Wednesday, January 29, 2020

tackling six-figure student loan debt

Confession time. As you might have surmised from the title of today's post-we have six figures worth of debt. And every last dime of it is student loans. As it turns out, pursuing higher education for nearly a decade doesn't exactly come cheap. 
Even though we had financial support from our families, each earned more than a $100k in scholarships & free tuition, and worked during school--we still finished with six figures worth of student loan debt. It's not something that I'm ashamed of or embarrassed about. It's just a fact of life. We made a conscious decision to invest in our education and I 100% do not regret it.
That being said, we've known that this time was coming for years-it's time to start paying back our student loans to the tune of $433,817.16. That's the equivalent of a house! We don't want to fall into the typical mistake of paying our minimums and ignoring the problem. It is our goal to get this student loan debt paid off fast. And since student loans seem to be one of those things that most college grads have, but no one wants to talk about, I thought I would share our plan to tackle our massive student loan debt. 

Increase Income 
We work a lot. Husband finished grad school first, but now I'm working too. Because of the physicality of my job, most dentists only work 3-4 days a week, but I work 5-6 days. In fact, I just recently increased my work schedule. I won't keep this schedule forever, but for now, it makes sense.

Be Aggressive 
Now that we have two incomes, it is so very tempting to increase our standard of living. What I wouldn't give for a Pinterest-worthy house filled with granite countertops, farmhouse style, and subway tile to call my own. But now is the perfect time for us to be aggressive with our student loan debt repayment. With no mortgage or car payments or kids to pay for, we can really focus on paying off debt. Luckily, a decade of school has really helped me hone my skills of delayed gratification. So for now, we are going to continue to live on less.

Budget. Budget. Budget. 
Having the doctor title in front of my name, it feels like I should finally be able to just buy whatever I want. And it doesn't help that people are constantly saying things like "oh, you're a doctor, you must be rich". Nope! It cost a lot of money to become a doctor so I'm just as broke as I've ever been. Only now, I have the income to crawl out from under my student loan debt. A lot of new doctors make the mistake of buying all the things right away, but more than ever, we are keeping a close eye on our regular expenses to maximize our debt repayment. 

Pay the Minimum while Targeting Loans  
Even with all this debt and money owed, we both signed up for the absolute minimum payment plan allowable. When you make student loan payments, the loan company divies up the payment amongst all of your loans. So if you have several different loans (we have 22 active loans), it is likely that your payments aren't making much traction. Thus, we are paying the minimum allowed each month, and delegating additional payments on our own terms. By targeting loans, we will be able to pay them off faster. 

The Debt Snowball vs. The Debt Avalanche
There are two real schools of thought with targeting debt payoff...the snowball and the avalanche. 

The Debt Snowball involves paying off your smallest to largest debt, regardless of the interest rate. The numbers say that you will end up paying more in interest by doing it this way. Yet, financial experts often recommend this method because paying off a small loan first gives you the emotional motivation and confidence to continue. 

The Debt Avalanche focuses on paying off the loans with the highest interest rate first. Mathematically, this makes the most economical sense to pay off loans quickly and this is the route we are planning to take. While I do agree that the debt snowball method is probably great for motivation, the daily interest that accuses is more than enough motivation for us. 

Considering Consolidation
Consolidating student loans to lower the interest payment can be a great option. While we are definitely considering refinancing, we aren't ready to take the plunge just yet. We don't have any private student loans, only federal. Thus, refinancing our loans with a private lender would mean losing many of the protections that we have in keeping our loans under the federal government. Advantages like loan forgiveness, forbearance, and income driven payment plans would all disappear. We should be able to tackle many of our higher interest loans in the next year, which would negate the need for refinancing. So we are holding off on consolidating for now. 

The Long Haul 
Probably, the toughest part to reconcile about our student loan debt is that it will take a while to pay off. And there is no getting around that. While the standard federal repayment outlines a 10-20 year payback, we hope to have our loans paid within the next 4-5 years to limit how much we are paying in interest overall. Hopefully increased earnings over the next few years will shorten this timeline. On the other side of the coin, we will likely buy a house and perhaps have kids so it's kind of impossible to really predict how long this may take. But we are mentally ready and prepared to stay motivated and be in this for the long haul to pay back our student loans. 

I was constantly praised and encouraged while attending school, but there is such a stigma about having the student loan debt accumulated while attending, which makes no sense.
 I'm hoping that being open about my own student loan debt helps take away some of that stigma. I will be sharing updates of our progress along the way. 

1 comment:

  1. Thank you for your transparency! So much time, studying, and money goes into the end result of success. For so many students, college would not be an option without loans. While paying them off is a burden, we are thankful for the opportunity and education they afforded us. If you're interested in more personal finance content, please visit Style and Savings blog or Instagram!