to $0 with our debt – but to do it in such a way that ensures we have emergency savings and retirement savings as well.
    I think sometimes it’s hard to justify allocating your spending that way though – especially when you read all of these “success” stories of these people drastically cutting expenses and living frugally. It works for some people, absolutely – and some may argue that its the best way to eliminate all that interest you’re paying back in the long run if you pay back debt at a slower rate – but I know for me, personally, when I tried doing that, I just ended up running up more debt due to my lack of emergency fund and thinking I could live on $50 every two weeks for food and gas if I just “tried harder”.
    Some people snowball, some people attack highest balances, some attack highest interest rates – but I think the gist of this article – that you need to be prepared with liquid funds for both your normal every day necessary expenses, and also for emergencies – is great advice – and something I will be consciously implementing in my life starting in September

  • April

    I do the split approached. I make sure to put enough into match my employer contributions to my retirement (5%) and then 5% of my income goes to savings and whatever I have left over after rent, food and other general expenses goes to my student loans. It probably ranges between 10-15% each month. It feels good to pay myself first. I’m not forced to put other goals on hold because I do have savings and I will be out of debt hopefully pay my loans off within 5 years of graduation opposed to 10 years.

  • Lavaunda

    I can understand what Diana and Robin are saying however I do agree with the article about having an emergency fund first. I have been through the process of getting out of debt and it helped to have an emergency fund first. I limited myself to having $1000 in the emergency fund before I started make overpayments on my debts. I was able to do that ($1000 emergency fund) in one month. It was a good thing I did because while I was paying off the debt, my cooling unit for the house stopped working and had to be replaced. The cost was more than what was in my emergency fund, but I was able to negotiate with the company because I had immediate cash. I’m not sure how the others paid (pay) on the debt, but I became aggressive after the emergency fund and was able to pay off the debt in a year and a half. It definitely takes some determination.