Tuesday, December 26, 2017

My Debt Story

People of my generation are graduating college with piles of debt from their education. Is it worth it? Is it hurting us? Is it harming our economy? These are questions I ponder a lot.  In the world of personal finance, most of us have debt stories. This one's mine. 

I went to community college right out of high school for two years. At that time, the tuition and book costs were reasonable enough that my parents were able to pay cash each semester to pay for those school years. All the while I knew I'd be going to a more expensive university someday. 

Once I knew it would be Michigan State University I got to work figuring out how it would be paid for. Since my parents made enough money, I wasn't necessarily that academically or athletically talented, and I had no unique struggles in my background, no scholarships or grants were in my future. My parents had loans themselves to finance a chunk of my education.

Just at the same time I began taking on debt my dream to join the Peace Corps was born. Most of that time I wasn't sure if I could actually live that dream, due to my mounting debt. How can I go and live as a volunteer and still fulfill financial obligations after graduation? Then, a chance encounter with a waitress in Jackson appeased my fears. As luck would have it, her best friend had joined Peace Corps and she assured me that student loan debt could could be deferred during Peace Corps service. Once I learned this, my dream continued to blossom. 

That's just what happened. My loans were frozen with no interest accumulating for the entirety of my 26-month Peace Corps service. Once my service was complete, my first payment came due the very next month. At first, I had minimum payments of about $400 per month with a couple different loans. I didn't earn super high wages for a few years after Peace Corps so minimums were about all I could handle. Plus, I had living expenses of an independent, single woman. One who still liked to travel and have adventures.

Six years later, and about $35,000 paid, here I am now. DEBT FREE! 

Here's how I did it: 

I had one loan from a local community trust with a 2% interest rate. It had a five year term and I paid it off in four years. My second loan was a federal subsided loan with an interest rate of 6.5%. I plugged along on that one, but after about three years of payments I hadn't made a very substantial dent. My minimum payments were doing little more than feeding the interest.

When I got my job as Executive Director of Fitness Council of Jackson and I was making the highest salary of my life, I wanted to get much more aggressive with my loan payments.  I had a conversation with my dad that year where I expressed disdain at the fact that too much of my hard earned money would be going to interest instead of helping me get dug out. Then we made a decision that helped me get to where I am today. My dad made the incredible offer of paying off my loan in full and allowing me to pay him back with low interest. Since fall of 2014, my federal loan has been held with the Bank of Dad, at the reasonable interest rate of 2%. Then, we both felt better about the fact that my payments would whittle down the principle much faster.  We both can agree that our country has a huge problem with out of control interest rates and he didn't want to see me subject to suffering because of it. It shouldn't cost so much to finance an education.

Whenever I earned extra money, I threw it at my loans. Any side hustles, tax returns, or unexpected gifts went to dwindling those balances.

In summary:

Put extra money that you can live without toward your balances. Consolidate if you can. Pay down small loans and roll the amount you were paying on larger ones. Pay down ones with large interest rates. Find out if there is anyone in your life with the ability to pay off your balance and allow you to pay them at a reasonable interest rate. Live your life, do what makes you happy, don't stay home all the time, and live your dreams.

There are a couple of extremes with debt repayment. One being that a person does absolutely NOTHING for a period of time and spends every last dollar on loan repayment. Another being that a person pays minimum payments for decades, basically only feeding interest and never sees themselves out of debt. Myself, I went middle of the road. I knew I wanted to experience places and things, so I've been doing that. But, I also wanted to be a responsible adult and get out of debt as quickly as possible. I got to see the world, live my dreams, and reach my financial goals.