For better or for worse, when it came to paying off debt, I was all in. Once I started this blog and publicly declared that I was going to get out of debt, I did everything in my power to make that a reality.

I started side hustling like crazy. I began to freelance, which later turned into my career. Once I doubled my income, I started throwing crazy amounts of money toward debt — $3,000 to $4,000 each month.

I saved a little, but not a lot. Just enough. I forgot about retirement. Didn’t invest. And now I’m 31-years-old and am effectively starting at square one.

It’s been five months since I paid off my debt and I should, in theory, have a lot of money to show for it. If I was putting that kind of money toward debt, wouldn’t I have close to $15,000 saved and invested now that my debt is out of the way?

I should, but I don’t.

I wish I could tell you that everything was balanced and I was able to stash cash like it was going out of style since becoming debt-free. But in my typical all-or-nothing personality, I decided to move to LA and go to Italy with my mom and write a book, all roughly at the same time. Not only that, but I got hit big time by Uncle Sam this tax season.

All of this money I thought I would have suddenly was tied up.

I had gone years without spending money on Big Life Changes and neglected every other area of my financial life in a single pursuit of becoming debt-free.

I know many of you were concerned with my strategy, and in my stubbornness, I ignored it…because I was going to be debt-free as soon as possible, no matter what.

And then, once my debt was paid off I changed everything. This has come at a cost that I’m realizing now, as I have barely anything to show for all of my hard work.

You may be wondering, how did this happen? Well, let’s review:

In January, a month after becoming debt-free, I technically “owed myself” because I had dipped into my tax savings account as well as emergency fund to pay off all my debt. On top of that, I owed a little more than I thought for quarterly taxes (because I’m self-employed), which set me back a little further. In short, I didn’t save much that month, because I had to replenish funds and pay the tax man.

February was a big month. I was actually able to save and invest $5,500 — $2,500 for investing, $1,000 in an emergency fund, $1,000 in an Italy fund and $1,000 for my moving fund. I felt proud. I felt rich, even.

Then March came, and it was hectic. Trying to move out-of-state is not cheap and definitely not fun. Towards the end of the month, when we were packing, our food bill got out of hand. At some point, you just sort of give up on cooking when you’re preparing to move and all of your stuff is in boxes.

The move itself wasn’t cheap either with a rental van, hotel stays, and gas. Once again, I was able to save a little, but the move cost more than I saved, which hindered my progress. Also, I owed the IRS about $3,000. Apparently, I made good money last year and didn’t save enough.

April came and was the worst month yet. A financial apocalypse, even. My accountant and I were going through my income and expenses to prepare for my quarterly taxes. I had just gotten off the heels of paying federal taxes, but this was another bomb.

I had a five-figure tax bill. Once again, I didn’t have enough saved and it wiped me out completely. Emergency fund? Gone. Tax fund? Depleted. Everything I had worked for was taken by the tax man. I have very few expenses that I can write off and apparently this year, I’ve been rocking the income and the IRS wanted their fair share. When I heard the news, I felt so defeated. It felt like a big setback.

Now my accountant is encouraging me to save not 30, not 40, but 50 percent of my income for taxes. WTF?! We’re overestimating here as falling short has obviously been a pattern of mine. I don’t want to owe the IRS, so I’ve continued to tap my savings. But now, as discussed, I’m literally saving half of my income for taxes.

To shake off this big blow, luckily I had Italy to look forward to. Italy was amazing, but spending two weeks there was expensive. Priceless, totally-worth-every-penny, but expensive. To make matters worse, I invoiced for half of what I usually make at the end of April. It was at that moment that I felt so low and frustrated with freelance life.

I work my butt off and have practically nothing to show for it. I pay 50 percent to taxes and can barely afford to take a vacation, because if I don’t work, I don’t get paid.

But then I started getting mad at myself…wondering how did all of this happen? How was I making so much money, but had nothing to show for it? I now realize that in my all-or-nothing debt payoff strategy, that I was screwing myself in other areas. I borrowed from savings and taxes. I also just assumed I could save the same amount for taxes and didn’t realize the extent that my income had grown.

In some ways, I feel like a failure. A (now) high-income earning freelancer with hardly anything in the bank. I realized that even though I was able to pay off debt ahead of schedule, starting at square one set me back in many ways. Deciding to move and travel all at once perhaps wasn’t such a good idea.

Also, taxes are a b!$%* if you’re self-employed. So, I haven’t made the progress I thought I would on my finances. I’m just recovering from the financial wipeout during tax season. I’ve replenished my emergency fund to $3,500. I have $3,000 invested. And am now saving a helluva lot more for taxes.

It’s not great and I’m not proud, but I’m taking baby steps to get where I need to go. I realize now how my all-or-nothing strategy got me in trouble, so am trying to save and invest in a sustainable way.

I wish I could share with you how awesome debt-free life is and how I’m rolling in the dough, living a life of luxury. But it’s been tough. It’s been a hard breakup. Debt is still showing me who is boss and I’m trying to reclaim my finances as I effectively start over and move on.

Being debt-free is great, but it’s not the end goal. It’s a goal. And life continues. If you’re working to get out of debt, don’t forget other areas of your financial life. Perhaps don’t make so many sweeping changes within months of paying off your debt. And if you’re self-employed or freelancing, save your money! More than you think you need!

I’m hoping that this is just a rough patch in my financial life and that I can learn how to lower my tax bill, earn more, and still save and invest most of my income. This has been a huge lesson for me and one that I wanted to share with you.

Has an all-or-nothing strategy ever got you in trouble with your finances? Stay tuned to find out how I plan on overcoming this and get my finances back on track. 


Melanie is a freelance writer currently living in Portland, Oregon. She is passionate about education, financial literacy, and empowering people to take control of their finances. She writes about breaking up with debt, freelancing, and side hustle adventures at

Currently she puts more than 50% of her income towards debt, while living a frugal, fun life. In addition to her love of personal finance, art and music, she is also a karaoke master. Follow the adventure @DearDebtBlog.

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55 responses to “The Danger in All-or-Nothing Debt Repayment”

  1. Jayme says:

    Wow. I am glad you shared this, though I imagine it was hard. Its a very important lesson about debt. Especially when so many of us just assume that we will be all roses and rainbows if we pay it all of and earn more at the same time. You’ve given me a lot to think about, and I am definitely going to start adding a little more back for taxes. Sharing to help others!

  2. Colin Ashby says:

    Thank you. Thank you for writing this. As the student loan discussion has risen in recent years, a lot more articles & stories circulate about extreme debt payoff. Only recently have a seen more of the “pay off your debt fast, but don’t forget to invest & have a safety fund” type of articles.

    When I first started paying off my student loans I was super aggressive. (There was one month where I put 70% of my income towards student loans).

    Then I had a wake up call when I started to read more about retirement planning. I’m not yet 22, so compound interest is still my friend. I’m trying to make a habit to put more into retirement while still paying a good chunk on student loans.

    Trying to find a balance!
    Colin Ashby recently posted…Financial Lesson My Parents Were Wrong AboutMy Profile

    • Melanie says:

      Yeah, I’m not so good with balance and this represents itself in other areas of my life as well. It’s tough. I wish more than anything I wasn’t an all-or-nothing type, but I’m trying to learn from this. I wish I started saving at 22 for retirement!

  3. Liz says:

    I love that you shared this. Each of us has to go our own way in our debt pay-off journey.

    You have so much to show for your journey though, even though things don’t look like it right now. Now that you’ve recognized this, I’m sure you’ll be maxing out your retirement accounts and fixing your e-fund in no time! It’s okay to live a little you know??

    Good luck!
    Liz recently posted…The Alchemist by Paulo CoehloMy Profile

    • Melanie says:

      You are right. I still have a lot to show for it, namely my career, friendships, etc. I’m happy to live in LA and that I went to Italy, but now it’s time to settle down a bit and focus on saving and investing responsibly.

  4. Coming out of debt repayment you tend to let off the gas pedal just a bit, being so intense for a long period of time you tend to relax. It happens. The good news is you know how to handle a situation like this. You’ve built the hustle muscle up pretty good over the last few years. I’m sure you’ll have things square away in no time.
    Brian @ Debt Discipline recently posted…Financial AidMy Profile

    • Melanie says:

      I hope so! I was feeling so defeated after this tax debacle. But now I save more, work harder, and continue to invest…and work with my new income/living expenses.

  5. This is a great post, Melanie, and an important lesson. If I had my way, I’d probably do it similar to you – work my ass off and just get the debt paid off. I’d have to put my life on hold for the next five to ten years, probably.

    But, I am also married, and my husband also gets a say in where our money goes. He’s not as gung-ho about debt payoff as I am, and so a large chunk of our income also goes to savings, especially in a general emergency fund and for a house. He is especially more motivated towards buying a house, and it’s really important to him as well that we make some sort of progress in that area too.
    Lindsay @ The Notorious D.E.B.T. recently posted…We’re Investing In Our RelationshipMy Profile

    • Melanie says:

      It’s hard to balance in a relationship too. I’m glad to be debt-free, but feel like I got burned a bit afterward. The journey hasn’t been so easy with all the moving parts.

  6. I’m glad you shared your story. I still have about 1k in credit card debt and just over 5k in my car loan, and I actually have the cash to pay it off, but Shannon and my friend Dave have warned me about this very situation, and not leaving myself cash poor (since 1 interest rate is zero and the other is about 2%). Although it’s hard not to just get it paid off now, I do understand why this is sage advice. Great to see you the other night!
    Tonya@Budget and the Beach recently posted…Stacking the Decks in Your FavorMy Profile

    • Melanie says:

      Yeah, I go back and think, would it have killed me to be in debt a few more months? No. I ended up borrowing from myself and then feeling the hit from taxes even more.

  7. Kara says:

    I’m sorry it’s been such a blow! I found out I was going to owe 4K in taxes for 2015 last September and I cried about it for two days. I’d been saving so much, thinking it was all for retirement and e-fund, and I had to totally change tracks to meet that tax bill. I also write off very little and catch very few tax breaks. I owed 3K this year and it was so sad!

  8. I had to pay about $5500 for my 2015 taxes and my Q1 2016 taxes on the same day. It definitely hurt and made me feel pretty poor right before I had a fun weekend trip planned with my girlfriends. I feel like I’m not getting ahead either, but I know that’s not true. It’s just harder now that I have to save more and pay more to taxes.
    Kayla @ Shoeaholicnomore recently posted…3 Ways To Stay Calm and Happy During a Major Life UproarMy Profile

    • Melanie says:

      Ugh, sorry your comment was in spam 🙁 Yeah, I know the feeling. My bill was more than double that 🙁 It freaking hurt and wiped me out.

  9. It’s funny that you mentioned being debt free is not the end goal. I literally just wrote that sentence out last week when I wrote a post on what Im thinking will be necessary in order to stay debt free. Climbing over debt is a hurdle and I’m happy I decided early on that I wouldn’t take am all or nothing. Considering I still have my FT job, Im trying to balance this side hustle gig in a way that won’t have me running out in the streets screaming for my life, lol. I can’t wait to hear more about this new chapter in your journey because I’m sure I am going to learn something good:)

    • Melanie says:

      Yeah, I think I was short-sighted. I thought being debt-free was THE goal and then life would just happen and be fine. But I made too many changes all at once and didn’t have enough savings on hand to deal with it. Definitely will be learning a lot from this journey 🙂

  10. Hey yes, moving and going on a trip right after debt payoff is a lot. Granted you are saving 50% for taxes, but you might get it back as you are overestimating. Also if you save $$ in a traditional IRA, you may reduce your taxes to a lower bracket. Hope it works out.
    EL @ MoneyWatch101 recently posted…Over Consuming Usually Leads to Financial FailureMy Profile

    • Melanie says:

      I have a Roth IRA currently 🙁 I sure hope I’ll still have some money left from saving 50 percent for taxes. I might have to change my business structure at some point (I’m a sole-prop now).

  11. Great post! There are a lot of times I want to just put all my money into paying off my student loans, but as you stated, when you go big, you go. Being able to pace myself has taught me to stop looking too far ahead and start focusing on the small goals and important everyday things that make life worth living. Like food and no holes clothes.

    • Melanie says:

      Nice work on pacing yourself. I didn’t have the same restraint. It’s important to prioritize debt repayment, with other goals like life, savings, etc.

  12. I really appreciate your sharing this, Melanie. I do think it’s important to question the all-or-nothing mentality in debt repayment and finances in general. This stuff is complicated, and all of us have competing values and priorities that interact with our desire to pay off debt and/or save money. I’m reevaluating all of this myself right now: while I’m motivated to pay off my debt quickly, I’m not sure that an all-or-nothing approach is the best one for me.

    I hope you won’t be too hard on yourself — it’s a big adjustment to go from being in debt to being debt-free (I imagine!), and it makes sense that there would be a transitionary period. I’m sure you will figure out more strategies/solutions as you go along.
    Sarah Noelle @ The Yachtless recently posted…Notes from the BusMy Profile

    • Melanie says:

      It’s been a huge adjustment! I’ve been in debt my whole adult life. You are so right about competing priorities and values. I was all in, but it hurt me in the long run.

  13. Tyler says:

    Thanks for sharing this Melanie. I’m currently in the all in zone of paying off my debt. I’m so focused on working on my side hustles and cutting costs that everything else seems to fade into the background. I’m now making a significant (at least what I consider significant) amount of income on the side and need to start being concerned with taxes and it terrifies me to think about. I have no idea what to do with the money, how much I need to save, whats a tax credit,deduction, etc. And it has as of late been keeping me up at night.

    Anyway thanks for this article it came at the perfect time for me.
    Tyler recently posted…Financial Independence, The Long WayMy Profile

    • Melanie says:

      Congrats on boosting your income! That’s awesome! I’d say start saving 25-30 percent at least. But talk to a tax professional if you really want an exact answer! It feels good to be making more money, but I wasn’t properly saving for taxes and had planned all of these big life changes, making it tough financially.

  14. AY says:

    Hi Melanie. I just started my own debt free journey blog. I am only just now starting to climb out of debt. It is inspiring to see how far you have come on your journey. I hope that I am able to inspire others the way you have inspired me.
    Love your blog!

    Mine is:
    if you just want another debt free journey blog to read! 🙂

  15. Isabella says:

    Right now it appears you are making some adjustments to the post-debt life. It will all shake out. I still say that getting out of debt as you did was fantastic. Even if you feel you are at ground zero, you are not! Being debt free will be a game changer. You will see! Debt is a burden, and you no longer have that burden. Don’t be too hard on yourself, Melanie!

    • Melanie says:

      Thanks, Isabella. I’ve been so hard on myself lately for so many reasons. I’m trying to change my thoughts to, “I’m doing the best I can.”

  16. Thanks for writing this. It felt a little weird being debt-free, like I had to constantly have a goal. I spent a lot of money after being debt free thinking that money that went towards it was free to spend. Now my husband and I have a goal to retire early (I’m personally aiming for 40), so that’s my new debt-free 😀
    Sarah Li Cain recently posted…Can Getting Rid of Stuff Make You Wealthy?My Profile

  17. Chonce says:

    This is such a valuable topic to discuss. Last year, I was extremely focused on paying down my debt and I threw everything I could toward it. By the end of the year, I had my car loan paid off but felt extremely trapped at my job and in other areas of my life because I practically had no savings and not much else to show for myself. That’s why this year, I and still working toward debt freedom but I slowed down on the intensity because I never want to experience that again if I can help it. While I don’t think it’s beneficial to try to focus on everything, I’m trying to find a healthy balance to pay attention to other areas of my finances.
    Chonce recently posted…Wedding Budget Review + PicturesMy Profile

    • Melanie says:

      Yeah, I just jumped the gun and decided to make all these changes right when I was debt free. I shot myself in the foot by having nothing substantial saved for all of these things and because of that haven’t made the progress I wanted. But things will settle down eventually. Balance is so hard for me, but I’m trying. 🙂

  18. One thing that really works for us as freelancers is paying ourselves a salary each month. We use a monthly budget and we rely on our salaries for income.

    And yes, I feel your pain about quarterly taxes. I pay so much it makes my head spin. Most people will never know what it’s like to write a huge check every month. The good thing is, you can lower your tax liability a ton if you start contributing to a pre-tax retirement account like a SEP IRA.

    • Melanie says:

      How does the salary work? Do you calculate it based on your expenses and what you want to save each month? I want to continue to save/invest a lot more. And do you just keep the rest in your business account then?

      I’m sure your tax bill is insane with your tax bracket! It’s insane. I’ll check out a SEP IRA.

  19. Jason Butler says:

    I’m glad you shared this. Taxes are something that I’m worried about a lot for next year. As my freelance income grows I know that I need to save more money, but its tough because I’m paying off the debt.
    Jason Butler recently posted…Where I’ve Been, Where I Am, Where I Want to GoMy Profile

    • Melanie says:

      Yeah, I kept thinking I was saving enough or I’d be able to replenish my tax fund later…and then kept getting hit by taxes. Ugh. Save more!

  20. Hannah says:

    +1 on Holly’s suggestion for a SEP-IRA.

    In recent years, Rob and I have not had consistent savings rate month over month. Instead, we aim to challenge ourselves on the income or expenses front for a few months to hit financial goals, and then allow ourselves to relax for a few months to hit other goals (like remodeling or traveling).

    When you write about money all the time, it’s tough to remember that money isn’t actually the goal.

    Also, I’m sorry that the Tax-Man cometh. Nobody likes to pay taxes, and it’s especially sucky because you’re hit with both sides of the payroll tax.

    • Melanie says:

      I like your strategy! I should just have a minimum I want to hit and anything over that is great. Freelance life is so unpredictable anyway. Yeah the SE tax hurts! Even though it’s frustrating, I know I’ll recover from this too.

  21. wise words! Being debt free is not the end. There are lots of tax tricks you can use and I hope you have a good CPA or tax strategist who is helping you out! Good luck on this journey. We are still in the paying off debt journey and can’t wait to be where you are!

  22. Thanks for sharing, Melanie! I understand going all in on goals. Finding balance is often tough.

    Honestly, I read this yesterday and have been thinking about it since. The one thing that kept coming to my mind is exactly what Holly mentioned. If you aren’t already utilizing the SEP IRA, you may want to consider it to lower your tax bill. If you are self-employed, you can deduct up to $53,000 annually. Again, thanks for sharing – sometimes it’s a hard thing to do.

    • Melanie says:

      I’m glad my post resonated with you! It’s tough to share, but I’ve been honest throughout this journey and wanted to let people know life after debt hasn’t been as easy or wonderful as I thought. I need to look into this SEP IRA!

  23. Thanks for sharing this!
    It helps put in perspective that the journey doesn’t end when we pay off our debt. It is a constant battle. While we can live life a little less stressed than someone covered up with debt, we still have to stay on the path.


  24. Thanks for your honesty and this heartfelt warning. I was just thinking about how some people would think we should have been more all-or-nothing about our debt than we were. I guess it’s easy to feel like you did something wrong because there are always different points of view out there. You did what you thought was best at the time and I admire that! Your tax situation does sound very frustrating!
    Kalie @ Pretend to Be Poor recently posted…Building a Bait Bee Hive: A Case Study in ThriftMy Profile

  25. Ouch! That hurts. It means you made money, but I still hate paying taxes. 🙁
    Catherine Alford recently posted…How to Make All Your Dreams for Your Family Come TrueMy Profile

  26. Lisa says:

    A side of debt repayment that isn’t talked about too often. When focusing on one goal, it can be difficult to neglect others. I’m trying to find balance in my budget so I’m not too gung-ho in one area over another. Thanks for sharing!
    Lisa recently posted…Identify Your ObstaclesMy Profile

  27. Beth says:

    I am so glad that I read this post. It was enlightening and educational. We get so caught up in killing our debt that we may be costing ourselves more money. Now after reading this I will probably always try and keep in mind every aspect of managing my money. Thanks for sharing!

  28. ZJ Thorne says:

    These fears are partially why I have not gone all in on my LLC. I’m easing into self-employment and learning how to handle those taxes. My W2 income is being directed to pay down debt, but also to invest. I will make less when I’m self-employed and I want to have a cushion so I don’t have to go back to the horrid w2 job. Balance helps a lot.
    ZJ Thorne recently posted…Net Worth Week 14My Profile

  29. Lovely post. The way you have detailed out your anguish and the quest to find the balance is honestly enlightening. When you are saddled with debt, and all you can think of is the light at the end of the tunnel, it is difficult to imagine that night-time is dark outside the tunnel as well. It is a good reality check.
    Aparna @ Elementum Money recently posted…Top 5 Spend Tracker AppsMy Profile

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