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I’m in debt, which stinks. The best part about being in debt is dreaming what you’ll do with all that “extra” money you’ll have when get out of it. I am doing this a lot as well. It’s not so bad. Now that I’ve gotten my expenses under control finances have gotten much easier for me, I actually like doing them. I come across what I think is the hardest part frequently.

For me the hardest part is when you dream of spending your hard earned cash on something other than debt repayment. Like I mentioned earlier, I do this a lot. To make my debt repayment journey easier, I often create small goals for myself and try to reward myself accordingly, with something like a camping trip or a fishing trip (instead of working all weekend).

Every once in a while (so far just once) you’ll cross a milestone that deserves something more than 1 weekend away. For me, this milestone was paying off my credit cards (all of them) once and for all!

I recently completed this, and decided to reward myself for it. Luckly for me, I made finding a reward a bit easier when I was beginning to pay off my debts. When I first realized how much money I owed to my credit cards and what interest I was paying, I quickly realized that was not going to work. So I looked around for some balance transfer credit cards and I found one that gave airline rewards to boot!

I quickly calculated that if I transfered up to the limit on this card, paid it off I could have a free flight + a few extra credits towards a second one. The fact that the interest rate was about 10 points lower on this card was just icing on the cake.

I made the transfer and had the balance paid off in about 5 months. I was feeling great and moved on to the next part of my debt with my snowball. Fast forward 9 months, and I check my rewards account. It looks like the ticket is going to expire at the end of August, 2010, and I really don’t want it to go to waste.

Unfortunately, I had not finished paying off all of my debts yet, so was at a crossroads. I could:

  1. Let the Ticket expire and continue to pay down my debt
  2. Use the ticket to go somewhere.

If I let the ticket expire, there would have been no point in opening the card for the balance transfer in the first place. I would have gotten a better interest rate, but still, I wanted the ticket. I opened it for the free airplane ticket, and I want to use it. I also have a particular aversion to wasting things, especially in this case. Not using the ticket would make me feel like the credit card company won, and I don’t want that. I could also tweak my debt repayment budget for a few months, diverting some cash from debt repayment into a savings account for vacations.

I decided to compromise, and tell myself that if 1 of my other debts is paid off before the ticket expires and I have the cash available, I can go. I feel like I’ve offered a reasonable compromise to myself, and it looks like I’ll be able to hit my goal. Here are some tips to help you budget in the fun stuff

  1. Use your debt to your advantage – I was able to get a free airline ticket by making a credit card balance transfer to a card with a lower interest rate. When I made this transfer, I saved money on interest payments AND was able to get something tangible out of it. (I did this before the CARD act, and I know these cards are more difficult to get now.) It doesn’t have to be a plane ticket, but look to get something out of your debt instead of just paying interest. Let me make it clear that you should NOT go into debt for these rewards.
  2. Use it as a carrot – Find a difficult but attainable goal on your road to debt freedom. It could be something like “Increase debt snowball from $1,300 to $1,500 a month for 4 months” If you meet your goal, reward yourself with your airline ticket.
  3. Reinforce good habits – This can help you keep your good habits and not go into debt for your next vacation. Prepare a budget for the trip and put enough money aside (every payday) to make sure you’ve got enough (and probably a bit extra) by the time you’re ready to fly. This will be easier to do once you’re out of debt, and you’ll already have practice!
  4. Enjoy the Trip – I can’t stress this enough. When I used this exact method on my most recent trip, I didn’t enjoy my vacation as much as I could have. Every once in a while (usually when the cash register rang), I would think about how much money I’ve spent on the trip and how that money could be going to debt. Instead, enjoy the fact that you won’t have a “credit hangover” from this vacation cause it’s paid for up front.

So, next time you’re looking for a reward for paying off your debt, don’t forget to look at leveraging you debt to produce the reward. Sure, you’ll still be in debt, but you may as well try to get something out of it. With these steps, you can use your reward and set good habits for your future debt free self. Good luck!

Crystal’s Questions:
Do you reward yourself for accomplishing personal finance goals like debt repayment?  If so, how?