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Many financial experts advocate for aggressively paying off your debt. This usually means drastically slashing your living expenses to free up cash, then using it to crush your credit card debt. It could also mean taking on another side hustle - or three - to expedite your payoff.
These celebrity money gurus usually advise people to put debt payoff above all other money goals. You are to focus all your energy, time, and effort into getting that number to zero.
But financial planner Tyler Dolan doesn't agree. "While in theory their advice makes sense, I think the reality is different," says Dolan, who is a certified financial planner and vice president of Keenan Financial. He doesn't always think that aggressively paying off your debt is the best idea, and here's why:
It's OK to pay off low-interest debt over time
That strategy might be great for higher-interest debt, such as credit card debt and personal loans with a high interest rate. But Dolan thinks that's too one-size-fits-all for other types of debt, such as student loans or mortgages, that are locked into a low APR and are investments in your future.
Case in point: Dolan had a few clients who were spreading themselves very thin by paying extra on their student loans and mortgages with interest rates that were anywhere from 4% to 7%.
"For lower-interest debt like student loans and mortgages, you don't have to pay more than your minimum payments to aggressively attack the debt," says Dolan.
Make the minimum payments on your low-interest debt so you can focus on other goals
If you're not tackling high-interest debt, such as credit cards, Dolan thinks it's perfectly fine to pay the minimum and attack other financial goals, like building an emergency fund, saving for a down payment or an engagement ring, or even saving for retirement.
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"Tackling other financial goals can help people feel like they're making progress, which in itself can lead to a more positive attitude toward one's financial situation," says Dolan.
Consider how having debt makes you feel
Dolan explains that how and when you pay off your debt really boils down to how you feel about it.
Does your debt feel like a cloud looming over your head? Do you feel like you're swirling in a pool of dread, hopelessness, and anxiety? Or are you only mildly fazed by it? Are you somewhat comfortable with it, and in some ways feel like it's just another bill to pay?
Dolan recalls one client who spent a few days pondering this question. She came to the conclusion that her debt triggered anxiety. In turn, she wanted to be more aggressive in getting rid of it. In her particular case, paying off her debt was best for her.
Conversely, Dolan had another client who, after spending a few days reflecting on how they felt about debt, decided that they'd rather prioritize building an emergency fund and saving for a wedding because they were OK with just paying the minimums.
"They just thought they should pay more [towards their debt] because of what they were reading online," he says.
Build a financial plan with your values in mind
While Dolan essentially agrees with the financial experts who say that paying off debt is critical, the prevailing recommendation to hunker down and aggressively pay off debt can be too prescriptive.
"If it makes you feel more confident in your financial life to save for your wedding rather than paying extra toward your debt, that's OK!" says Dolan. "In this case, it's clear that you value the wedding goal more than aggressive debt payoff."
When figuring out the best approach to tackling your debt, it's also important to be introspective when it comes to your financial behavior and mindset about money.
"Everyone is different and therefore has different goals," Dolan says. "And that's what building a financial plan with your values in mind is all about."
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