What YNAB Has to Say About Debt

Jesse Explains Debt Through the Eyes of the Four Rules

Written by Jesse Mecham  |  on


As many faithful blog readers may have noticed, I’ve been thinking a lot about debt. I passionately implored people to dramatically question their assumptions around debt, we discussed good debt vs. bad debt, and today I want to discuss 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 tens of thousands of YNABers. But a lot of people ask how debt is seen through this method. 

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 it’s core, the YNAB method is 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 are 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 credit cards to spend more than you have, which allows you to ignore the prioritizing that is the core of the YNAB method.

Debt Restricts Your Choices

The other way that debt impacts Rule One is that debt 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. Almost 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 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 payments, on the other hand, are using 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.

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 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 payments severely impact your flexibility. If thirty percent of your cash flow goes towards debt payments, 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 your Buffer 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 not to take on new debt, 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, and other debt fit into that. The important thing is that it is about your priorities. I think using YNAB makes you a lot better at identifying what those are.

Editor’s note: this post was originally published in October 2014. Our stance on debt has remain unchanged, but we did update this post with a pretty doodle and made it easier to read on your phone.


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Your Next Step

Budgeting is not restrictive. You won’t be spending less, you’ll be spending right. So what do you have to lose? Except all that debt and stress?