Like most middle-class babies of the 80’s and 90’s, Regan and I financed our college educations with student aid. You name it, we accepted it: scholarships, grants, work/study, and the dreaded L-word, loans. (Hey – it turns out, COLLEGE IS EXPENSIVE, Y’ALL.) We graduated into the recession of 2009 with a total of 2 degrees each and overwhelming financial responsibilities ($70K worth of loans + $8k worth of credit cards and a car note) looming in the post grace-period future of student loan repayment. It was intimidating, to say the least.
We were not alone. According to the May 2013 article, “A Generation Hobbled By The Soaring Cost of College,” the Department of Education reported that nearly 2/3 of 2007-8 graduates financed their newly-earned bachelor’s degrees with some form of aid, whether federal or private. Just google “crippling student loan debt,” and you’ll find several reputable news sources (The Guardian, Boston Globe, NY Times, and Salon.com, to name a few) with heart-wrenching articles about recent graduates with more than $100K in student loan debt who face either unemployment or underemployment. It’s clear that there is a problem and plenty to be anxious about.
While our story contains plenty moments of doubt and anxiety, it also contains victory. In June of this past year, we made our last student loan payment and are officially debt-free after 4.5 years! Seriously, we paid 10 years worth of debt off in FOUR.POINT.FIVE. It was rough, but I’m so glad that it’s over, and I want to share how others can do so, too. There wasn’t a magic formula, though. It took a lot of hard work, perseverance, and luck. Everyone’s timeline will look different depending on your debt, earnings, and what you can and can’t sacrifice. (I’ll touch on it here, but I’ll talk more about sacrifice in my next post!)
While I was in school, particularly graduate school, I read several personal finance articles, mostly on msn.com, about repaying debt. It didn’t matter to me whether it was student loans, credit cards, medical bills, or a mortgage; debt was debt. When we graduated, we moved to a suburb of Houston, and several members of our church were big into Dave Ramsey. So, we bought his book “Financial Peace: Revisited.” Which brings us to…
Embrace the Debt Snowball
Both Dave Ramsey’s book and the aforementioned articles encouraged us to do a “debt snowball” where you start with your smallest, highest-interest debt, and make aggressive payments on that while making minimum payments on the rest of your debt. Then, when you pay that little loan off, you roll those extra payments onto the next and so on until you’re debt-free. Sounds easy, right? It was at first. We each had a small loan of $1000, our credit card debt was less than $2k, and our car note was about $6k. We started making $50 minimum payments on my $1000 loan while we were in school, so it was somewhere in the $700’s when we graduated. We still had our grace period with our bigger loans, so it was pretty easy to kiss that payment good-bye in 1 big payment. The rush was unbelievable, and gave us the motivation to quickly knock out Regan’s $1000 loan and our credit card. The car note took a little longer, but we had that paid off by the time our student loans went into repayment mode. Those were quite a bit more and took longer to pay off. Which leads me to my next point:
Embrace a Marathon Mindset
One criticism that I do have about Dave’s program is that he encourages you to approach your repayment like a sprint. That may work for some people, but we found that we needed to approach it more like a marathon. I’ve never run a marathon, but the research I have done says that you need to slow your pace down. While you want a fast time and a PR, it’s not reasonable to expect to maintain a 400M dash or 5K pace the whole 26+ miles. You gotta slow it down a notch or two so you don’t burn out or hurt yourself. However, much like the slow runner’s workout mantra “Whether it’s a 5 minute mile or a 15 minute mile, it’s still a mile,” you have to go the pace that fits with your race. We actually wanted to pay off our debt in 3.5-4 years, and we had some personal things come up that affected our pace and resulted in us paying it off in 4.5 years. There were times when we were able to sprint, and times when we were lucky to keep putting one foot in front of the other in a slow jog, so to speak. So, keep that in mind when you get to the bigger loans. It’s going to take you longer, and that’s OK. However, do make sure to:
Set Smaller Sub-Goals and Reward Yourself (Within Reason) When You Reach Them
We got robbed 6 months after moving to Houston. Thankfully we weren’t there when it happened, but it left us with a horrible, violated feeling. True to form, we coped with self-deprecating humor, joking that they must have expected nicer things for the effort of breaking into our apartment. We had one of those 14″ (that’s right, INCH) combo TV’s with not only a DVD player, BUT A VCR. And yes, we still had the VHS tapes to go with it! This was in 2009, by the way. There was no flat-screen TV, blu-ray player, high-end gaming system, or Bose speakers to be found. Just our severely out-of-date TV and VHS tapes. So, after moving to a new apartment for our peace of mind, we celebrated paying off Regan’s loan by treating ourselves to a flat-screen TV and blu-ray player. We saved by getting an older model of both, so it didn’t break the bank or anything, but it was enough to where we had something tangible for our efforts for the big pay-off of his loan. Yes, it was slightly frivolous, but it gave us the steam to plow forward and make more big payments without feeling deprived.
Sacrifice, Sacrifice, Sacrifice!
We made A LOT of sacrifices to pay off our debt. Some were little sacrifices, and some were rather large. There were also things that we weren’t willing to sacrifice. I’ll talk more about those sacrifices in another post. I do want to leave you with the fact that the sacrifices, while hard, were definitely worth it in the end.
What about you? What are your debt-repayment “Do’s”?