Debt

An Epiphany! How I plan to be debt free by Halloween

Truth time: Since I paid off my student loans, I’ve felt like a bit of a debt destruction fraud.

I slayed my student loans, yes, but I’ve had a car loan for the last 2.5 years.  I’ve justified the loan for two reasons. 1) I didn’t have the cash flow or the savings to buy the car when I needed to make the decision. Taking out a loan was my safe option living where I live, working where I work. 2) I was okay with the concept because the interest rate is incredibly low. 1%. I could easily justify putting my money elsewhere when my savings account was earning what my loan was charging me.

I’ve accepted that decision and I’m okay with it.

Today, I face a different decision. Hubs has leased his car for the last 3 years. He likes the car and we plan to keep it. If we follow the same path as last time, we’d take out a loan for the balance, the interest rate is still good and we’d ride that for the next 3 years.

But what if we did something different?

Since I got my car, I’ve been setting aside, $50/month to cover car expenses. My car is still relatively new, and we haven’t had to use this money. The account grows every month.

On top of that, we have an emergency fund. We’ve never had to use the money in this account. We’ve had it for years and the money sits there. We save a large portion of our take home pay and in that time, we’ve never had to touch this money. We’ve been able to cash flow any expenses that come. *Knock on wood*

What if we used this money to pay cash for Hubs’ car?

Between the two accounts as the accounts sit today, I’m $1500 short of being able to pay cash to cover the cost of the car and the estimated taxes and fees. I have 2 months to save and next month is a 3 paycheck month. That seems incredibly doable.

Then his car would be paid for, and my loan would be done in October.

Here is where things get extra exciting. My last scheduled payment is October. With just a little bit of effort, my favorite birthday milestone is only 3 weeks earlier. Debt free by my 31st birthday? HECK YES! (minus the mortgage of course!)

SWEET! Right?

The biggest down side of this plan is that it would leave us cash poor in the short term. Potentially, “I don’t even want to look at my bank account” cash poor. I’m a little nervous about the cash levels, but we still have a good buffer in our checking. I wouldn’t have my emergency fund and my car fund would be $0. But if we do this, we’ll have an extra $200 to save immediately plus an additional $400 in October. I can use that surplus to fill up the Emergency Fund back to a safer level. In addition, I’ll continue to put aside $50/month for car expenses.

This feels like the best thing to do right now.  I haven’t felt this excited about a financial plan in a long time.

Debt free is to be the way to be. Right?

Am I missing anything? Please poke holes in my plan.

Unexpected Benefits of Paying Off Debt

The last few years have been a serious financial boot camp.

Let’s start with a history.

  • In 2010, I started taking out student loans. I didn’t have a plan. Where do I sign for money?
  • In 2011, I started being conscious with my loans. I found a few PF blogs. I didn’t take out all I could. I tracked every penny I spent. I budgeted. I planned.
  • In 2012, I continued with my plan, but chose to take out as many loans as I could to cover my expenses for the foreseeable future. The 1% origination fees and little bit of interest were a price well paid for peace of mind.
  • In 2013, I graduated with a bunch of debt and no job prospects. I’m a horrible liar and I didn’t want to practice law. Interviews were a disaster. I searched my soul and networked like crazy. I had to figure this out.
  • In 2014, I figured out what I wanted to do. I landed a great job doing just that. After my first paycheck hit, it was time for my loans to die. I started this blog. Things got serious.
  • By early 2015, my loans were gone.

Most of the reasons for why I attacked my loans and paid them off aggressively were based in fear. I was scared of the statistics. I didn’t want these loans to follow me around for the rest of my life. I was sick of being in school forever. I wanted to distance myself from the reality that I’d been in school for my entire life. I was a little scarred that it took me so long to figure out what I wanted. I felt helpless and hopeless. Paying off my loans felt like something I could control. I didn’t want to feel helpless or hopeless again.

It’s been over a year now and I feel like I’ve successfully addressed my fears.

I am a statistic, but one of success. (Note: We are always statistics. It just matters what side of the statistic you are on.) My loans are gone. They only followed me for a year. I’ve moved on from school and I’m happy where I am.

These are all benefits I hoped to accomplish by ridding myself of my student loans. In addition to these benefits, I’ve found that there are a few I didn’t anticipate.

Here are three benefits I didn’t expect

1. Personal Finance 101

Paying off debt is a crash course in personal finance. I was alright with money before student loan destruction started rolling around in my head. Now, I would consider myself an expert. I know the pros and cons of different strategies. I know the ins and outs of various products. I can recommend different ways to save more or earn more. Even better, I act on most of my knowledge. I still have a few skeletons in my financial closet *AHEM* car loan *ahem* but I have a plan for it all and I’ve accepted my actions.

If it weren’t for my student loans pissing me off, it would have taken me years to figure all of this out. It would have taken even longer for me to put it all together. Thanks to reacting to my debt emergency, it all came together within roughly the same time it took my to be free of my loans!

2.  Saving Residuals

I had a big fire in my gut driving me to kill my student loans. It was a huge goal and I wanted it. I continually challenged my expenses and did a little work on my hustle to get that debt off my back. With all of this force behind my spending and saving habits, I was able to put significant sums of money toward being free.

After my loans were gone, I experienced an incredible residual effect. I still had the same amount of income but I no longer had that huge payment every month. I channeled all of that money into savings and became the bad ass saver I was meant to be. I maxed my IRA, gave my 401k a big bump and threw the rest into the House Fund.

Without a debt emergency, I wouldn’t have been able to minimize my expenses to the extent that I have and save this much. I save more than I thought I could and that’s coming from someone who claims to be a  saver by nature! By having and reacting to this debt, I know I’ve already come out ahead in the long run.

3. Unintentional Intentionality

By constantly examining my expenses, I had to make some tough choices. I challenged everything. That fine tooth comb got a lot of use. By closely examining my expenses, I was able to determine and prioritize what I actually want out of life. What do I want to spend money on? Where can I cut back? Hubs and I have cut back a lot and we are still happy. Actually, we are happier. We know where our money is going and its where we want it to go!

If I hadn’t faced my debt emergency, I wouldn’t have had to evaluate the life I’m living. I wouldn’t have made those decisions and I wouldn’t have realized that I’m happier on the other end.

 

In effect, I paid 50 grand for a crash course on personal finance, how to save a ton of dough and the ins and outs of intentional spending. Oh yea, and that degree. Sounds like 50 grand well spent.

 

Have you noticed any unintentional benefits of paying off debt?

A Year without Student Loans

Sunday marked the first anniversary of paying off my student loans. I’ve been thinking about this milestone since the new year. A year ago then, my debt repayment accelerated rapidly. It felt natural to reflect on what changed in the last year.

1. I’m in an unusual financial position. 

As a recent law grad, I’m expected to have student loans. I knew going into my payoff that I would be an anomaly, but it has been harder to face than I expected. I used to seek out the topic, but now the topic finds me.

At a gathering earlier this month, one of my fellow law grads brought up how he’s never had a lower net worth. He commented to our friend, a waitress, that she likely had a higher net worth that he and I do because of our student loan burdens. I didn’t correct him. His loans are his to bear. He’s a smart guy and I’m sure he’ll figure it out.

I don’t mind outsiders assuming I have an enormous debt burden because of my education. It helps my own frugality. However, it’s frustrating to have the presumption presented to my face. I can’t relate to the weight of their loans. It’s hard to talk about it with people that don’t want to do anything about it.  I haven’t found my place in where to talk about it with people who aren’t already planning to tackle their debt early.

2. Saving doesn’t feel as good as paying off debt. 

I hate to say this, but I enjoyed paying off my student loans.* When I graduated, $45,330 felt like an insurmountable sum. Every payment got me closer to something unbelievable. I didn’t think it was possible to do what I did, but I did it! Had I believed in myself earlier, I would have been done even sooner.

Paying off debt was an incredible confidence builder when it came to my money. I kept track of so many little details and nothing fell through the cracks. If I could manage that, I knew I could manage anything. I felt like a debt slaying warrior.

Saving doesn’t evoke the same feelings. The first few thousand were tough. I didn’t feel like I was getting anywhere with saving. It has been more fun as I stockpile more cash. The $20k and $25k milestones for the house fund had more weight than earlier accomplishments. Those felt like worthwhile savings amounts. I saved something! I’m excited to cross into $30k and $40k. Hopefully, I can get there before I buy a house. Starting over from zero is going to feel pretty cruddy.

*Hubs thinks I’m crazy for this. He hated paying off debt and loves saving. Each saving milestone brings him incredible joy. To be clear, I didn’t enjoy the debt; I enjoyed the journey.

3. Investing is where the fun is.

I was old for my grade and I stayed in school forever. I didn’t enter the working world until I was 27. Add to that, I had that pile of loans to address. I didn’t start actively investing until April 2015 at the prime old age of 28.5.

A lot of people may not sympathize with my tardiness to the investing game. So many start investing much later than I did. The problem for me was that I knew all along what I was missing. I knew about compound interest. I understood its power. Though, apparently I didn’t understand it enough to do anything about it.

Because of all this, I felt and still feel incredibly behind. Now with my student loans behind me and a small, low interest car loan (I can’t wait until this is done), I’ve been able to do something about my investing inadequacies.  I’ve maxed my IRA for the last 3 years. I’ve maxed my HSA for 2 years and I’ll max my 401k for the first time in 2016. Next year, Hubs and I will max out everything. That will be a glorious occasion.

I love investing because I can feel that I’m doing the right thing. I’m taking care of myself for today’s worries and tomorrow’s reality.

4. I’m in a better place now, on the road to a new end.

It’s easy, when paying off debt, to think of the payoff date as your end goal. It’s a great goal, but it should never be the end goal. For a while during my payoff, I was so focused on my payoff date, I believed my payoff date was the end goal. I’m here to tell you it’s not.

For the first 6-8 months after I was free, I struggled. I have no shame in admitting that I didn’t know where I wanted to go. I spent an incredible amount of time spinning my wheels, getting no where. Getting rid of my debt was a huge goal. When I accomplished it, I didn’t know what to do.  I played around with several ideas: minimalism, fitness, zero waste, early retirement. Less, more, less, more. None of these ideas filled the hole left behind by my drive to rid myself of student loans.

Today, I accept all of those pieces as a part of my next journey. I will never own 100 things, but I actively choose to own less. I will never be in amazing shape, but I choose to move more. I want to waste less and save more, a lot more.  I haven’t filled all the space yet, but I’m working on it.  The best news is that I’m more confident and at peace with myself than I’ve ever been.

 

I have no regrets about paying off my student loans. The process helped me learn a lot about myself and where I want to go. I’m excited about what the future holds.