Category: Debt Reduction

Hi EnLifers! I’m SO excited to share that my student loan is PAID OFF!! No more student loan debt for us!! We originally paid off my husband’s student loan back in 2018, so here we are three years later and mine is finally a done deal! After 19 years, it feels good to be completely done. I know 19 years seems like a long time, but for some, it’s just the reality of circumstances.

For me, my student loan journey started in 1994 when I decided to attend a four year university 2-3 hours from home, but still out of state. I received an academic scholarship, however it covered tuition only, and little did I know (first college graduate in my family), there were other things like room and board, fees, etc that needed to be paid as well. The school roughly cost about $25,000 per year, however between my academic scholarship and federal financial aid, my cost per year in the form of a student loan would be $2000 – a total of $8,000 at the end of college (instead of $100,000). Seemingly manageable right? Well, life threw some curveballs and I made decisions that in hindsight, I’m not sure I would make if I had all of the information I have now.  The first was a round of summer school, which at the time, I thought was cost neutral because I had dropped a class and thought I had a credit to take it in summer. Not so. Lesson learned and it set me back about another $8000 if I remember correctly. The second, I probably would do again-it was for foreign study. However, it cost an additional $10,000 in tuition that was NOT covered by my scholarship and I took out a private loan to cover it which is probably what I would’ve changed if anything. THEN I decided to stay a 5^th year which was NOT covered by my scholarship, so I racked up another $20,000 in student debt. I was able to save a little money by living off campus. So at the end of college, instead of owing $8000 in student loans, I owed roughly $46,000.

I took a gap year to work and figure out my career trajectory. I was working in healthcare and always wanted to open a clinic for the uninsured, so I decided to pursue a career in healthcare administration by first attending graduate school. Cha-ching! More debt. This time, I was able to get graduate assistantships that reduced my tuition a little, but by this time, I had real bills like rent, a car, and paying my grandmother’s health insurance. Oh and those first two student loans, but at least the federal one was deferred while I was in school. The private one demanded I pay them, so I had that bill too. To help afford living expenses in addition to tuition, I took out an additional $ $25,000 in loans for graduate school.

If you’re counting with me, that’s about $71,000 of student loans. My first professional job – $39,000. Which to me was great! But not so great, when the student loan bill came in for $600/month! That was only slightly less than what I was paying in rent. As a result, I forbore my loans based on low income. After a couple years, my income increased some, however I still couldn’t afford the payments. To make the payments more manageable, I consolidated the loans (undergrad and grad) into one loan and put it on a 25 year graduated payment plan. Unfortunately, the private student loan company started applying variable interest rates to my loan making the payments unpredictable (maybe I’ll write on that lesson later), so I used one of my credit cards with a 0% balance transfer to absorb that loan and stop the volatile money hemorrhage. So in reality, I started paying my loans on a consistent basis in 2004 and the amount due increased over the years as my income increased.

In 2018, I’d paid the loan down to about $25,000 and my employer approved a performance and retention based student loan repayment for the balance in exchange for a service agreement that I’d stay in the position for three years. My employer made the payments directly, so I was able to delete the payments from my monthly spend plan and increase cash flow in other areas for three years. The three years ended in early 2021 and due to interest and taxes, I still owed about $1700 which I gladly paid in one lump sum. And now, I’m done!

I hope my student loan journey resonates with you or someone you know.  Please know that it is possible to get it paid off even amidst non-ideal circumstances and there are options available to help-that’s another post.  Have any of you paid off your student loan? How did you do it? EnLifers want to know!

Until Next Time….

MK

Hi EnLifers!! It’s tax season!! Exactly 9 days left to get those taxes in! I have had one heck of an experience myself as I pretty much had to handle payroll taxes for the nanny we had in 2017. That included having to develop and submit my first W-2 (exciting) and filing end of year employer state tax reports! I feel very accomplished having completed such a feat without a professional! On the other end, we did actually use a tax professional to actually prepare our personal taxes this year and they are now complete and I’m happy to report that we received an unexpected hefty refund-$10K to be exact. Now the question is what to do?, what to do?, what to do?  We could go on a luxurious vacation, replace the deteriorated deck at our house (or any other number of needed house projects), save it for emergency funds, pay off a debt, or invest it. How does one make decisions like these? Ultimately, I think it is a personal preference, but here’s how I’m making the choice.  My main financial goal is financial independence so that I can explore and pursue various life interests and decrease stress. As I think about what might get me closer to that goal sooner than later, the two options that make the most sense to me are either paying off debt or investing as both have the potential to produce cash flow or income. Technically, saving it for emergencies could produce a minimal amount if saved in a low yield accessible savings account, but right now, we’ve got an adequate emergency fund for now though I’m always happy to add to it when we can.

So now, what about investing or paying off debt?  Investing it could provide income in the future especially when you consider the compounding effect. According to smartasset.com, if we invested $10K for 10 years, assuming an average 5% growth, it would grow to $16,289 and double in 15 years to $20,789. Not too shabby! So what about the debt option?  At this point, thankfully we don’t have any credit card debt that we don’t pay off each month-basically we only use our credit card for the points. However, we have a fairly small mortgage and two student loans, one $14K and the other $25K for a total of $39K. Fortunately, the $25K one is being worked down via an employer-sponsored student loan repayment program beginning this year that won’t be complete for a few years provided continued employment, so it makes more sense to focus on the $14K one. Even if the repayment wasn’t on the table, I’d choose the $14K one also because 1) it has the highest interest rate of the two and 2) it’s the closest to $10K and would make the biggest dent. Right now, we pay ~$50 in interest per month which means it was more in previous years AND in previous years, we couldn’t even deduct the interest via taxes due to higher income levels. So that means we’re paying roughly $600 a year to have a $14K loan at this point. It’d be awesome if we could reduce that amount or better yet, completely eliminate it and do something else with it! That would free up some monthly cash flow AND we could even invest the interest that we would otherwise pay! According to the same calculator, if we started off investing the $50 monthly for May-December at a rate of 5%, we’d have $13,576 in 15 years! AND we wouldn’t have to worry about debt either and could maybe use the student loan payments to pay off our mortgage or even do some of the work around the house that we need like the new deck. It gets even better if we invest the actual student loan payments themselves, in 15 years, those monthly payments would grow to $48,492!! That’s crazy!! Ok-I’m getting giddy with all the possibilities!

So what to do? With all of the number crunching, it makes the most sense for us to pay off the debt-mainly because we’ve realized we just don’t like being in debt, but it also makes the most financial sense especially depending on what we decide to do with the cash flow it creates once the debt is paid off. It’ll take us a little while to pay off the additional $4K, but we’re leaning toward just taking it out of our emergency fund and just knocking it out as we can pay our emergency fund back more quickly than we could pay off the loan using the same monthly allotment. On another note, getting deep into these numbers today really has me thinking about debt and the true cost of it. A lot of times, we get into debt to attain something we want now instead of waiting until we can actually afford to pay for it. I know for some, it makes sense-say for education or a home, but this all has me wondering what IF we did things differently? Just food for thought. Anyhow, so yeah-that’s it! I’m not excited that we overpaid taxes in 2017 as I’d prefer my $ in pocket throughout the year, but I’m glad for the tax windfall as it will allow us to do something we’ve been wanting to do for a while! Time to pay off some debt! I can’t wait!! What will you do with your tax refund if you get one? Would you do the same if you were in my shoes? Please share in the comments below!