So as I mentioned in my guest post over at Debt Roundup a couple weeks ago, the hubby and I have recently decided to crank it up to turbo mode on our student loan repayment. For years we have been pretty complacent about paying off our student loans, since after we graduated school we consolidated and refinanced them to interest rates of 2.5% and 3.5%. Given these great interest rates, for years we have been telling ourselves that we are better off investing any spare cash we have, since we could likely make better returns by putting more in our retirement accounts, saving for a rental property, etc.
That is probably mathematically true. In a way, the decision to turn away from this mindset and turn toward a debt repayment mindset was a difficult one because of the math. But in a way it was incredibly easy because we have been calculating our net worth since 2010 and guess what? Even though our net worth has been increasing, our debt has really not been decreasing by that much. That is quite disheartening to see. Looking over our financial statement, it is clear that if we do not take action now we will be paying these stupid loans off for the better part of the next two decades.
TWO DECADES! That’s way too long to have student loans hanging over your head, in my opinion. That does not sit well with us because for as long as we are in debt, I think we will feel like we are in debt. We will feel chained to our jobs. We will feel like we can’t do certain things because of our debt. Most importantly, we will never reach our dream of financial independence while we are in debt.
We have so many dreams that we want to see happen. We want to have children. We want to move back to our favorite place. We want to become financially independent so we can live the way we want to live and have more freedom to do the things we want to do. Allowing this debt to hang around is not going to do anything positive for our lives and will certainly not help us achieve these dreams any faster. So even though mathematically-minded folks may argue that we could come out better in the long run by continuing to invest any spare cash, at this point we are going to say screw the math and work on getting out of debt. The more we’ve been thinking about it, talking about it, and blogging about it, the more we want it. Stay tuned for updates on how things are going as we embark on the debt freedom journey!
Has anyone else out there been in a situation where mathematically it may have “made more sense” to stay in debt? What did you do about it?
Photo credit: Images Money
More from my site
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How to Hammer Your Way Out of Debt
Choosing Debt Annihilation
Proven Strategies to Minimize Student Loan Debt (from a soon-to-be college grad!)
Learning from Money Mistakes #1: Living too high on student loans
Money Advice I Would Give to 20 Year-Old Me (and YOU!)
Holly@ClubThrifty says
atYeah, we paid the rest of Greg’s loans off in one lump sum, about 10K even though they were at 3.75%. It just felt like the right thing to do. Otherwise we would still be paying on them!!!
cmf says
atI wish we could pay ours off in one lump sum, but just speeding up the payoff will reduce the time to payoff by about 10-15 years! Totally worth it!
Bre says
atMost definitely. I am always contemplating whether to put that extra money into savings or pay off more of my loans. At this point I am putting more towards my smallest loan so I can snow ball my bigger loan. Then after that I will put the extra cash in savings and then use the money I would of been paying on the smaller loan to pay off that big one. That ways I’m always making bigger progress on the debt pay off while eventually saving.
cmf says
atWe’ve been putting extra cash into savings for a long, but we have a pretty nice emergency fund these days and we just decided that instead of saving for a rental property we’d rather be debt free! Can’t wait for the day when we have no debt.
Grayson @ Debt Roundup says
atMath has a pretty powerful effect, but it is not everything. I went with the mathematical approach when I chose the debt avalanche approach to pay off my debt, but I also decided to save money while paying off my debt. There are other things about paying down debt that are important as well.
cmf says
atYeah, we’ve been letting math rule the decision-making on this one for a long time. But now it’s time to ditch the debt and try out the feeling of debt freedom! Can’t wait.
Kurt @ Money Counselor says
atThe choice to pay off debt should involve a lot more than just the math of interest expense vs. (speculative) returns expected. The less debt you have, the greater your freedom. And freedom is not merely an abstract benefit; feeling freer to act can also translate to $$$. One example: If you have lots of debt, you may feel pressure to stick with a job you hate and is stressful simply because it’s secure. (This is going to cost you money in terms of healthcare over the long run, not to mention make you miserable.) Without debt, you might feel freer to explore other opportunities which, in time, you’ll find more rewarding, both financially and personally.
Sure, the interest rate should play a role in a decision about accelerating debt repayment, but it should not be the only factor. I know–debt-free since 2002. 🙂
cmf says
atThat’s awesome Kurt! And we are totally in agreement about the greater freedom- that’s exactly what we are wanting at this point. We feel like we’ve been doing the “math-smart” thing for a long time and now it’s time to do the thing that’s going to make us happiest 🙂
Broke Millennial says
atI’m of the mind that in the retirement saving vs. paying down debt scenario, some of it has to do with what is best for your mental health. I don’t think that ALL retirement savings should be halted (especially if you have a 401k option at work) — but that if putting more money towards paying down debt will give you peace of mind, then do it. I think it’s also really responsible of you to be delaying some major life choices (ie: baby making) until the debt situation is in a place you feel comfortable with. It’s such a mature and practical viewpoint.
cmf says
atWell, I should clarify that we are still contributing to our retirement accounts while we are doing this. We could probably get rid of debt faster if we stopped it for a while, but that one is important to us. Also, the baby-making thing has been delayed by biology, not by choice 🙁
Well Heeled Blog says
atOur undergrad student loans have an average interest rate of 2%-3%, like yours. We are not prepaying those right now because our money can better go to things like graduate school tuition and, admittedly, purely-a-want-and-not-a-need travel. Once we are DINKs again, I expect to quickly pay off all loans that charge an interest. I still have $8,000 or so 0% loan due to a special foundation loan, and I don’t expect to pay those off one day earlier than I have to.
cmf says
atWow, a 0% student loan?!!? That’s pretty cool, I agree that would be the last one I would be taking aim at. And like you, for years we have been putting our money elsewhere because of the low interest rates we pay on our student loans. But it’s time to get rid of them now, we’re just sick of them and we really don’t want to be in our 50s when we finally pay them off!
Stefanie @ The Broke and Beautiful Life says
atI understand wanting to have that debt off your shoulders first and foremost. You have to do what works best for you, not necessarily mathematically. As long as you’ve considered all your options first, I think you’re the only one who can decide which option suits your situation and mental well being best.
cmf says
atThanks girl! We agree. We’ve been doing the “mathematically sound” thing for a long time. Now it’s time to switch gears and do what’s going to give us a lot more satisfaction and freedom.
E.M. says
atMy student loans are the only debt I’ve ever had, and while my interest rates aren’t as low as yours, my overall amount and minimum payment were something I thought I could comfortably deal with. I saved up instead, paying the minimum, until one day the length of time I’d be paying my loans back hit me, too. I feel the same way you do about it, and I’ve been putting extra toward them ever since.
cmf says
atAmen. Yeah, we were feeling pretty complacent about things for a long time, feeling like we had this debt thing under control, no biggie. Then we realized we had made practically zero progress in getting them paid off and were scheduled to be paying them off for like another 17 years! Not cool!!
Fig @ Figuring Money Out says
atI’m with you! I paid off all my loans even though the interest rate was really low. It felt like a good thing to do and I don’t regret it at all. I much prefer being debt free than have those loans hanging over my head for another 5 years or more.
Charge ahead with your plan and get outta debt! Do it! 🙂
cmf says
atThanks! It’s great to hear from another person who said the heck with the math. We can’t wait to be debt free.
jefferson says
atGood for you!! Life is too short to struggle with debt, letting the banks get richer at your expense. Going debt free is the only way to be!
cmf says
atThanks! We are pretty excited about the possibility of becoming debt free and we are now working our butts off to get there!
Laurie @thefrugalfarmer says
atGood for you guys, and I think this is a smart move, Dee. Think of the peace you’ll feel and the freedom you’ll have when those loans are off of your back. We’re doing the same thing – just getting it done, in spite of the math.
cmf says
atThanks, we are excited about getting on the path to get it gone. I do think we will feel so much less stress when we get rid of all of our debt. We cannot wait to arrive at Debt Freedom. Good for you guys too!!
SuburbanFinance says
atWhen we bought our mattress, we had the cash to buy it upfront but didn’t end up doing so because the company was offering 0% financing over 12 months. We did that option instead, because even though it was debt our money was making us money in our savings accounts and it wouldn’t be if it were on our mattress.
cmf says
atNice. Yeah, it’s hard to beat 0%. If our loans were locked at something like 0% or if they were fixed at a shorter term like a year or two I don’t think we’d be worrying too much about it. But it’s hard to stomach the thought of taking 25 years to get them paid off!
Ryan @ Impersonal Finance says
atWay to go Dee! I’ve paid off debt even though it might have made more sense to hang onto it for the long haul. I just really hate the idea of having debt. I know that a mortgage might make more financial sense, but part of me really just wants to pay it off. A large part of me, but still, I’m debating logic vs. emotion. It really is an independent choice for each person.
cmf says
atYep- we just really want the debt gone at this point. It’s starting to play a role in our life decision-making, and we’d rather make decisions based on our wants and needs, NOT the need to pay back our debtors.
Michelle says
atI had the same “eureka” moment. I just can’t have these debts hanging over my head anymore. I’ve hit the point in my life where I’m done. I will do anything-legally to move myself forward and change my life. These debts are keeping me from the life that I want to live. I could sit around all day and whine about it or I can do what I need to do to change my trajectory. I want to live a long life. Three or four years of focus is not that big a deal.
cmf says
atAmen! I couldn’t agree more. We are ready to close the chapter on our debt and start a new debt-free chapter as soon as possible!
jim says
atDo it! Get rid of those student loans asap. Been there, done that – but back in the day our loans were at 7.5% and 9%. Now we’ve got a mortgage at 3.25% and we’re throwing everything at it that we can. It absolutely does NOT make mathematical sense. Don’t care. Can’t wait to kill it. (We are still investing for retirement too – I wouldn’t pull the retirement contributions to pay off the mortgage early, but we could be investing quite a bit more and we’re not. I want this mortgage dead so bad it hurts). 20 months to go and we’re never looking back.
Dee S says
atGood for you! Same here. Our mortgage and our student loans are all in the 2.5-3.5% range, but we want them gone anyway. We just cannot wait to feel free of our debt!
Emma Lincoln says
atThank you for reminding us that there’s more to money than just numbers! Having debt is an actual emotional burden, and you guys are going to feel amazing when you pay it off 🙂
kay ~ lifestylevoices.com says
atHallelujah ~ that was inspiring! I am all for it! Get that anchor off and start flying! 🙂
Dee S says
atThanks Kay! We are still working hard every day on our awesome goal of debt freedom!
MJ says
atYES! Me, too. I let mine linger for over a decade, and math or no math, I want those damn thing GONE. I think there’s emotional math involved, too. It adds up way quicker than the interest. Every payment I make to the student loan debt is like a payment for my future relief. I can’t think of a better investment. Good luck! I’m cheering for you.
Dee S says
atI TOTALLY hear you about each payment being like a payment toward your future relief! Getting that weight lifted off our shoulders will feel wayyyyy better than keeping the loans around. We cannot wait!!
Julie@ChooseBetterLife says
atThere is so much peace and simplicity that comes with paying off debt. Having lower monthly financial obligations opens doors and creates freedom.
Nice work, you guys!
Dee says
atWe agree completely! Thanks Julie!!