Let’s talk about debt, baby

One of our goals for the year is to pay off debt. I’m not even sure where January went so fast, but we’ve already knocked down one huge item (of four) on the debt list. Jesse officially made his very last student loan payment two days ago!! This is a BIG deal, you guys. It took about 7 years total on this one loan (still only half of the average payback time), but we’ve only been serious about our debt for the last 2 years. Up until then, we were separately paying on our loans, making the minimum monthly payments at best. Jesse started paying back his student loan in 2007, and took a break on it when he got laid off from his job sometime in 2008. I asked him, “what even happens when you just stop paying?”, because obviously that is not ideal. But the reality is, the U.S. has over $1 trillion borrowed in federal student loans. I don’t know about you but from my point of reference, a trillion might as well be a google (the number, not the search engine), because I can’t really comprehend how much money that actually is. In 2014, more than one in eight people with student loans were in legal default, meaning they were unable to make on time payments for nine consecutive months. So, there are a ton of people dealing with this, who either:

a. Aren’t in a financial situation to be able to make minimum payments, or

b. Don’t understand or don’t care about the negative impacts that ignoring a loan will have long term.

Jesse was a little bit of both. Here’s his story:

So this is slightly embarrassing to admit but I have not always been great about financial matters. As a matter of fact, paying off my student loans is something that was unthinkable only 4 or 5 years ago. I graduated college in the spring of 2006 and moved to a new town shortly after. Needless to say, neither my income nor my financial acumen was up to snuff to “attack” my newly acquired debt fiasco.

After securing work I started my payoff (minimum payments only, of course) in mid-2007 at the tune of around 180 dollars a month. My principal balance was around 16 thousand dollars. I was fortunate to go to school at a very affordable university, Go Pokes!, and I was on scholarship for all but the last 2 years, of far too many for an undergraduate degree.

A lot of the embarrassment in the situation comes from the fact that I didn’t voluntarily approach repayment on my own but was somewhat forced into it when I realized (through several phone calls and letters in the mail) that I was far far behind on my payments. I had been in forbearance several times and even accrued a ding on my credit report for a balance over 120 days delinquent.

This is where the real problem for me was. I totally ignored and avoided the problem. I stuck my head in the sand thinking that it would go away, well it didn’t. The ding on my credit report was there when we bought our house. It’s gone now but it followed me for 7 years.

After I begrudgingly resumed repayment things were moderately on track for a year or two when out of the blue I was laid off from employment. I very quickly put the loans into deferral and went on with my business of enjoying unemployment for a period.

Fast forward another year or so after that and I found myself back in Wyoming (I missed the mountains). I was just starting a new job that offered the best income of my career thus-far and I began repayment on my loans again.

At this point I was of the opinion, as most other people out there, that I would always have debt. I had just accepted that was the way Americans live. I was making the minimum payments again (now up to 219 a month) and was prepared to just let that loan latch onto my financial future for pretty much forever.

Well then I met Kelly.

We clicked pretty much instantly and she was a peach for not judging me on my financials alone (I was into my checking account’s line of credit pretty much constantly). Things progressed and progressed and progressed… You get the idea, and before we knew it (actually about a year later) we decided to move in together. This was the turning point.

We both agreed that combining finances would be a good move as far as paying bills, so we started a joint account just for that purpose. We both contributed equal amounts to cover all our bills and the rest overflowed into our personal accounts so she could buy haircuts, clothes and other girly stuff and I could spend money on lots of beer, video games and bike stuff without feeling guilty either way.

(We eventually added budgets to our spending money too but that’s another post.)

It wasn’t too long after this that we really started to see a future forming for us (actually it was from when I first met her, but that’ll be our secret). Finances were always something that I just had to deal with but now, with Kelly, finances were something that we could get excited about and something that could allow us to create our own path to independence.

We started getting excited about debt payoff, something unfathomable to me just a year or so before that. We prioritized our budgets (I know right? The dreaded B word). My accounts started going from the negative column to the positive. Momentum was building and it was honestly… fun!

Well I’ll jump ahead to nowish because I’ve been rambling a bit, but here I am, I made my last student loan payment on Friday 1/30/15, (a date that will go down in infamy, for me at least). Over the past 18 months I have increased my payments from the minimum of $219 to $800 a month. I should mention here that I have been really fortunate to have ridiculously low interest rates on my loans, from .85% to just over 2.3%, what can I say, I went to school in the early 2000’s.

Of the $16,000 principal, I paid off 65% in the last two years and I’d estimate more like 80% in the past 4. I know this is a small number compared to a lot of people out there but it’s a huge victory for me considering where I was just a few years ago.

Now for the fun part, my car payment next month is going to be HUGE. Spoiler alert: I plan on having that knocked out by the end of ’15.

My student loan total started at $26,000 and at a higher interest rate (6.5%), GROSS. I was fortunate enough to find a steady job right out of school in 2010, and have been able to make monthly payments for the past 4 years. While it felt like I was doing well initially by making consistent payments, here’s how insane that higher interest is:

In the first 24 months of repayment, I was paying $210 a month, for a total of $5,040. That was BARELY covering the interest that I was accruing, because by December of 2012, my principal balance had only been reduced by $986. So in two years of minimum payments, I had knocked down my principal to $25,014.

Since then, I have been able to increase my income, my discipline, and my monthly debt payments. I am currently paying $1,200 a month toward my student loan, and my principal balance is down to $2,971. I should have it paid off by April.

So we’re super excited, and off to a good start. We’re also having to make some sacrifices to stay on track (we’ve already made the tough decisions to pass on a friend’s destination wedding in Jamaica this spring, as well as a vacation to Puerto Rico with other friends celebrating their 10 year anniversary). Sad faces. But we are doing our best to stay focused, and remember that suffering a little bit now to get out of debt will be so worth it.

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