Action Steps

Last Wednesday I wrote a piece entitled A Generation of Student Loan Stories and left you with a question, How will our generation mold this problem into action?

Here are 5 Ways we are molding our student loan frustration into action today:

Loan Repayment: We will continue to pay back our student loans, but will move to an interest rate model, to save more money in the long run. However, we reserve the right to pick-up a few low hanging principal loans on our list if we need an emotional boost :)

Continue to Live Life: We are cutting back on a lot of activities, but we also can't miss out on the next 10 years of our life. We would like to use all of our extra income towards loan repayment, but are also going to be realistic and take a one month hiatus now and again to use that money for a long-weekend away or to go do something fun. We also may need a new computer, so there are expenses that are going to come up, but we will do our best to stay ahead of the needs vs. wants.

Retirement: I think this is worth noting as an active financial goal in our lives and a way to take action on our long-term financial growth. We are currently investing in our companies 401 plans. The benefit of putting away retirement savings early, based on compounding interest, means that over time our money is invested longer and therefore has time to grow. To give us a guiding post on the investment percentage, we are going to use our companies' match percent and hopefully be able to increase this amount periodically to at least 15%.

Income: The current numbers for repayment do not take into account any change of income over the next ten years. That simply will not be the case, we are two highly motivated individuals that don't plan on decreasing our salaries in the next ten years, so that keeps me smiling! We looked into taking on second jobs, but determined that for now we are going to make do with the income we have unless a second job would assist in our personal growth. We are happy with our standard of living, plus we need time to complete action #2, Continue to Live Life :)

Savings: We used part of our safety net to pay off our credit cards at the beginning of what we though to be a 5 year journey. We now see that with a ten year time frame, we will need to build this back-up to ensure that we can take care of any emergencies that may arise in the next few years. This is an action step that we haven't yet determined how to build into the full budget, but we are going to work on this piece!

Being able to list action items highlights that we are working towards a larger goal and grateful that we have the ability to make additional payments towards our student loan. No matter how soon we pay off our loans, we will save ourselves money in interest. My Sallie Mae payment, after one month of principal payments, has already gone down by $10. Little victories WILL win this long race :)

If you have an extra 10 or 50 bucks this month, do yourself a long-term favor and pay it towards any of your debts principal balance. JUST DO IT :)

Any action step little or big helps to save you more in the long-term, and this is a long-term game we are playing!

Where are you putting your extra $20 this month?? 

A Generation of Student Loan Stories

A few weeks ago, after writing about the Snowball Hybrid method of paying off our loans, the Art of Being Cheap author reached out to me. He wanted to know if I would be interested in a analysis of our student loan debt. What does the interest vs. principal snowball vs. hybrid method actually accomplish in terms of paying off our debt?

I sent over my loan numbers for his analysis. Please take a look at his write up on the Debt Snowball. 

Okay so, have you had a chance to read his post?? 

No, STOP READING THIS and go read the article...

YES, well welcome back for my reaction :)

It was sobering to see the reality of 10 years of debt repayment laid out in this manner. I felt naive for imagining that we could become debt free in 5 years (which may still happen with an amazing increase in our income), and had to face the fact that we are looking at 7-10 years of a strict budget. My gut reaction was anger. I started to think about what I really wanted to accomplish and where I saw Nick and my life in ten years. Would we ever get there with this amount of debt?

NPR had a few timely stories over the past week on student loan debt and it opened a window for me into a larger look at how other individuals are handling the long term impact of their higher education bills. One story, "Many Millennials Expect To Spend Decades Paying For College," was a snap shot of three individual stories that seemed to represent a multitude of people I've met since leaving college. I've heard their student loan stories at work, in my family/friend circle, and in current college interns. 

Taken From: http://yobucko.com/wp-content/uploads/2012/06/student-loan-debt-statistics.png

We all seem to have a student loan story and a reason why we are now in debt or for the lucky few not in debt. It has become part of who we are, whether we know it or not this debt is part of our life story, and impacts our future narrative; How we live and end the story is now up to us. Student loans are just like a mortgage now a days, something we learn to live with and work through.  

The three speakers discussed how they have put future life decisions "on hold" until they are in a better financial situation, but they didn't expect to pay back their loans for another 5-30 years. Which makes me question, how long do you put life "on-hold" for student loan debt? 

A staggering statistic from NPR's story "Paying Off Student Loans Puts A Dent in Wallets, and the Economy," stated that people with student loan debt now will have 60% less net-worth then peers without debt later in life. We are spending decades paying off student loans rather than investing, so our long-term net worth will not equate to those who can afford to buy a house sooner or invest in retirement at a higher percentage. 

The Financial Aid and student loan programs were originally created to bring about equality in the higher education system to the middle and lower class; however, it does not seem to be working. The speaker in NPR's second story, William Elliott, agrees that Millennials with student loan debt are still better off in terms of net-worth then without a four year degree, but we are still not reaching our financial growth potential. Creating equality through student loans does not seem to be working. 

We have instead created a vicious cycle of debt and repayment. If we have student loan payments we are not saving. So when it does come time to buy a car, we end up with a lower down payment, a higher loan, and most likely a higher interest rate due to the lack of a large down payment. We've now switched our student debt to auto debt. A cyclical patter...

  

Having all of this information at my fingertips this week was frustrating and invigorating at the same time. It is really challenging to hear that no matter how soon we pay off our loans we will still be unable to achieve the net-worth of our peers without student loan debt. Our generation is in for a very interesting future.

How will our generation mold this problem into actions?

Please feel free to share your student loan story in the comment section. 

   

Interest vs. Principal

As we get closer to the end of the month, Nick and I also get closer to making our first extra payment towards our debt. I think that we have a good game plan, but I have been reading up on debt elimination to make sure that I cover any "blind spots." If you watch House of Cards you will get this reference :)

I am not looking for a brand new system, but to figure out the best practices to eliminate our debt in the least amount of time. For example, I already learned about adding in short-term costs that should be accounted for in our budget monthly to help us take care of planned life expenses. Example: put $10 aside each month for an oil change so every three months you don't have to find $30 in your budget to take care of this necessity.

About three weeks ago, I went to the library and borrowed Dave Ramsey's The Total Money Makeover: A Proven Plan for Financial Fitness. It was perfect timing to get through Chapter 7 on Snowballing your debt the week we were going to make our first extra payment to debt. I will be sure to do additional write-ups on his book as we get further in the process.

Taken from www.daveramsey.com

The general idea behind Snowballing your debt is to pay off your debts by the principal balance, low to high. This will allow you to accumulate additional funds as you pay off your debt to put towards the next highest amount. Dave uses an analogy of a snowball rolling down the hill collecting snow, just like your money will roll down the debt list collecting minimum payments as it goes. The motivation behind paying by principal is to allow you to have some quick wins on your smaller debts and to keep you motivated in your payment plan.

However, I struggle with the idea that in the mean time our higher interest rate loans will keep going up and we will owe more money on these loans in the long-run.

In looking through a list of our student loans, I organized them by principal and then by interest. I think we may be able to achieve some quick wins to keep us motivated and some high interest payments by working with a hybrid plan. In order to pay off the higher interest rate loans, we can pull a few of them higher in our payment plan list. I believe this will help us stay motivated, but also stop us from paying more interest then necessary on some of our loans. A compromise is in the works!

Question of the Day: How do you prioritize repayment of your debt, by interest rate or by principal? 

Money Motivation

I guess this post serves more as a mid-Month One update on our money saving/debt payment plan.

Staying Optimistic while being frugal is hard. The day The Game Plan was posted everything was great and my motivation to succeed was high. The blog was started, a new budget to live on one income laid out, Nick was ready to join the cause, I was reading a new book and other financial blogs on personal finance to gain different perspectives, and was learning how to use social media as a tool. Everything was looking up and I was ready to go.

Week one is easy! You are motivated and ready to take on the world. But then it dawned on me, I had committed to making our debt disappear to a public audience. I had posted it on Facebook and Tweeted about this "great" plan. I started hearing from friends, family, and others wishing us luck on this feat. It was a little too much at once and let's just say I was overwhelmed and a bit nervous. I had a mini freak out moment about mid-way through week two and my reservations about committing to this project started to creep through.

What was I thinking?                                 What if I fail?      
How can anyone get out from under all of this debt?          Why could I not be content on just paying off our student loans month to month for 18 more years?               Maybe we should just focus on the credit cards and savings, and leave the student loans alone?

So, I did the only thing you can do in the middle of a work-day and when your not spending money...

I was lucky to have my work-out clothes with me and I decided to go for a run. I headed outside and turned on my Pandora 80's Cardio Station and jogged out my frustration down the national mall and around the Potomac. After doing the inevitable stair climb to the Rocky theme song, including air punches of course, I went back to work with a more optimistic attitude and brighter outlook of the future.


In order to truly be successful and rid ourselves of debt I had to realize that this was not going to be a "project" this was going to be a lifestyle change. This is a long-term change and I was going to need to find motivation daily to be successful.

So, since I hear list are fun to read on blogs, here is this weeks list.

Things that keep me Optimistic and Motivated:

1. BodyPump Classes- Making me physically and mentally stronger. I love them :)

2. Roar by Katy Perry- This has been on my motivation list for awhile, but makes me want to take on the world whenever I hear it :)

3. Hanging out and Talking with Family and Friend -  I have made a greater effort to connect with everyone in my life a little more often these past few weeks. Being able to hang out or chat by phone with new and old friends has been really positive for me and makes me feel all around happier!

4. The Sunshine- We may be getting snow again, but everyday it is nice out I have been getting myself outside for a walk or run. Nice weather is just a great motivation to do anything.

5. Writing this Blog- The blog is keeping me busy in the evenings and is motivating me to find new things to write about, and new ways to save money! Sorry for the lack of personal photos on this post. As a new blogger, I am learning that I need to start taking photos of everything :)

What motivates you to conquer your goals?