======= ======= ====== ====== ====== ===== ==== ====== ====== ===== ==== ======= ======= ====== ====== ====== ===== ==== ====== ====== ===== ====
Like anyone else with a problem, I didn’t realize I was in trouble until I hit rock bottom. No, I’m not an alcoholic (I think?), nor do I have a coke addiction, although honestly at this point, either one of those might be easier and less expensive to get out of. Unfortunately, my problem is a financial one, which I discovered the harsh reality of when completing my student loan exit counseling.
I knew I had student debt. I attended a private undergraduate university which was only partially paid for by my parents and scholarships. On top of this, after my standard four years, I was stuck taking a handful of classes part-time out-of-pocket to complete a major I’d changed a couple of times. After this, I went back to graduate school – while my base tuition was paid for, I took out four semester’s worth of living expenses, occasionally requesting increases for additional summer coursework and a down payment on a new (to me) car when mine finally bit the dust. All of this to say, I knew that I had some student loans before completing my exit counseling. But once I logged on to see the actual total, I was shook.
$98,944.16.
Roughly the cost of what my parents paid for their first house in 1991. A Tesla Model S. A business franchise. A year in Europe. A Cartier watch. Weddings 1, 2, and 3. The current outstanding balance on my student loans will hit six figures by the time payments are due, and to say I’m panicked would be an understatement. If I had to guess before checking the total, I would have thought that under no circumstances did my loan total exceed $50,000. Apparently, that was terribly, terribly wrong. I’m entering a fairly lucrative field with high opportunities for income growth, but this number still absolutely horrified me.
Based on my current precarious financial situation, I knew I would have to select an income-based repayment plan, keeping my initial student loan payments under $500/month. I learned, however, that over the estimated 217 months it’ll take for me to repay the costs of two pieces of paper (that’s 18 years, people), I’ll add another $50k to my final total thanks to interest rates. After discovering I was already six figures in debt, I’ll be damned if I pay an additional 50% of that amount through my unborn children’s early teenage years. This leaves me with one option: learn personal finance and get out of debt.
The race against the clock is officially on: I have a six month grace period to secure a full-time job, negotiate my salary, decrease my current expenditures and additional debt, and increase my income before mid-December when payments begin. Unlike the features you read on Business Insider and Forbes, I won’t be retiring with $4 million at age 28 to travel the world; instead, I’m going to be digging myself out of a hole before I get buried in it.
Join me over the next few months as I build up my financial literacy, start making a dent in this debt, and learn how to live with the financial weight of a single-family home in the ‘burbs without actually owning a single-family home in the ‘burbs on my shoulders. You can expect the next installment of “Getting Out Of Debt” as soon as I stop crying over my personal finances and scraping old ramen out of restaurant trash bins for dinner. .
Respond
Steph W.
Steph W. is a new Master's degree graduate with an intern's salary and six-figure taste. She realizes her expectations far exceed reality, so she spends her days pinning away Loubs she pretends are in her physical closet instead of her virtual one. Her hobbies include attempting to trapping her boyfriend into marriage before he finds out how insane she is and pretending that Black Box wine tastes as good as the kind she could afford when she was gainfully employed. Send her tips for getting out of student debt at recruitchairtsm@gmail.com
@therecruitchair
As a an accountant…this made me physically ill on a half day Friday. Why would use student loan money to finance a car?!?!
Yeah that was painful to read. Just another supporting point that everyone should have a personal finance class in high school. Everyone knows that the mitochondria is the powerhouse of the cell, but how many people know how compound interest works?
All you need is TI BA II Plus Financial($28 at Target) and a YT video to figure it out and realized how screwed you’ll be. Agree with you on having all majors take one in college too especially if you are receiving a student loan.
Just started learning about personal finance and want to vomit at my old decisions. Hopefully my terrible mistakes serve as a warning for everyone else/my slow crawl out of debt will inspire other people not to fuck up as much as I did.
Plenty out there about personal finance and just like with a medical diagnosis getting a second opinion on a plan of action is always good if your feeling concerned about it. I know a lot of people tout the Ramsey method for debt repayment and personal finance management but it sometimes isn’t the best practice and a debt consolidation program might be better for some people.
I’ve seen people in my pharm class use their loan money to buy Mercedes, Range Rovers, etc.
Paid off mine a few weeks ago it felt fantastic.
Paid off mine (approx 35k) 3 years after despite having a shitty wage and job hopping more than I would’ve preferred. I basically only bought groceries and necessities, didn’t do anything fun and would work in a smoothie shop or babysitting for rich people who over paid me every day after work. Since I was so busy it was easier to not spend money and every time I had an extra few hundred sitting around I transferred it right away. Great feeling to be done with them but that said in retrospect I wish I would’ve had a bit more fun and taken an extra year or two, found more of a work-life balance.
As scary as numbers are if you live somewhat more minimally in these next few years I’m sure you’ll tackle this.
Pro tips from a CPA that dabbles in personal finance:
Contrary to lots of advice you’ll see out there, don’t make any sizeable contributions to your 401(k) until you’ve paid off your debt. Throwing in $50-$100 a month in there and letting that nest egg grow is fine, but because I assume that the interest rate on your loans is higher than your 401(k) return (and if it isn’t, please let me know where I can get 6-7% guaranteed returns), you should focus most of your money to paying off the debt.
Don’t get into credit card debt. Use credit cards to your advantage to rack up points or rewards (American Express’s 6% cash back on groceries card is fantastic), but pay them off in full each month.
Pro tips from someone with more student loan debt than most people on this site who aren’t doctors or lawyers:
Get married to someone without student loan debt. Get married to someone rich. Get married to someone who is much better and more responsible with money than you.
I didn’t do any of these things.
Already dug myself a hole with my current relationship. Since it seems not worth it to end a 3.5 year relationship based on debt-to-income ratio, I’ll keep y’all updated on our progress of getting out of debt as a couple too.
But is it a 150K + deep of a hole?
As a non-financial rube my question is: doesn’t it make sense to at least hit the match for your company’s 401(k) contribution? I get that the return is probably less than the loan interest but you’re just throwing away that 5% of your salary extra (or whatever) if you’re not hitting the match maximum. That’s at least a couple grand a year before you start making interest calculations.
Yes, registered investment advisor and CPA here, you should 100% do the match for the 401(k). It is a free raise. Equal to 100% of the match.
However, for many people the question is “How ok are you with having debt?” If it keeps you up at night, then pay it off, forget what my calculator and models say.
“Contrary to lots of advice you’ll see out there, don’t make any sizeable contributions to your 401(k) until you’ve paid off your debt. ”
Disagree, the return on 401k contributions is 100% + tax rate + appreciation if you are eligible for any employer matching. That’s more than any student loan interest.
You forgot one big factor: time value of money. You can’t really access that money for 40+ years and nominal money in the future is worth a lot less than money no.
Let’s say that you’re considering where to put $100 and your final return on your 401k after compound growth is 20% vs 6% student loan interest now. Would you rather have $120 in 40 years or pay off $100 of student loan interest, also saving you $6?
Your math is off. With employer matching and the tax advantage you are going to have way way way more than $120 on $100 invested today. Hell, it’s basically $230 immediately.
What are you talking about? What tax advantage? If you’re referring to Roth growth, that’s still taxes you pay now. If you’re referring to normal growth, that’s taxes you’ll pay later, which will probably be more than now.
Seriously, if you know of a way for me to turn $100 to $230 via a 401k, PLEASE let me know. That’s literally the greatest investment ever. Unless you bought Apple stock in the 80s.
Your return is not going to be $20 if you have employer matching.
It would be $100 investment + $100 from your employer.
20% on the $200 would leave you with $240, by putting in $100.
This of course changes if you don’t have an employer match, but you should always be taking advantage of your employer match.
True, but most matching is limited to some small percent of your salary (say 5%). So if you make $50,000, your annual matching tops out at $2,500. So yes, you should definitely contribute up to the matching max (I implied this in my $50-$100 a month comment, but that should probably say $50-$100 a paycheck) to take advantage and use the rest to pay off the loans.
If you meant to imply “take advantage of all employee matching” we agree, but I didn’t get that from your original post.
What tax advantage? The tax advantage of investing pre-tax dollars. I can either have $100 in my paycheck of post-tax money, or I can invest (say) $130 of pretax money. And of that $130 in pretax money, my employer matches 100% of the first 6%, so now I’ve got $260 (forgot in my above example they match the pretax aspect too). I would also not assume my tax rate is higher later, I will be retired with a lower income, versus actively working with a higher income.
My employer matches our 401k 100% up to 8%, it would be silly not to contribute to get that match and throw away that free money; even if I was drowning in debt. If she is going to work for a big employer with a generous 401k match, the obvious answer is to contribute to the 401k to receive the employer match.
Plus 401k’s are protected from certain events like bankruptcy or if someone tries to sue you. For someone like the writer of the article who might lack certain financial skills at this stage in her life, the 401k is a perfect forced savings plan for her.
My advice to the writer of this article is to work like a mad man (woman) for several years right out of school. Work a part time job on the weekends or after work (bartender, waiter, starbucks, uber) and really focus on paying down the debt. Live with your parents for a year or two and pay down half the debt. Or marry someone rich!
Well, assuming that $100 is 3% or whatever the matchback your company offers, you’re already getting that $200, so an increase to $230 from that is a smaller jump than your original example.
A lot less than money now*
Also, the match is typically subject to some sort of vesting schedule. The younger generations have consistently decreased their time commitment to employers compared to the older ones. So, if you’re unhappy with your employer ( or you don’t consider it your “dream job”) and think you’ll be bailing before you vest, then this 100% return is far-fetched. Case by case basis.
I can see your point but if you’re left unemployed at some point in your life, I’d rather have the debt paid ahead/off. (This happened to me 2 years ago but I was paid so far ahead that it didn’t matter I couldn’t make payments for a while). You can always contribute more to your retirement later on.
Why were you “paying ahead”? You should have been putting that money towards the principal.
You can do this. Don’t worry about what you could’ve done differently in the past and just focus on what you will do differently in the future.
I appreciate your hopeful outlook on things and also SUP?
Stand Up Paddleboarding? Yes please, followed by tacos of course.
Sure uh that’s totally what I meant and definitely didn’t just google what that was.
Got em
I think we would get along
That’s the most Austin-y first date idea I’ve ever heard. You know besides going to a farmers market and getting free-range meat and organic granola.
And then you end up with a job you love that leaves you with no money to actually pay off those student loans, isn’t it great? And why would you drop Friday scaries on us like this, on a payday Friday no less?
I now understand why 80% of my friends became boilermakers and ironworkers instead.
My ex who works as a railcar loader but owns his own house and car suddenly seems less crazy for dropping out of college.
At least it is a three pay day month?
You’re never going to escape this debt and you can never get rid of it via bankruptcy. That’s she whole point in this whole societal pyramid scheme. I mean, do you really think it’s a coincidence that there’s a fucking pyramid on every single dollar bill with an all seeing eye a top it? Even if you do pay this debt off it’s just going to free up more of your money to then go into a different type of debt. Sell drugs, become a murder for hire, wheel and deal, and don’t have a heart because all the good people of the world have been destroyed from the inside out lol
We would get along, wanna come over to my lab to plan the end of the world?
You free this weekend? I just have to get brunch on Sunday but I should be free after that
“what’re we going to do this weekend brain?”
“The same thing we do every weekend pinky, try to take over the world”
But only after brunch, this is the PGP crowd after all. Gotta get those bottomless mimosas before taking over the world.
Rick Sanc…i mean Good point Nived_Neirbo. Its all a Sisyphean effort really and does’t matter in the macro scheme of things because time is a flat circle.
Sacrifice. Plain and simple. I lived with my parental units for almost 4 years post undergrad and am debt free as a result. Was it worth it? 69%.
Financially you made a good choice for yourself, but there are a ton of PGPers whose parents either are deceased, not in the picture, or just can’t afford to continue to house their postgrad children. Not knocking your decision, just pointing out that “sacrifice” is very relative.
Oh absolutely. I know I was lucky my parents were in a position to let me do that, but sacrifice can be applied in almost all other areas. The area you choose to rent/live in, not eating out, doing local “staycations” instead of traveling across the country, or wherever, et.c It’s not ideal, but just a reality of the financial situation.
Way to be Charlotte.
I worked two jobs until mine were paid off, 100% of my part time job went to student loans. It sucked but it was well worth it.
Dave Ramsey. He is a get yourself out of debt guru. He has a few books and does three hours of radio a day (that are available as podcasts too).
Good call. He’s a big proponent of not saving for retirement until out of debt. As discussed in depth above.
And I think he’s a fucking idiot for it. His advice is for simpletons, prepackaged in a way to make it easy to sell. The mere fact that he doesn’t distinguish between low-interest debt and high-interest debt in his “all debt is terrible and must be paid off ASAP!!!” spiel shows you what a charleton he is; why in the world would I want to pay off, say, a 0% car loan early and avoid investing to do it? You wouldn’t, unless you’re a brainless moron.
You pay off the car loan so that you free up more money to invest. Ramsey’s philosophy boils down to being focused and deliberate with money. The average person can’t be paying multiple debts and still be aggressively investing every month. You have to focus on killing the debt so that you can free up that extra money every month to invest. Putting away 3% a month isn’t going to get you anywhere.
Mr. Incredible, what authors do you recommend checking out?
I am very much looking forward to reading. Best of luck… you’ve got this!
Depending on what your skill set is, I’d look into the public service loan forgiveness program. I know several dolphins who have had their loans forgiven after enough time spent tracking missing objects in murky water, mine sweeping, mine detection, intruder identification etc.
I swear to God I am not making this up: a friend of a friend worked on the dolphin minehunter program in the Navy, and one of his jobs was to wank off the dolphins so they stayed calm and trainable. HE WANKED DOLPHINS. We called him Dolphin Spanker.
Interspecies sex is a no go between any and all ocean creatures but it looks like y’all play by different rules on land.
https://www.theatlantic.com/international/archive/2014/06/how-a-science-experiment-led-to-sexual-encounters-for-a-woman-and-a-dolphin/372606/
Don’t bank on this though. PSLF is one of the first things getting slashed in the new budget and there are a lot more caveats than just work for a non profit for 10 years, really do some research on it.
All the more reason to get into it immediately so you won’t have to worry about changes to the program. According to Trump’s budget (which probably won’t pass, but it’s all we have right now), the PSLF changes would only affect new loans after July 31, 2018. As long as you meet the criteria (which you’re right, you need to absolutely make sure that your company meets it), then you’ll be grandfathered in under the current status of the program.
And given that it’s a program that a looooooot of lawyers are depending on, I wouldn’t worry about the government being able to retroactively change it on you.