Fighting the irrational debt instinct

My car is going in for a service and there is quite a bit of work that needs to be done, more than we can pay out of our month-to-month expenses.

I do actually follow my own advice and I have an emergency savings account that will cover the bill, however what was interesting was that this was not my first response.

Both my husband and my first thought was to draw the money from our access bond.

We pay in extra every month, but the reason we do that is to pay off our mortgage quicker, not to use as a savings fund.

Of course it makes absolutely no sense to draw down on our mortgage at a rate of 8.5%, when I have savings in the bank account earning 5.5% at most, savings that we have exactly for this reason.

Once I applied the logic it was a no-brainer but I had to analyse why it felt easier for me to take on debt to pay off my car than to draw down on savings.

My conclusion is that we find it easier to procrastinate. Rather than take the pain today and see my bank balance halve, I would rather transfer that debt to the future me and worry about it later.

It also feels easier to spread the pain over several months by repaying the debt than take in one full smack.

This is exactly how human behaviour gets in the way of making sensible financial decisions.

The problem is that the future does catch up and then we start wishing the “past me” had done a better job when making those disastrous financial decisions.

The most financial sensible course of action is to draw on the savings and then replace those savings over the period of time that I would have repaid the debt.

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