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Do well in school.
Go to college.
Get a good job.
As a kid I heard those phrases all the time. One thing they didn’t tell me was how much debt I would have. When I graduated, I accumulated nearly $60,000 in debt. One common theme amongst personal finance bloggers is their journey from rags to riches. J.D. at Get Rich Slowly and Trent at The Simple Dollar battled through their debt.
When I first started this blog I didn’t consider myself to have a backstory of struggling through debt. I never got myself in trouble with consumer credit card debt, and for the most part, my spending was under control. The only debt that I’ve ever had to my name is my student loans. Today I’m taking a stance against my student loans.
Just Set It and Forget It
When I graduated, I set up automatic payments for my student loans. Each month they would deduct around $500 from my checking account. I figured it was a done deal. There’s only one problem with this. It’s $500!
I could do a lot with $500. Saving for a down payment, saving for a vacation, saving for a wedding (hey, it’s going to happen sooner or later, right?). The bottom line is $500 represents a significant portion of my budget each month.
A Breakdown of My Loans
Currently I have a total of six outstanding loans. Four of them are 6.55% fixed loans for a total of $17,868. One is 4.55% fixed for $2,440.75. And the grand-daddy loan is for $38.132.95, which fortunately has a rate of 2.230% variable. For now, I’m going to focus on only killing off the 6.55% and 4.55% loans. While the sound of “debt-free” sounds much more attractive than “debt-free except for this $38,000 minor detail”, I’m confident I can invest the money and get better returns than 2.230%.
5 Ways I Will Fight My Student Debt
To drive towards my goal of being debt free, I need to make fairly significant spending changes to my life. Here are 5 ways I’m going to change my spending habits to fight my student loans.
- I’m going to start a debt snowball starting with my highest interest rate first. Fortunately for me, my highest interest rates also happen to be my lowest balances. I am going to first start with my 6.55% loans. As I begin paying them off one by one, I will add the savings to my snowball to kill off the other loans much faster.
- I’m going to cut my eating expenses and add the savings to my snowball. I currently eat out on average at least 2-3 times a week. And I know this is extravagant, but it has always fit within the means of my budget. Well, I’m going to change this. I’m going to reduce my budget for food and put that towards my debt. I will also be putting a food tax on myself.
- I will throw any windfalls towards my debt. Any windfall I receive, I will make sure that a portion of that goes towards my debt snowball.
- I will cut back on my investments while I’m paying off the 6.55% loans. Since 6.55% would be a decent return for any investor, I’m willing to reduce my contributions to my investments while I pay off my high interest loans. To be clear, however, I will keep my 401(k) contributions and ROTH IRA contributions exactly where they are. I am merely reducing my personal investments.
- I will let all of you hold me accountable. I plan to keep all of you updated about my progress. Any success I have, or any setbacks I may come across, but I hope that you help me along my journey.
I Would Love to Hear Your Thoughts
Many of you may have already won your wars with debt. Or maybe, you’re on your way to victory. Wherever you are in your journey, I would love to hear your story.
(Photo credit: tomsaint)
Update: This article was included in the Carnival of Money Stories over at Sweating the Big Stuff.
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When it come to my student loans for grad school, I was faced with an amount much different than undergrad. That was my personal eye opener. It took about 5 years, but the I got the loans paid off. This was really my first experience with any kind of real debt. I couldn’t stand it. Correspondingly, I bought a vehicle with a 3 year loan, toward the end of the school loan. I just thought it was normal, but I couldn’t stand making those payments.
When most people you know do that, and you’re conditioned to think it’s just the way things are, you might be like me and think it’s just part of paying your dues, so to speak. I thought that way, but really didn’t like it. I was otherwise responsible, focused on career and saving. But I was to some degree shooting myself in the foot by borrowing.
To me, it felt like I was a slave to entities that lent me the money. That feeling of disliking owing people something, being indebted, prompted me to decide to try to avoide that if possible in the future. As I have explored personal finance more, I realize that it’s perfectly normal to avoid debt in this way. Not only that, it’s prudent. It comes down to following the path I felt best about it my gut, and realizing that many others take the same approach, and for good reason – it prevents destruction of wealth, and facilitates creation of it.
Might be a longer answer than you were looking for, but that’s been my evolution when it comes to debt and loans!
Well said my friend! I fell in the same boat as you. As I was going through school I just didn’t really think about it. I figured it was just part of the process of getting my degree. Looking back now I realize I should have been much more proactive about getting various scholarships.
Seeing people in debt can be both positive and negative. If you look at the people that are currently in the rat-race you can use that as a motivation to avoid it. This is how I feel.
You talk about not wanting to be a slave to the entities that lent you the money, and I couldn’t agree more! This is the very reason why a part of me wants to pay off my entire student loans ASAP. It’s draining to watch $500 get deducted out of my account every month. My hope is that once I pay my loans off they will be the last non-mortgage debt that I’ll ever have! Now that’s an encouraging thought
Thanks for your advice Squirrelers. I like the way you think.
Good luck!!! It sounds like you have the passion to succeed. I, too, graduated with student loan debt (~$31K) – and I hate it…loathe it…despise it…
My friends and family say, “Don’t worry about it, it’s like a car payment – it’ll always be there. Besides, it’s good debt.” That just inspires me more to prove them wrong – I want the debt GONE NOW!
@Dolla Thug – Good luck to you as well! I’m working hard to make sure it’s gone now as well. It wasn’t an easy decision to make because I wanted to be able to live in the moment, and spend my money now, but I’m overall glad that I’m working towards it. I wish you luck towards your goal of getting rid of your debt as well! Hopefully we can both celebrate once we get there
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