Awhile back I wrote an origin post for Full Time Finance. In that post there were two sentences in particular that deserve elaboration, “At graduation I had 60K in debt, and no job offers. I did have an emergency fund which I worked my way through over the next 6 months, before finally finding a decent paying job. “ The recent guest post here 2 weeks ago inspired me to further elaborate. So, how did I manage to pay off $63K in student loan debt?
How did I get $63K in Student Loan Debt
First off the situation was actually worse then just $63K in student loans. You see when I started college the world was flooded with high paying tech jobs. I was even offered a respectable salary to drop out of school and go code. So I had this perception that the world was my oyster, and after I left school it would be like field of dreams, “I graduated so the jobs will come”. That reality was to come crashing down before I graduated, but even though I had difficulty finding internships I still held onto that perception. As such, I not only had $63K in student loans, but I also had $20K in a 0 percent car loan.
So I graduated into the worst job market for computer science majors ever, with no job and $83K dollars in debt. It was also extremely hard to differentiate myself from the recent glut of computer science graduates. As a result, for the next six months I was unemployed living in my parent’s basement. My student loans were in deferment, and I was paying my $300 dollar a month car payment with my meager savings from summer internships.
The Situation Post Graduation
About 6 months in I finally found a job. The pay was $48K a year and it was close enough to stay at my mom’s house while I paid off debt. This was before it became the norm and acceptable to stay at home post college, so I was terribly embarrassed. However, I sucked it up and lived at home for another 3 years. With $76K in debt by this point I didn’t have a lot of options. The student loan payment would have been more than 50% of my salary (there were none of the student loan programs that exist today where your payment is somewhat controlled by your income. The car loan was also underwater at this point).
For the next 3 years I deprived myself of everything to focus on paying off that debt. I skipped my 401K match, one of the few financial decisions I regret, and focused solely on my loans. I started by consolidating the student loans that I could (only about a 2/3 of the debt could be consolidated) to a 3% rate. The rest hovered at around 7%. I then put every dollar I made except the minimum payments for the other loans into the highest rate loans. Three years later I moved out of my mom’s house with the debt paid off, 2 major promotions, and 45K in cash. In the interim I managed to sell the car for what remained on the loan and pick up a much less expensive car. So at move out I was debt free.
The Hidden Cost
The above sounds inspiring, I managed to eliminate $83K dollars off starting with a salary of 45K. But was it? What was the cost of this insane payoff rate? I had no life for most of those 3 years. There was no using money to buy what I value. With the exception of one admittedly expensive vacation in that 3 year period I did nothing but work and live in my mother’s basement. This is why I so focus on the need to moderate your lifestyle and not just deprive yourself of everything. I know from experience extreme frugality does not make one happy, nor is it sustainable.
The Aftermath of Deprivation
In fact, after the deprivation I went a little nuts with the $45K. No, I’ve never gone into debt again unless you count for leverage or a 20% down mortgage. But I viewed that $45K as mine to spend. My friends pushed hard on me in 2007 to buy a house with that money but I refused. Instead I went out and bought a New Corvette not long after moving into an apartment. 3 years of pent up spending came out in one hugely expensive transaction. I had the car delivered new to me from the factory.
There is no way to argue that someone should spend every dime they have in this world on a car. This was an incredibly stupid move on my part. Had I invested that money into stocks I would be way ahead. Also had I lost my job during the downturn I would really have paid for that purchase as my emergency fund at that stage was practically non existent. That being said through pure luck purchasing that car worked out. I still have that car today, 10 years later.
I still have this car for a reason, it has had a positive impact on my life. It keeps me from spending anymore. It became a symbol of needing to cut down on my spending but also enjoy myself a little. The enjoyment trickled in on the car whenever I took it for a ride, and the rest of the time I focused on savings. Conversely, had I listened to my friends and bought that house I’d still be down the amount of the car purchase. So in a twisted way it worked out for me. The point here is one I use a lot on full time finance. Finance is a deeply personal matter. What is right for one person is not right for everyone. You should read finance blogs and learn from others mistakes and successes as suggestions, but you should run your life your way.
Do you have a history with high student loan debt?