I am striving to regain control of my personal finances. That starts with eliminating debt, as soon as possible. My number one financial priority in 2018 was paying down student loan debt. This made 2018 the year of crushing student loan debt.
Backing Up A Bit
Student loan debt sucks. Unfortunately, it isn’t clear how crappy it is from the start. They should have the equivalent of a Surgeon General warning, like that on tobacco products. Perhaps:
- The true weight of student loan debt isn’t felt until the repayment period starts
- Student loan debt doesn’t die with you, co-signers beware
- Bankruptcy doesn’t protect you from student loan debt
Or better yet, everyone taking out more than $10,000 in student loans should be required to speak with a certified and unbiased counselor to explain the full financial impacts of taking on student loan debt.
This already is a practice with reverse mortgage applications. Those seeking a reverse mortgage must complete counseling from a government-approved agency prior to completing their application. The counselor’s job is to layout the facts, not persuade the applicant in either direction.
Don’t get me wrong. I understand a higher education is necessary in many industries and borrowing money to attain the education may be the only way. However, it would be beneficial to provide training on the impacts student loan debt has to the student’s future personal finances.
Knowledge is power and with a better understanding of the true weight of student loan debt, students would be more cautious with their funds.
Debt Snowball and Avalanche Methods
Dale from My Best Friend The Money Guy lays out the differences between these two methods well in his Debt Snowball vs. Debt Avalanche post. In short, debt snowball means you throw everything financially you can at your lowest principle balance, and pay the minimum amount on all other debt. Once the smallest debt is paid off, you take the whole amount you were paying on the first debt and roll it into the payment of the debt with the next smallest principle. Repeat this cycle until you are debt free.
The debt avalanche works the same way, except instead of focusing on the lowest principle, you focus on the debt with the highest interest rate. The debt avalanche makes the most financial sense but the debt snowball makes the most emotional sense.
There is a lot of unnecessary debate over this. Both will get you to the same place. I recommend using the method that best fits your personality type, or try a hybrid approach.
My Debt Pay Down Method
I subscribe to a slight hybrid approach to debt snowball and avalanche. I attacked our smallest principle debt first with fury. After that, I moved onto our highest interest debt. I wanted the quick win, but more importantly I wanted the extra cushion.
The larger the gap between the required minimum and the extra principle payment, the more comfort in knowing there is access to a mini-emergency fund. By knocking out the smallest debt, a required minimum is gone and then any time a water heater goes out, the extra student loan payment can be reduced to handle it.
This is my crushing student loan debt plan. To get started, my wife and I agreed on a set payment amount each month. Communication is key! Every six months or so we ratchet up the payment amount a little bit to see if it hurts elsewhere. We don’t even notice the slight bumps in payments.
Student Loan Debt Summary
I’ll share a deeper dive into my student loan debt history a bit later. But just a quick few snippets.
I graduated from a four year university with around $35,000 in student loan debt. Through two stints to get her associates and bachelors, my wife racked up over $100,000 in student loan debt. She ended up rolling some personal expenses into her loans. That government-approved agency counseling would have been nice!
I paid down nearly all of my debt throughout the years before I started down the financial independence path. My first full year with a financial independence mindset start in January 2017 and at that time our combined student loan debt was $103,300.
Crushing Student Loan Debt
With all the background out of the way, let’s get into some recent numbers. I automate my expense tracking with Personal Capital and Mint. These tools are free and simple to use, but you really only need one. Understanding your expenses is essential to knowing what you need to cover in the future, if you ever plan to retire.
2017 – Student Loan Debt
- Beginning Balance: $103,300
- Ending Balance: $87,262
- Percent of After-Tax Expenses: 29
2018 – Student Loan Debt
- Beginning Balance: $87,262
- Ending Balance: $62,906
- Percent of After-Tax Expenses: 33
While the principle balance going down is super exciting, my favorite view is the percentage of expenses. It is bitter sweet knowing that a third of the money that hit my bank accounts in 2018 went to crushing student loan debt.
Bitter in knowing my family is paying someone else a crazy amount of money for only the guaranteed return of the interest on the debt. But sweet in knowing with a bit of planning, communication and hard work, we are definitely getting closer to financial independence.
As I mentioned in my first ever post, The Couch is on FIRE, my wife and I don’t make an absurd amount of money. Even so, if we implemented more frugal options, we could be crushing student loan debt faster.
However, we strive to balance living for today while providing for the future. We’ve cut what we are willing to cut. Also, our next two highest expenses were our mortgage (including escrow) and daycare for our two kids at 22% and 15% respectively.
Even more exciting, in two to three years’ time, nearly 50% of my family’s current expenses will be gone. But it will be another bitter sweet moment because both of our kids will be in kindergarten.
Maybe I’ll start counseling them on student loan debt then.