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Welcome to the newest installment of “Getting Out Of Debt,” a new series where I realize just how horrible my financial situation is and figure out how in the world I’m going to rectify it. If you missed the last column, read Getting Out Of Debt: Salary Negotiations.
In the last couple of weeks on this debt journey, things have really started to look up for me. I got a new, full-time job, created a budget, and negotiated my starting salary. Basically, I’m crushing it. I haven’t gotten my first paycheck yet so I haven’t actually been able to implement many of my money-saving plans yet either, but at least I haven’t acquired any new debt and my regular minimum payments were all on time, so we’re going to call that a win. I figured it was time to calculate my net worth changes from when I began this journey about a month and a half ago, and I figured seeing that bump in my net worth would encourage me to keep going. Until, that is, I logged onto Nelnet to check my student loan balance and noticed that it had gone up by just about a grand. Wait, seriously?
If you want to have a heart attack, this little nugget of information is a great way to start: interest from your student loan compounds daily. That’s right. Every single day you’re not paying off your student loans, they’re getting bigger. Even if they’re in deferment like mine are. Surprise! Getting out of debt is going to be a lot harder than I thought. I looked at my change in debt since the last time I calculated it, and unfortunately for me, it looks like compound interest is truly a bitch.
Student Debt: $99,973.32
Additional Debt: $23,227
Total Debt: $123,200.32
Change from beginning: (-$656.16)
That’s right. I spent a total of $712.11 in monthly payments only to accumulate debt this month. Thanks a lot, compound interest.
According to people smarter than me on the Internet, compound interest doesn’t always have to be as evil as my boyfriend’s mother, but it actually has a benefit – at least when it comes to savings. As you invest your money in your employer-issued 401(k), the interest compounds over time, which means you most likely won’t have to spend your 80s as a WalMart greeter, or whatever the 2080 equivalent of that job is going to look like.
Even though this was a huge slap in the face after jumping huge hurdles like cutting up my credit cards, there’s still hope. In a few weeks, my salary increase hits my bank account and I can finally start making progress in paying off debt. I’ll be making compound interest work to my advantage by investing in my company 401(k) to hit my company match, and I’ll actually start paying down some of that excess debt so that by the time my student loans hit my account in December, I don’t have to explain to my new employer why I’m spending my evenings Costanza-ing under my desk on a KinderMat.
My key takeaways from this little lesson in compound interest are that I should start investing in my company’s 401(k) plan, like, immediately, and that if I wasn’t already, I should really start tackling this debt with a sense of urgency. If you’re in deferment, it’s easy to ignore your loans, but take it from someone who actually sat down and calculated her debt – that’s going to be much more trouble than it’s worth. Your current self may wish you were spending more money on brunch to catch up to the media’s perception of the average millennial, but when your future self doesn’t have to pay back avocado toast with 15.99% interest on a credit card over the next three years, you’re going to thank me. .
Image via Shutterstock