Student Loans: My Biggest and Best Mistake
I remember a conversation I had with my mom and uncle just after I had finished graduate school. I was looking over my massive student loan statements and praying that they weren't real. Both me and my mother had been searching for different options to try and have the loans forgiven, which means they magically disappear. I remember asking my uncle if he knew any of these programs that actually worked.
"Do you want to know the fastest and easiest way to get rid of your student loans," he asked me. I told him that of course I did.Thats when he dropped the wisest piece of knowledge I never wanted to hear. "Pay them off," was all he said and that was the end of the conversation.
I looked into several of the programs. There are options to work in a low income area doing some service work. The military also helps to repay student loans. There have even been programs to help eliminate student loan debt if you have made regular payments for 25 years.
25 years is a long time to have a student loan payment. I wasn't interested in that but it seemed like the only option. I opted for an income-based repayment schedule and settled back with my minimum monthly payment. After a few years I finally figured out that my minimum payment wasn't even covering the interest accruing on the loan. My student loans were growing even though I was not taking on more debt. That's when I had a financial mental breakdown.
1. Made me analyze my miserable financial state.
2. Made me start budgeting just so I could make the payments.
3. Made me understand what interest really is.
4. Made me learn about good debt and bad debt.
5. Helped gain interest investing and earning interest.
My wife and I were doing okay financially. She had even gotten me started doing a budget and expense tracking. We didn't spend too much on any one thing but taking a closer look we werewasting money on just about everything. Sometimes it was buying a new gadget. Other times it was eating out just because we were hungry and didn't want to spend a few minutes cooking. A lot of money was vanishing out of our pockets without much to show for it.
I didn't understand the importance of budgeting until we started doing it. It was funny how that extra money started showing up magically where it was supposed to be when we planned for it to be there. There's really no other way around it, no matter how careful you are with money, if you're not budgeting, you're gonna lose money
Compound interest had always been some abstract concept to me. Einstein called it the eighth wonder of the world and the most powerful force in the universe. If I hadn't had such massive loans I would have never understood that the interest that I paid to the loan company could someday work for me.
It is a terrible thing to watch your loans increase as interest compounds on something you owe. It is a wonderful thought to imagine how that same concept could work for you. A wise investment, even one made with good debt can reverse the process of that compound interest and increase your investment continuously.
I had always been taught to believe that the stock market was bad and that all investments were a gamble. Even before eliminating debt, if the potential gains are fairly secure and significantly greater than the interest paid on debts, it might be a good idea to begin investing. In other words I did participate in my 401k before I eliminated my debt. The debt I had helped me to examine investments and study the best ways to invest.
There really is such a thing as good debt and bad debt. Financing a flatscreen TV is bad debt. Taking out a mortgage on a piece of real estate that you plan to use as rental properties can be good debt if properly evaluated and executed. Student loan debt is controversial.
A degree in something of interest that has no potential for job placement is bad debt. In my case, I had a specific degree for a specific job that was quite marketable. My student loan debt, though massive, is good debt. My income is 100% a result of my formal education. I certainly could have been smarter about it but if I had it to do over, I would take out just as much loans if that was the only way to get the education I did.
Change the way you pay
1. Change income source
2. Budget like crazy
3. Pay yourself first
4. Make biweekly payments
5. Put any extra toward the loan
6. Get excited
There really is only one good way to get rid of student loans. You can't file bankruptcy. They still don't go away. That's probably a good thing or Sallie Mae might end up like Fannie Mae. Then no one could get a loan to go to college. No, the only way to get rid of it is to pay it off. It might be slow at first but hopefully you can speed up the progress as you go along.
I started out in a decent paying job for in a field that I really enjoyed. There were several other options for my degree but I felt that the experience was worth more than the increased pay in other fields. It probably was. When I decided to focus and really pay down my student loan debt, those reasons no longer applied.
I decided to seek a position in a rural location with, what I was told, a less desirable field of practice. Now that I already had some experience in my career field I was comfortable enough that I could tolerate another field with more income. As it turned out, I enjoyed the job and the location much better than the previous one anyway. Within a few years at my new position I was making much more money than previously but still not lowering my debt as much as when I really focused on budgeting.
By this time smart phones had evolved enough that budgeting and expense tracking could all be done on the phone, on the go. I could even sync my budget and expenses with my wife's. We really had no excuse anymore. Budgeting it's self was easy. The expense tracking took a bit of getting used to and still takes some work but the results are worth the effort. We found so much more money that we were wasting in other places which could now be applied to the student loan payment. That's when I started prioritizing it.
Pay your self first. I never heard that phrase until after I started reading up on investment and wealth building. Then I started hearing it everywhere. It applies to debt reduction just as much as investment. As debt decreases, net worth increases. A payment to my student loan is an initial form of investment. My payments to the lenders were payments to myself. My net worth goes up with every payment.
I get paid biweekly as do most salaried workers. If you count it up, there are two months where you'll get paid three paychecks. That extra paycheck doesn't need to go to your regular expenses if you do a monthly budget. That means you have an entire extra paycheck that can go toward your student loan payment. The same thing goes for any extra income. Selling something, bonuses and overtime shouldn't be used for worthless spending splurges when they can help you achieve your bigger goals even faster.
Finally, the most important thing that really helped me focus on paying down my student loans was the excitement. I didn't get excited about them at first. For a long time every time I checked the statement I felt depressed. Now when I see the figures go down every payment, I get a little thrill. I'm winning. It's a game and I am the sure winner now.
Don't wait for student loans to disappear. They won't. Take a systematic approach and attack them consistently. Don't let little thrills distract you and take your money elsewhere. If you can stay focused, you can pay them off. After this triumph you will have the knowledge to know how to make all that extra money work for you.