It's a big day for me today. I no longer have any student loans!! Way back in 2009 I graduated with a Bachelor of Science degree in Meteorology and with my 8 X 11 piece of paper, I had roughly $25,000 in student loan debt. At the time, I had two loans. One was around $8,000 with a high interest rate of about 5.50% and the other was about $17,000 and an interest rate of 2.25%.
Luckily I had about $15,000 in savings so I paid off the $8,000 loan the week after I graduated. The loan never accrued any of that high interest since it was deferred until 6 months after graduation and it was a huge relief to get that off my shoulders. The other loan however, I have been paying on for 6 years... holy cow, that's a long time!
With such a low interest rate, and the tax write off come March/April every year, I decided to use my hard earned cash to start investing. I've talked about my early investing habits briefly on my About Me page but needless to say, I'm glad I invested instead of paying it off. I might have never been to where I am today, reading blogs on investing, a Portfolio over $100,000 and overall, a great sense of satisfaction.
With that being said, it was time. It was time to get rid of the loan and lift some more weight off my shoulders. I never had a set plan on how to pay off the loan. Some months I would pay $500 towards it or some months I would just pay the monthly minimum of $77.07. About 3 months ago, I decided to start paying $1000 towards the loan per month. At that rate, I would have been able to pay the loan off by September of this coming year... Yes, if you did the math, I still had roughly $10,000 left on my loan in December 2014. Think about that, in 6 years, I only managed to pay off $7,000 on the loan and this included extra payments throughout the years. I had paid off enough of the loan to not make any payments until year 2018 haha. To this day, I still do not know exactly how long the loan was for but it does not matter anymore.... I'm Free from that debt!
The decision was an easy one. For the past 5 years, I was able to write off the interest on my taxes every year. On my 2014 taxes however, my wife and I combined now make more than the threshold to receive that benefit. I started paying $1000 per month but the next bill came in and I am tired of it. I looked in our savings account, realized that we have enough in there currently to pay it off, so that's what we are going to do. My wife is all on board even though we will be down to roughly $3000 in savings (our lowest total ever) but she came into this marriage with no debt of her own so she is ready to get rid of it. This only leaves us with our mortgage to pay off! I'll have a post coming up in a week or two to discuss the mortgage more in depth so stay tuned for that.
So there you have it, no more student loans! $8,000 poorer than we were yesterday but the weight over our heads is that much lighter!
So what do you think? Would you have done the same or would you have continued to invest instead?
Hi ADD, great move to get rid of non-functional debt. Sure you can make the financials to work (make 5%+ in REIT stocks and pay lower interests on loans) - however when bringing the emotional burden of loan-slavery into the equation I would have done exactly the same and just get rid of the debt. I am in a similar process getting rid of my mortgage - I can make 10% contributions without penalty costs so still 8 to go :-)
ReplyDeleteDCG
You said it right. The emotional burden of loan slavery definitely outweighs the financial aspect of it all. The relief of not having that monthly bill over my head for a number of more years is a great feeling. Our mortgage is next! Good luck to you paying off the mortgage!
DeleteCongrats ADD. Getting rid of a loan is a great relief and instantly improves the cash flow each month. I have an auto loan that I am paying right now ($650/month), and have close to 3.5 years left on it. But I am not paying more than needed since the interest rate on it is so low (1.9%) that I don't want to pay it off. But when I do pay it off, it will definitely be a great feeling and would have an extra $650/month for investing. So once again, congrats.
ReplyDeleteAlso, you are NOT $8,000 poorer compared to yesterday since the loans were negatively affecting your net worth anyway.
DGJ
Good luck on paying down the auto loan! I have been fortunate enough that I have never had a car payment. Once that's paid off though, your investing will get a nice boost! I won't have quite that much of a boost to my investing in the short term because I would like to build our emergency fund back up a little bit.
DeleteYou are correct about the being poorer part, I need to reword that.
Thanks for stopping by!
ADD
ReplyDeleteGreat Job, keep going to FI :-)
Thank you FF! I'll certainly try my best!
DeleteCongrats on the student loan payoff. I now have a similar balance as what you paid off, and I have the cash to pay it off(I've been paying for almost 10yrs). I'm either going to call them and try to negotiate a final lumpsum payoff payment(since they've made so much off me in interest), or I'm planning on signing up for a flyer miles credit card so that I can at least earn point on that lump sum payment.
ReplyDeleteI don't think my student loan had the option to pay it off with a credit card to earn points but I totally would have if I had that option. Awesome job having the cash to pay it off! I had been paying on it for years as well just because it was like free money to invest.. Tax breaks cancelled out the interest until my wife and I started making too much money. Then it was gone with the student loans for good!
DeleteKeep trucking friend
Have you heard of Dave Ramsey? look into his books you guys are doing great!
ReplyDeleteYes I have heard of him. He is a big advocate of getting out of all debt as quick as possible. Thanks for the kind words
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