We’ve been together for 10 years. There have been ups and downs throughout the years. There were times when we separated for a while, but would then get back together. Throughout all of that time though, we were always together. Even during the tough times, we were never really apart. There were some fond memories, and we were good together for a while. But for me, things have changed. I no longer see things the same way anymore, and we no longer see eye-to-eye. Before posting this, I struggled with the decision as far as what to do. I asked for advice, but at the end of the day, I finally realized that my life will be happier if we were no longer married. As difficult as it is for me to say, I’ve decided that I’m getting a divorce from my student loans!!! Here are the reasons why!
Student Loan Debt is Debt
Sometimes financial advisers will say that there are good debt and bad debt. Invariably, student loan would be characterized as good debt. But truth be told, even if student loans are good debt, they still are debt. I’ve determined that I want to be debt free. I got rid of my consumer debt (ok, I know my credit card balance is $2000 at the moment, but that’s very temporary). So, now I need to get rid of my student loan debt.
Imagine a life with no debt. No payments to anyone. That means that 100% of the income you receive, minus what is needed for living expenses, can be used to build your future. That’s the kind of life I want. I’ve had debt throughout most of my twenties into my thirties. I’m not quite yet 40, but getting close. I’m determined that I will not have any debt by age 40 (except for mortgages), but if all goes as planned, I’ll be able to take care of this debt within a year.
There are those much smarter than me that uses debt as leverage to increase their net worth and income opportunities. For example, they may borrow money at very low interest rates, and invest that money to receive higher income from the market. I could risk it, but I’d rather not. Failure could mean even more debt.
Invest Vs Pay Off Student Loan
The biggest struggle I had wasn’t so much the ability to pay off my student loan, but whether paying off the student loan was the right choice for me. The interest rate on my student loan is 2.625%. Undoubtedly, the chances are high that with proper investing, I could achieve more than that investing in the stock market or maybe real estate. In fact, because my monthly payment on the student loan is currently at $97.61 and will only increase to a maximum of $129 in 2018, it’s not really a burden on my current income to maintain that level of expenditure on my student loan. So, one thought I had was to keep paying the minimum and invest extra money I had into my dividend portfolio.
Well, although I was VERY tempted to go that route, I chose otherwise. My job is stable right now, and even if I were to be fired, I’m confident in my ability to find another job in my career field. However, there are no guarantees. If I were to lose my job, it would be nice not having to worry about paying that $97.61 or $129 per month. I don’t have to worry about any negative reporting on my credit report or anything. So, it takes the worry off things.
Mathematically, it might have made more sense to keep paying the minimum payments, but emotionally, I feel better not having the debt.
Why Not Take The $20k And Pay Off Student Loan
If you’ve followed my blog, you know that I’m about to receive a $20k bonus from work. See my post on How To Invest $20000 for more information. I could essentially wipe out my student loan debt in about a couple of months. However, I’m not going to do that. The reason is also emotional/psychological.
I actually have two student loans at the time of this writing. I’ve brought the first student loan to a balance of $1000 because I’ve essentially been paying $2000 a month on that loan. Well, I will pay off that student loan next month in July. That same $2000 that I’ve been using to pay off that student loan will be applied to the instant student loan which has a balance of $21721.72. By doing so, I maintain the discipline in how I utilize the income from my paycheck.
Here’s the beautiful part. Once my student loan is paid off, I’m going to take that $2000 that I was using towards paying off the loan to invest in my dividend portfolio. So, in about 10-12 months from August 2017, my monthly contributions to my dividend portfolio will be significantly increased.
New Debt Tracker
To help keep me honest, I’ve added a debt tracker to my blog. I get paid twice a month and will be recording each payment on the site. Now, I know this method works for me because that’s how I got rid of my consumer loans. A friend of mine and I made separate New Years Resolution last year (or two years ago). We tracked our progress using Google Sheets. I actually had fun logging in and updating the results. Also, I made sure I did because he would check up on me to ensure that I was still working towards my goal. I did the same for his goal. So now, I’m doing the same thing, but tracking it on the blog.
The new tracker can be found at the new page. It’s not fancy or anything, but it will get the job done. Let me know what you think of tracker.
CONCLUSION
I’ve been married to my student loans for way too long. Dave Ramsey says that some people keep their student loans around so long they start thinking it’s a pet. I think there’s some truth to that. Well, for me, no more! It’s time for the student loan to go! It’s time to kick Sally Mae out the house.
Nice one mate 😀 At first I really tought you were getting a divorce. Well I have simmular case but out student loan is just 2.8 kEUR and we pay only 20eur/mo and the inyerest is only 1.6% due to negative LIBOR, so there is absolutly no reason to pay it off sonner then have thouse few kEUR invested in dividend stocks 🙂 Even JNJ pays better div yield. Your cass makes more sence 🙂
Yea, with such a low interest rate, it definitely makes sense to try to not pay it off early. But, then you will have to live with the debt and the risk associated with potentially losing your income. If you’re able to sleep well at night, I don’t think it’s a bad decision not to pay off the debt. It’s also not a bad decision to pay it all off. You just have to make the best decision for you based on your goals, risk, etc. Thanks for the comment man.
Totally agree. Both are good. In my case the amount is not that high. 3kEUR is not something astronomical. When interest will go up I will definitely start repaying it. Next we have a mortgage, but its interests are even lower, so at first out will go the small student loan 🙂
Makes sense.
The reason many people do not even think about getting ready for a divorce is because they operate under the assumption that the sooner you can get out of a stressful situation the better. So there is a natural tendency for people who are in difficult marriages to want to get the divorce over with as quickly as possible in order to move on with their lives. Family and friends often encourage this as well. They hurt for the family and so also prescribe to the myth that the quicker the divorce is over, the sooner everything will return to normal. But unfortunately in most cases just the opposite happens.
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Divorce can be a very stressful thing for families to go through. But, I wasn’t trying to bring up stressful memories or anything. Divorce also represents a separation and I was using it as an analogy with regards to my student loans. My student loans and I have been together for far too long and it’s time for us to go our separate ways!!! Thanks for the comment Lisa.
Yeah way to give people a heart attack lol jk. Glad you are working your way toward being debt free. It has a huge psychological aspect that people over look. Yes, you can easily make more than 2.5% in the market but it doesn’t have the same feel to it as actually seeing debt go away and then not having the make the payment anymore. Just make sure to keep the credit cards at zero so you are not paying that high interest. And the debt tracker is a nice touch. Keep yourself honest and held accountable. Good luck!
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I’m glad you like the debt tracker. I guess I could have made it more elaborate but figured I’d keep it simple.
It’s going to be a great feeling when I can say I don’t owe anybody anything (except for my mortgage, which tenants will help pay for).
The one saving grace to my credit card is that my maximum limit on the card I use is $3000. So I can’t go over that. I had to use my card because of several emergencies including the fact that I rented a car and noticed there was damage on it when I returned it to the car rental company. So that $700 is on my card. I’m still waiting on my credit card to reimburse me for that which will happen any day now. But I hear you. I plan to keep the card at zero but will “mostly” use it for emergencies.
I can’t wait to post that my credit balance is once again zero. Thanks as always for the comment.
This is happy news to hear about. Divorcing from debt always sounds like a good idea. Like you, I also hear/read about the “good” debt, “bad” debt argument. In general, I see all debt as bad. It’s a financial load no matter how you look at it, even if that debt is a mortgage that is tied to a home that can appreciate or a margin loan that can boost your stock market returns. Once Sally is out of your life that extra cash will really help propel your dividend investing portfolio. Congrats on making this decision.
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Appreciate it Div Hut. I am so close to tasting freedom. I have about 12 months to go. Although I’ll be devoting (hopefully) $2000 a month towards paying off that debt, ANY extra income I have may also be used to achieving the result faster. Because of work, in about a month, I will have reduced expenses, and my income will either be reduced slightly, or might be higher than what they are now. So, I’ll have to wait and see what my future income and expenses are. But, ANY amount over the $2000 will either be used to add to reducing debt, add to my dividend portfolio, or a combination of both, depending on the size of the increase. I can’t wait.
Almost like a clickbait article until you read the end of first paragraph.You almost got me.Its good to be debt free from student loans,even when i graduated i had credit card debt,as i was not eligible for student loans.It took close to 2 years to pay it off.
Yea desidividend, looking forward to being debt free. I don’t usually have misleading topics, but wanted to do something a little bit different.
Ok you got me. haha. Glad to hear you kicked Sallie Mae out of the guest bedroom! 😉 Best wishes in the next chapter of you post-student loans life! Affj
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Appreciate it AFFJ. I’m also looking forward to not having any student loans. I can’t wait.
First visit to your blog, and I click on this link. Nice psyche-out 😛
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Haha – thanks. I don’t usually do psyche-outs like that. But, welcome MrSLM.
That was a bit of a shocker at first haha. Well at least with this kind of divorce, you don’t have to spend thousands on lawyers!
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Lol, that’s very true. But, at least I save thousands of dollars in interest.
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Great replies here so far. For me next to the actual interests rates o a debt is the psychological “strain” a debt ha on people. Even if they don’t realise it is there. We are also planning on taking on part of our mortgage for which we only pay the interest.
Good on you!
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Thanks Mr. Robot. I know some people are able to live with debt and use it as a financial leverage. While I certainly feel as if I have the will power to do that (especially with my mortgage debt), I think I would feel much better not having any debt at all (especially my consumer debt). So, I can’t wait to pay off the student loans.
Nice and brilliant ideas you have raised and some interesting points here and those are very little known to most of us.I absolutely with you. This is a great and valuable post. I have got the benefit to this site. Though this is a small article but here has the whole main point. So, please share more and more this types of article.
Appreciate it Lawyer and glad you liked the post. I try to have a thought-provoking and interesting article every now and again. Just keep coming back to check them out and welcome to the site.
Thanks for bringing up those sources. I am looking for new sources to help my clients get through the process. I’m glad you were honest in your article.
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