May 18, 2010

Debt Free (Janssen)

On Friday, I called up our student loan provider (the third company we've worked with in the eight and a half months since graduation, since they keep selling our loans) and paid off the last $1,793 of our debt.

We are now, officially, debt free!

At graduation, our student loans totaled $33,000, some in my name, some in Bart's, all happily subsidized (meaning they didn't start accruing interest until six months after graduation, rather than accruing interest from the moment the loans were issued at the beginning of the semester) .

The loans were all for a period of ten years, with a 6.8% interest rate, which was a much higher interest rate than either of us thought we'd have to pay for student loans.

If we had paid them off over the 10-year term of the loans, we would have paid not only our $33,000 in actual loans, but an additional $12,570 in interest. Instead, we paid less than $250 in interest in all because we paid off a large portion of the loans just before the grace period ended, and the rest within another three months.

We committed to paying off the loans as fast as we could the moment we started our full-time jobs 9 months ago, and that allowed us to make huge headway on them before the interest caught up with us.

Today, student loans are extremely common, and are viewed probably second only to mortgages on the "good-debt" spectrum. And I'm sure there are financial advisers who would have recommended we invest our $33K instead of paying our loans off right away.

"You could see a return of 10% or more on your money over those same ten years. That would cover the student loan interest and net you a return of 3%! How do you like THEM apples?"

And yet, somehow, we just weren't interested in doing that. I don't know if it's "the great recession," our parents' examples, the peace that comes from being debt free, the certainty of the interest we'd have to pay, the looming responsibility of new parenthood, or a combination of all of those things, but we just wanted to be done with our student loans and move on.

I'd take the financial surety of being debt-free over a possibility of a 3% return any day.

16 comments:

Kelly J. said...

How did you do it?
I know where we could cut some corners, but $33k is almost what my husband and I make COMBINED in a year. I think we're about there in loan debt, so any tips for simple ways to save?
We're cutting meals out ($5-$8/day for 2 of us is a start) and I'm moving it to the "pay off student loans" fund.
Share your wisdom, please!

Karen said...

Congratulations! I would also prefer to be debt-free rather than make 3%. And now you can make the whole 10% for those 9 years and 3 months that you don't have to pay on student loans. I think you come out much better in the end.

Noelle said...

Congrats! I wish I could say the same. We are just starting the accruing and it seems like the light at the end of the tunnel is getting farther and farther away.

amber waves of grain said...

Congrats! I agree that I'd rather be debt-free. Thanks so much for sharing on this blog.
We have a mortgage at 7% interest, and my student loans are 2.5% interest (hubby was able to pay his off right after graduation), so more attention has gone to our mortgage, but I'd love to be student loan debt-free as well.
There is something so refreshing to me about paying down debt. Way to go!

Sherry said...

Not to mention the inevitability of your loan provider switching another nine gazillion times in the next ten years. That, too, would be a huge pain. And, I'm not really sold on the investment thing because maybe you WON'T actually make a profit over the next ten years. Probably you would. But maybe not! Whereas you DEFINITELY saved yourself nearly $13 grand by paying the loans off quickly. Way to go!

TheMoncurs said...

I wish Aaron was more motivated to pay off his loans. He's more in that other "We can make a greater return elsewhere!" category. Bleh.

Packrat said...

Congratulations!

Stephanie T said...

That's Awesome! I can totally understand wanting it to be over and done with.

It is much more motivating to scrounge up and scrimp and save to pay something off then it is to save for an investment. Way to go!

BTW- I think you are so lucky to have a financial blog where you can post about this. A post like this would not go over very well on mine with an extended family full of spendthrifts

Megan said...

CONGRATS!!!! Doesn't it feel fantastic?

JenG said...

High five on being debt free! My husband and I recently paid off my student loans and love the feeling of not having that hanging over our heads. Now we are paying into savings so that we can take the trips that we wanted to all along. It's a great feeling! Congratulations!!

tootie said...

Congrats on paying off those loans!! I feel the same way as you -I'd rather be free from debt and invest later. For that same reason, my husband and I are trying to pay off our mortgage as fast as we can.

Sara said...

Congratulations on sticking to a plan that goes against the grain and achieving your goal! What a great way to start your financial life as parents! I know your parents were a great influence on you and your spending/saving habits, and now you'll be able to do the same for your children. Like Dave Ramsey says "you're changing your family tree".

Heather said...

Seriously? Debt free? Huge kudos to you and Bart. Someday we hope to join you in that fabulous category.

lacie tidwell said...

CONGRATS!!! that has to be a huge relief- as far as experts saying you should invest it- yada yada- I agree with you- the surety of being debt free- the feeling is incredible! and there's no guarantee that investments grow- so there's no way to say this will happen or that will happen- you freed yourself from a set monthly payment a month and that has to be refreshing!

Isabel said...

I always say "debt free is the way to be."

Congrats!

Gina said...

Congratulations. We have never regretted our decision on being debt free. The freedom and peace we feel is more than one could ever expect. Be blessed!