On Debt and Making Choices
Today is an important personal milestone. This day marks the final payment made to Wellsfargo on my remaining private student loans. With this payment I have no more private student loans to pay back and only a little over $15,000 in federal loans left. In July 2005, I made a committment to pay off my student loans as early as possible. Since July 2005, I have paid off almost $50,000 (~$35,000 with Iowa Student Loan and ~$15,000 with Wellsfargo) in private student loans, a $9,000 car loan, and over $9,000 in federal consolidated loans. I wanted to talk about the things I have learned along the way and the choices I made.
I made a choice not to live by the monthly payment. I don’t know if this will make sense, but I felt like I was working for my lenders and not myself. I easily saw how every month the loan payments would be deducted from my bank account. Finally it got to a point where I just decided enough was enough and that I wanted to feel like I was actually working for myself and not my lenders. With every extra payment I made, I could feel myself getting closer to being able to work for myself.
I made a choice not to purchase a house. This is probably the best and biggest decision I have made so far for a number of reasons. I realized if I purchased a house, I would not be able to get rid of my debt as quickly as possible. Additionally, purchasing a house would give me less flexibility to pursue goals like travel or moving to another city. Plus with the monthly expense of a house payment, I would become stuck on just paying the minimum on my student loans. This is something I wanted to avoid. In late 2005 and through out 2006, some people even told me I should purchase a house. I kept to my guns and said I am paying off my loans first and then deciding what to do. Looking back, seeing the housing crisis, and understanding how things have turned out, it looks like I have no reason to regret not buying a house. I will say I was tempted by the $8,000 tax credit to buy a house in 2009, but I evaluated the ownership costs of a house, the loss of flexibility which I still highly value, and came to the conclusion that it would be better to finish paying off the rest of my student (federal) loans.
I made a choice to be transparent about my goal of paying back the loans. I think this is one of the biggest things a person can do if they want to really pay off their debts – be open and honest about your plan to pay off debt. Tell your friends, family , and co-workers. I made everyone aware of what I was trying to do, why I wasn’t going to buy a house, and the reasons for being frugal. My family supported me by letting me drive one of their cars until 2007 (in which I then purchased my own vehicle). I was open with my friends regarding my debt payments and why I could or could not afford to come hang out at certain times. With my co-workers, I was always given a “hard” (all in good fun) time about being frugal, but in my mind this just re-enforced that I was doing the right thing for me.
Debt is a very personal subject. For most people, debt is a personal subject that is not discussed outside their immediate inner circle. People are non-transparent about it. I think this is mainly because debt is a reflection of who we are as a person and how we handle our money. I realize debt is not bad and that it can help fulfill a person’s goals, but when debt become such that it gets in the way of those goals, then you have to start to question how best to address that debt. If I had to do it all over again, I would have definitely taken out less in student loans and paid more of my expenses on my own dollar at the time.
Debt eliminates flexibility. People come up with many reasons why they can’t do something or obtain their goals. Usually, the reason involves debt and why they can not stop working or why they can not lose any of their current income. Maybe you are in a job that you absolutely hate, but need the income because of your debts. You either need to figure out how to live cheaper and be able to move to a job you like or you stay in your current situation to maintain the comfortable lifestyle and keep making the payments on your debt. For my own personal goals of travel and living overseas, I personally am not comfortable having the level of debt and being able to do those goals at the same time. This was also another reason I decided not to purchase a house was because it would lock me to settling down when I wasn’t fully ready.
Debt can not usually be eliminated over night. It takes time to build up debt and it will take time to pay off the debt even with making extra payments. The thing that I found that worked best for me was to focus on paying off individual loans with a lender and then moving on to the next loan. It was also interesting seeing how much my minimum monthly payment changed as loans became paid in full. The power of seeing more minimum payment applied to the principle balance was even more encouraging.
I think the final and most important lesson learned was to not stop having fun even while I was making extra payments on my debt. Now I was lucky in the sense that I was a consultant for most of the past 5 years, traveled a lot, and was able to build up some frequent flier and guest points which allowed me to travel for a very low cost. Additionally, I was helped by the fact when I traveled for business all my expenses were paid for. You may not be in the same situation as I was. Even when I didn’t travel, I planned ahead and set a little money aside for trips I knew were coming up and wanted to take. This might have meant paying a little less on my extra payments so I could do this. I was able to go to places like New Zealand, Hawaii, Las Vegas, and India even while I was paying off my debt. I was able get SCUBA certified and to purchase a new bicycle, a new camera, new laptop, and a used car (which I own now) during the same period. So it was not like I wasn’t having fun or buying things. Granted, I found ways to do these things cheaply. I highly encourage you to do the same as long as the fun things you plan for does not cause you to go into more debt.
Debt has taught me to carefully evaluate purchasing decisions. Someday, I might eventually want to get my MBA, however, I am unwilling to go thousands of dollars into debt to get this degree especially since I will have completely paid off my undergraduate loans. This is why if I do go back, I will consider going to school overseas where it is cheaper and still highly respected. I also factored in the cost of debt and losing the flexibility of which I value greatly when I looked at purchasing a house. I decided it is still not the right time for me to purchase a house.
The Way Forward:
I feel like I am at the home stretch of finally being rid of debt completely. I have put together a plan of making payments of $1500 per month towards my remaining debt starting in August 2009. In July 2009, I will purchase some more travel and biking gear and a digital SLR camera and lens that I have wanted for a long time. These purchases will support my hobbies and interests and I have no problem taking a month off from making extra payments to my student loans. If I am lucky, in July, I will still be able to make a small extra payment. I will once again carefully evaluate expenses and activities during the next 10-12 months and look to make changes where possible. The biggest change for me so far in 2009 has been the cutting of my domestic air travel.
If you have success stories or suggestions about paying off debt, please feel free to post in the comments!
As for me, I look forward to the day when I am finally liberated from having any debt to worry about and can truly work for myself.