We’re excited to share a new perspective in today’s interview with Laura. She just graduated from college a few years ago, and she’s in the throes of paying down student debt. And she’s rocking at it. But that’s not where her story begins… Her journey is an inspiring one, and one many of us (myself included!) can relate with. So we’ll let Laura take it from here!
Tell us your story.
The interesting part of my financial history starts when I entered college. I chose a private college and knew I would need student loans even after financial aid and scholarships. I was encouraged to take out the entire amount of federal student loans I qualified for, and I ended up doing that for all four years. I even ended up taking out a private student loan my senior year of college, which, looking back, was completely unnecessary. As a 17-year-old, I had no idea what I was getting into and wasn’t able to comprehend what all those loans meant in the future, so I relied on people who had had student loans before. They were telling me it wouldn’t be a problem after I graduated, so I took out the loans. The common advice I heard was, “It’s good debt! You’ll get a job and pay it off, no biggie.” Although it was meant in good faith, the advice made me feel like I was making a good decision to take out the loans, and I did not worry about my growing debt. I want to be clear — I’m not blaming them; it was my decisions that got me into this mess, but the conversation around student loans needs to change.
I graduated from college, got a good job right away, and moved away from all my family and friends. I traveled a lot, and I was going to be moving again in 8 months, so I didn’t try to get a support system where I lived. I was very lonely, so I shopped a lot. I told myself I’d rather be spending money than feeling sad. . . . This is obviously not the right attitude! Shopping is not going to solve any problems. I ended up getting into credit card debt, even though I was making more than I’d ever imagined right out of college and not even paying on student loans yet — that 6 month grace period. My wake-up call came when I got my student loan bills in the mail. Uh, what?? I was $40k in debt? I had to make $500 monthly payments starting soon? Whoa. That was when I got rid of the credit card debt — only about $700, thankfully, and I killed that debt monster in 1.5 months. That made me very happy! I have not been in credit card debt since then and will never be again. As I started to pay that $500/month, knowing I would be doing that for the next 10 years of my life, I realized how much of a drain it would be and how much it would impact my life. I was very frustrated with myself for getting into the debt situation.
How have you been able to slay $18k out of your Debt Monster so quickly?
Even though I was excited and proud that I got rid of the credit card debt, it did not translate into higher student loan payments. I kept paying just the minimum for another year-ish. Then in late 2013, I was frustrated and felt like I wasn’t getting anywhere. That was when I discovered personal finance blogs. Our Freaking Budget was the kick in the pants I needed. I developed an Excel spreadsheet to track my student loan balances, payments, amount of interest paid, and net worth. I then started to calculate how long it would take me to pay down the loan if I paid x much more — started with $50 extra, and slowly worked my way up to $2300 extra this month! I did not feel deprived making that payment. I was proud and excited because it was the last payment on my private student loan! I’m now around $22k in debt, $18k down from 3 years ago, even with dragging my feet for 2 of those years ($14k was paid just from May 2014 to May 2015). Tracking my balance and seeing it drop every month directly from my actions and good decisions was the best thing I did. I started viewing my monthly payments as challenges: can I pay more this month than last month?
And how do you plan on attacking the remaining $22k?
So this is going to be interesting. I recently accepted a position with a significantly lower salary in a city with a higher cost of living (gulp), but I think I should have the $22k gone in 2 years, hopefully less. I’ll get about $7k from selling my house and I’ll throw that at the debt, bringing me down to $15k. It will be disappointing to have to lower my payments, but I’m challenging myself to lower my monthly spending when I move, as I won’t have a car and the climate is fantastic (enjoying nature is free!). I will continue to read blogs and update my spreadsheet to keep me motivated. I plan to pick up another job when I’m adjusted, and 100% of that income will go to my debt. Even though this isn’t the best decision financially, it’s the best decision for where I am in life right now, and I will be happier, which is more important to me than shaving 3ish months off of debt repayment. And who knows! Maybe I’ll find a gold mine on a hike right away when I move (ha!).
What budgeting tools (apps, spreadsheets, strategies, etc.) are you using?
I have found that budgeting doesn’t work well for me, as much as I have tried to force it. That’s what made me feel deprived and constrained. Instead, I’m changing my mindset from no to yes. I’m not telling myself I can’t do such and such because of debt anymore. I’ve started to think about every dollar not spent as a dollar that’s enhancing my future by decreasing my debt and increasing my financial independence. For example, if I don’t spend the $60 budgeted for eating out, it’s not a free for all at the end of the month — it’s extra to my debt! It’s liberating for me, but I know it’s not for everyone. I still use tools, though. I have to track my spending, even though I don’t “budget.” I use Mint and the spreadsheet I’ve developed to track debt and payments, net worth, and monthly spending. I have a general spending guideline based on the Backwards Budgeting idea from OFB.
I also consider personal finance blogs to be indispensable tools. They have really been the catalyst to my debt repayment. I also read Budget Blonde, The Simple Dollar, Frugalwoods, and Mr. Money Mustache (MMM). Frugalwoods and MMM are pretty extreme for me, but still motivating.
Given your experiences, what advice would you give to students or soon-to-be students?
Well, if they’re already reading OFB, they’re miles ahead of me! First, please consider public college. Private colleges are expensive, and you can get just as good of an education at a public university. But I understand if you chose private — I don’t know your situation. Just be aware of the impact after college if you take out a lot of loans. Track your loan balances, including accruing interest, so you are aware of your situation and not shocked like I was. Really be aware of your spending — this is expensive money. You’ll still have a great time in college if you don’t spend like most of your classmates. Take a small amount of cash to the bars and leave the cards at home :). Alcohol and budgets don’t mix.
Take advice from others with a grain of salt. Ask more questions about their experiences with debt and their relationship with money. Think hard about your goals. Do you want to be able to take a job in a field you love if it pays very little? With debt, this generally won’t be possible.
If you’ve just graduated and are trying to pay down your debt, keep at it! Track your balances so you can see your hard work paying off (literally! :)). Be honest with yourself: are there areas in your life where you can cut out some spending? Think about debt repayment as working toward your dreams instead of holding you back now.
Any final words?
Contrary to what it may seem from the above, I do not consider student loan debt to be completely awful. Some debt may be necessary. I would not have been able to afford even public college without it. If you do take out loans, be conscientious and track your balances! That compounding interest is killer.
Thanks, Laura! It’s great to hear someone who went from feeling out of control to taking complete control of their finances. You’re on an awesome path. And that little bit of OFB love goes a long way in this house, so thank you for that. If you have any thoughts, high-fives, or commiserating about student loans (can’t we all relate?!) to offer Laura, feel free to leave it in the comments below!