Should We Treat Ourselves While Destroying Our Student Loan Debt?

Recently I shared how intensely I think people should destroy their debt depending on what type of debt they have and the interest rate of the debt.

We’re pretty lucky that we didn’t have any of the worst types of debt, which include payday loans and credit cards.

However, as you may be aware of, we do have a mortgage and once had a lot of student loan debt left that we were working on paying off.

How serious are we about our different types of debt?

We decided to pay off our student loan debt as fast as possible. In fact, we paid off over $80,000 of student loan debt in less than three years.

That said, we have no intention to pay our mortgages off any faster than their 30 year terms.

While we were paying off our debt, we were trying to decide whether or not we should treat ourselves with a couple of larger purchases before the student loans were gone.

Here’s what we were considering.

What Are We Considering Buying

At the time, we were considering buying a roughly $500 laptop and a much larger purchase of $4,000 fencing in our backyard.

The fence would have been nice so we could let our dog, Daphne, roam around without going on a leash. This also would have freed up a tiny bit of our time since we wouldn’t have to physically take her out multiple times a day.

Why We Didn’t Think It Is A Good Idea To Buy

Tori’s student loan debt hung over both of our heads because, while it was necessary to pay her way through college, she ended up with a crazy amount of debt. We were constantly reminded of the debt every time we made a payment.

By making either of these large purchases we would have been delaying our student loan debt payoff. The loans would hang over our heads that much longer.

We were also against taking out debt for purchases such as computers or a fence. We felt these should be cash purchases and I think 99% of the people reading this will agree.

While we would technically have paid cash for these items, to us it would feel like we’re taking out a loan to purchase either the computer or the fence. What was our logic?

By purchasing these large items while still owing money on the student loans we would have essentially been buying something else instead of paying off and lowering our debt. So, instead of having less debt we would have had more stuff.

In our minds, that is almost as bad as taking out more debt to buy more stuff.

Why We Might Have Made The Purchases

Paying off over $80,000 of student loan debt is more of a marathon than a sprint. By balancing debt pay off with our other goals, it could be argued that we’d end up paying the debt off in a more controlled way.

By planning purchases like a laptop and a fence, we would have been less likely to splurge on unplanned purchases along the way.

That said, we did already have a mini fun budget each month so we already had the little splurges baked into our plan. If we budgeted to buy a laptop or fence we would have been increasing this mini fun budget by quite a bit.

What Did We End Up Doing?

We ended up purchasing the laptop a few months before the student loan debt was paid off. It replaced an aging machine that had slowed down significantly over the years. However, we paid off our student loan debt just four months later.

Ultimately, we decided against purchasing the fence. Even after the student loan debt was paid off, we still didn’t install a fence. We ended up selling that house, so we’re glad we held off as fences rarely add any money to the selling price of a home.

We are, however, installing a fence at our new home as I write this.

In the end, we were happy we bought the laptop. It made our lives much less frustrating and it only delayed the student loan debt pay off by a couple weeks at most.

Do you think we made the right decision or do you think we should have waited to buy the laptop until the loans were paid off?

You Paid Off Your Debt… What’s Next?

Are you ready to pay off your debt but have no clue where to start? Read the first post in my series about paying off your debt, then read through this series until you get to this post, our twelfth in the series.

It’s a great feeling to finally be rid of your evil debt.

Don’t forget that feeling for one second.

You worked long and hard to get to this point. Cherish it.

Before you celebrate too much, there’s one thing you have to remember.

You’re not out of the water yet.

There is still a ton of work left to do after you’ve completed paying off the debts you wanted to eliminate.

You Made Big Changes – Don’t Let Them Be Temporary

You likely had to make some big changes to get to the end of your debt pay off journey. Some of them were extreme but temporary measures. However, I’d venture that a majority of the changes you made were good permanent lifestyle adjustments.

If you immediately go back to how things were before you started your debt pay off journey, you’re just going to end up back where you started in a few months or years.

Wouldn’t it be a shame if you worked so hard to pay off all of that debt, just to end up in the same exact position again? I know I would be devastated if that ever happened to me.

You need to keep the momentum moving in the right direction after you’ve paid your debts off.

You Can Add Some Things Back

It’s okay to add some things back into your monthly spending that you had cut back on, but examine every item with extreme scrutiny.

Does this spending make my life better? Do I value what I’d be spending the money on highly? Does spending this money help me reach my long-term goals?

If the answers to these questions are yes, you may be able to responsibly add some spending back.

You might notice that you now really enjoy dining out every once in a while. However, if you make it a habit and dining out turns into eating out multiple times per week, it won’t feel as special any more.

I’m all for enjoying life. Just don’t fall back into bad habits. They could become a permanent part of your lifestyle again.

If you had cut back on your shopping for entertainment budget, do you really miss buying things that likely ended up hanging in the closet forever after only being worn a couple of times?

I’m guessing once you broke the habit, all of the window shopping wasn’t really something you missed anymore. Make sure you still evaluate each purchase to see if you really need it or if it is a want.

Have a process in place to make sure you don’t return to those credit card swiping days that led to maxed out credit cards you couldn’t pay off.

Don’t Quit Earning Extra Income

Earning extra income was a key to our debt pay off success and we didn’t quit simply because our debt is gone.

Your extra income may lead to even bigger opportunities than you main income source one day. My blogging side hustle became my full time career.

Of course, if you just got a part time job delivering pizzas, you might want to consider dropping that if you don’t enjoy it. However, if you started a side business or have found a side gig you’re passionate about, don’t give it up.

Now that your most painful debts are gone, you have more options than ever.

Paying Off Debt Wasn’t A Goal

As my friend Joe Saul-Sehy from Stacking Benjamins would say, paying off debt is not a goal. That statement makes a ton of sense once you really think about it.

Paying off debt is a milestone in your life, but it isn’t the ultimate destination. Why is this important? You should still be working toward your actual financial goals now more than ever.

The money you once dedicated to destroying your debt is no longer obligated to paying other people back for your past purchases. It’s now available for you to move further along with your life goals.

Unfortunately, some of these life goals, like retirement, are so monstrous that we don’t even see them as goals. Instead we see them as insurmountable challenges.

Channel Your Debt Money Into Bigger Goals

Instead of increasing your spending or quitting your side gigs, channel your debt repayment money into goals that matter to you.

Is your emergency fund in good shape? Are your retirement accounts where they should be? If the answer is yes, good for you. 

Just make sure all aspects of your financial life other than debt are in good shape before you start increasing your spending again. Getting out of debt is just step one on a long journey to financial independence.

You’ve worked hard to change your financial lifestyle. This is just the beginning. Continue to live responsibly. If you do, money worries may soon be a thing of the past.

Focus on the big goals. Don’t forget about your retirement. Keep pushing yourself down the path to a better financial future.

What do you plan to do with your debt money once your debt is paid off? I’d love to hear your plans in the comments below.

Want To Kill Your Debt? Big Changes Lead To Massive Pay Offs

Are you ready to pay off your debt but have no clue where to start? Read the first post in my series about paying off your debt, then read through this series until you get to this post, our eleventh in the series.

I bet you’re excited that you’ve been able to make a plan of which loan to pay off first.

It’s even more exciting when you start to see the progress you’ve made from changing your mindset and making some small changes in  your financial life.

I have some even better news, though.

Now it’s time to start making some big changes that can completely transform your debt pay off plan and speed up the process immensely.

Big Changes Will Have The Largest Impact On Your Plan

Small changes are a great way to start shifting your mindset. Those changes will get you excited as momentum grows in your debt pay off journey.

Unfortunately, there are only so many small changes you can make before you run out of ways to save a few bucks here and there. That’s when it’s time to bring in the big changes.

Many people resist these big changes, but the magnitude of how they can change your debt pay off plan can be huge. Don’t immediately dismiss these ideas as crazy.

Many people have made these changes and have made amazing progress because they were open minded enough to embrace big change.

Sell Your New Fancy Car

Chances are you have a newer, fancy car. You probably have a car loan to go with it. Yuck, that’s more debt you have to pay off. Want to know a quick way to get rid of that debt and get further ahead in your debt pay off journey?

Sell the car and pay off the loan. Am I insane? Not at all. A car is for transportation. It should not be a status symbol. Yes, you may need a reliable car to get to work and run errands around town. I totally agree with you.

However, you can easily find a car that will meet those needs for $5,000 to $10,000, rather than the $30,000+ that some of the fancier cars and SUVs cost today.

What about all the money you’ll lose by selling your brand new car? It’s a fact of life, but it is a sunk cost. Sunk costs are decisions you made in the past that you can’t change. You can’t make decisions based sunk costs.

You’ll never get that money back whether you sell the car today or 3 years from now. It’s gone. The only difference is you’ll lose even more money as the car gets older.

With $5,000 to $10,000 cars, you won’t lose anywhere near as much money to depreciation each year. Just think how nice it’d be to have a much smaller car loan, or even no car loan at all.

Is all of that extra debt worth your fancy ride? You might even save money on your car insurance due to the lower value of your new to you $5,000 to $10,000 car.

Downsize Your House

Housing is normally the largest category in any budget. If that’s the case in your budget, then it’s also the largest opportunity to make a dent in your debt pay off.

Americans have grown accustomed to huge homes with a ton of rooms that they rarely use for anything other than storage or allowing someone to sleep at your house once a year. Why pay for all of that extra space you never use?

Just like with your car, you can downsize your home, too. Whether you simply move to a smaller, cheaper home when your lease runs out or you decide to sell your home to move to a more appropriate dwelling, this is possibly one of the biggest wins you can ever score.

Whatever you do, make sure that you think this through for a long time. If you just end up upgrading again shortly after you downsize, you’ll have wasted a ton of money moving and in real estate fees if you owned your homes.

Move To A Different Area

Want to save even more money on housing and potentially everything else in your budget? Consider moving from a high cost of living area to a low cost of living area. Where you live has a huge effect on how much money you spend every month.

I personally moved from the rat race driven metro area of Washington, DC to the Florida panhandle. It is one of the best decisions I ever made.

I was lucky enough to keep a similar salary and almost all of my living expenses cost less in Florida. Plus, there’s no income tax. It was a huge win for us and it saved us thousands of dollars.

Get A Job That Pays You What You Deserve

Your income from your job is one of the biggest limiting factors in your debt pay off plan.

Due to the massive constraint income places on your plan, you should look to optimize your income as much as possible. If you’re being underpaid for your skill level, now is the time to see what you can do to raise your income.

You can ask for a raise if you’ve shown you deserve one. If that doesn’t work, you can always look for a new job that pays you in line with your skills and abilities.

Just be careful not to burn any bridges in the process. Your current income is a lot more than you’d get if you pressed the wrong button and got yourself fired.

Big Changes Aren’t Easy

I’m not suggesting that any of the above changes are easy. They aren’t. They shouldn’t be. Just keep an open mind and seriously consider them.

These actions can save or earn you thousands of dollars a year that you can use toward your debt pay off plan. Once your debt is gone, it can kick start your savings and retirement, too.

Don’t simply dismiss these ideas without giving them serious thought. The biggest changes offer the biggest rewards.

Once you’ve mastered this step, there’s just one more step to go. That step takes place after you paid off your debt. Read about it here.

Did you make any huge changes in your life in order to pay off your debt faster? We certainly did and it helped us pay our debt off faster than we could have ever imagined. Let us know what big changes you made in the comments below.

Grow Your Income To Kick Debt Pay Off In To Overdrive

Are you ready to pay off your debt but have no clue where to start? Read the first post in my series about paying off your debt, then read through this series until you get to this post, our tenth in the series.

We never would have been able to pay off my wife’s $80,000 in student loan debt as fast as we did without following the simple concept we’re about to discuss.

After we had changed our mindset and cut our expenses back to the minimum we were willing to accept, there was nothing more we could do to reduce our expenses.

If we quit there, we’d have a fixed time period that it would take to pay off our debt.

It could never get any shorter.

If things popped up, then it could take longer, but we could never pay the loans off faster without making more changes.

Most people quit after they reduce their expenses. Reducing expenses is the easiest thing to do, but the easiest things rarely reward you the most. It’s the harder things in life that have the best rewards. This tip is no different.

Instead of focusing on lowering your expenses more, you need to shift to earning more income. The best part about this tip? You have unlimited potential to earn more income.

Start Growing Your Income Any Way Possible

There are a million ways to grow your income.

You can pick up some overtime shifts or find a part time job that allows you to work nights or weekends. You can start a small business selling goods on eBay or etsy. You can sell a service to people in your community.

The number of ideas on how to earn extra income are endless.

Most people immediately think of earning more income from overtime or a second full or part time job because that is what they’re taught to think of. Once they realize most of these jobs pay $10 an hour or less, they get discouraged and quit.

It doesn’t matter how much extra income you earn in the beginning. The simple fact of hustling to earn more to pay off your debt faster will get the creative juices flowing.

Even a $10 an hour part time job on nights and weekends can significantly speed up your debt pay off plan.

Start A Side Hustle

However, if you don’t want to settle for a $10 an hour job, I don’t blame you one bit. Rather than working for someone else, starting your own side hustle can be much more rewarding both mentally and monetarily.

There are many businesses that you can start with little to no money up front. You’ll need to go with one of these businesses, because you won’t have any extra money during your debt pay off program.

Some of the best types of low cost of businesses to start are service based businesses. I got lucky when I started my blog. For less than $50, I had everything I needed to start. Of course, at the time I had no clue I’d make money with it.

Other types of service businesses include pet sitting, walking or grooming, lawn care, cleaning services, cooking services, coaching and tutoring.

You might have to get started by working for free to get reviews, but once you have just one happy customer you can start growing your business.

The best part about extra income is that it doesn’t have to stop once you pay off your debt. If you find a side hustle that you love, it could even turn into your main income one day like my side hustle did with this blog.

Use The Extra Income To Pay Your Debt Down Faster

The key thing to remember about this extra income is that you’re earning it to pay your debt off faster. As soon as you get a paycheck or a payment from a client, you should deposit it in a bank account earmarked solely for paying off your debt.

Just make sure you account for taxes owed on the extra income first.

Don’t co-mingle your extra income with your other money, or else you might be tempted to spend it. You’ll be shocked by how much even a little extra income can shorten your debt pay off journey.

How Extra Income Helped My Wife and I

Extra income played a huge role on our journey to pay off my wife’s $80,000+ of student loan debt. My wife ended up picking up some extra overtime shifts at work that paid very nicely. I ended up turning my cheap hobby into some pretty nice income here on my blog.

Without this extra income, I’d say we’d easily have to spend a couple more years paying down debt. Instead, we’re student loan debt free. It was totally worth the time to earn the extra income.

The next step after earning extra income is to make some massive changes. Read more about it here.

What ideas do you have for side hustles that can bring in some money to help pay down your debt? Do you already have a side hustle? I’d love to hear about it.

How Severe Is Your Debt Emergency?

This is a guest post by Brian Groener. Read more about him after the post.

If you’re in debt, you’re not alone.

In fact, millions of Americans struggle with debt. The average household owes somewhere between $5,000 – $10,000 in credit card debt alone.

Want to know the largest destroyer of wealth? Well, you found it. Debt.

In my opinion, there are three ways debt should be mentally categorized. Each requires different levels of action. Let’s take a look at them and how to deal with each one.

Value Backed Debt (i.e. Mortgages)

Large purchases, such as a house, are generally an individual’s or couple’s largest lifetime investment and source of debt. However, it’s important to realize it is both an investment and debt.

Included in your monthly payment is the principal and interest you owe on the loan. This kind of debt is backed by something of value.

So, if you want to wipe this debt away, you can pay it off over time or you can sell the item. If the value of the item doesn’t change over its life or it appreciates, then the balance due on the loan can be paid back through a sale.

Not many people have hundreds of thousands in cash to make these purchases so debt like mortgages are carried by millions of Americans. It’s normal and relatively safe.

If you have extra cash lying around it may make sense to invest it, but if the market looks shaky or you want a guaranteed return on your money, put it towards a higher principal payment.

It should be mentioned, of course, you can lose value on the purchase through depreciation or outside circumstances. This is also known as going “underwater” on the loan, causing you to owe more than what your purchase is worth.

The sooner you can get any type of debt out of your life the better. However, this generally doesn’t happen therefore it shouldn’t keep you up at night.

Severity (1-10): 3

Self-Investment Debt (i.e. Student Loans)

Seemingly, one of the main ways to get a solid job is to go to college. Although that is beginning to change, there is almost always value behind education.

Going to college can be extremely expensive, but like the previous category, it is typically seen as an investment. Instead of being a physical item you can get your money back on, the return on investment on self-investment debt is seen in career earnings.

The scary part about loans like this, particularly student loans, is that they will follow you to the grave. Even though the interest rates may not be astronomical, they must be paid back.

Without a physical item to sell  and wipe out the loan balance, you need to work and save to pay this back.

There is no easy way out except for old fashioned responsibility. Until it is paid off, self-investment debt will continue to be a sizable liability and will agonize you constantly. Move on it urgently.

My recommendation would be to pay this off before you even begin investing.

Severity (1-10): 6

Consumer Debt (i.e. Credit Card Debt)

We’ve made it to the final level. Consider it to be worse than the plague. Let me just make it crystal clear. Consumer debt is that dangerous. Here’s an example.

Joe recently graduated college and got a job to give him some experience in his field. Unfortunately, it only pays $30,000 per year. Since he just earned a degree and landed a position doing what he studied, he is feeling accomplished.

He wants to reward himself so he decides to go shopping. Joe splurges on some items he has had an eye on since he was 15. For this privilege, Joe now owes $25,000. That’s only slightly less than what Joe will make his entire first year at work.

He decides to use up his life savings of $10,000 for a down payment and takes out a high interest loan on the remaining $15,000.

That loan is to be paid off in 12 months at a 10% interest rate. Since Joe only makes $30,000 per year, he owes over half his salary to this loan thanks to interest payments.

Although Joe has put himself in a tough position, the smartest thing he could do now that he has taken out the loan is to try to live on as little as possible. This will allow him to get that loan paid off in full according to the payment plan.

Sadly, this only leaves him with less than $1250 per month to get by.

If Joe put the balance on a credit card instead, his situation could be even worse. Credit card companies will allow you to leave a generous portion unpaid but then charge extraordinarily high interest rates, think 15% or higher, on the remaining balance.

The interest accumulates until all the debt is paid off. The less you pay off and longer you let it sit, the more you owe, creating a snowball effect. It’s like putting your money in the stock market with guaranteed returns of -20% annually.

Not a great idea.

Let’s say he bought some expensive clothes, electronics, and a vacation with the $25,000. Although there are some “physical products”, they are not something that can be sold back to anyone at nearly the same price, if they can be sold at all.

That’s the differentiation between this type of spending and value backed debt. You should attack consumer debt as aggressively as you possibly can.

By using your savings to pay down consumer debt you may essentially be earning 15-20% returns on your money by paying it off.

In all seriousness, you need to treat consumer debt like the emergency it is. Cut out unnecessary spending. Work a part time job to generate extra income. Sell old items that have value. Rent out an extra room in your house.

The list could go for quite a while. There are an infinite number of ways to make some extra cash. The hard part is forcing yourself to take action.

Severity (1-10): 10

The sooner you fully appreciate and learn to control debt, the more power you have over it and your financial situation. Often it requires nothing fancy, other than working hard and saving.

Achieve the freedom you deserve and lead a stress-free life by getting started today.

Brian Groener blogs at Get Money Got Money. He recently graduated from university and is currently working as an engineer just outside Philadelphia. Although he enjoys his job and has just begun his journey to financial independence, he is also an outdoor and travel enthusiast which he plans to pursue further once he has reached financial independence.