How I Plan to Pay Off My Student Loans… Maybe?

There’s a student loan bubble! Maybe? There’s also a group of people trying to get student loan debtors to go on a debt strike against the evil lenders, except that movement isn’t really gaining steam. I don’t really know how much of a problem there is overall, but I can at least share my part of the story and why I’m skeptical about paying them off, but why I still might do it anyway.

Also, I’d like to note how much minimalism and finances seem to be intertwined, at least for me. The fewer things I spend my money on, the more secure I am and the less mental clutter I have. I worry about fewer things. To me, paying off loans is akin to cleaning out a closet.

So! I graduated with about $40k of student loan debt. I went to a public university but didn’t get enough scholarships to pay for it all. (I went to high school in North Carolina which has a miserable education system with basically no money for college students, unlike South Carolina or Georgia. But that’s a whole other can of worms.) So I’m not in the worst situation ever, but not the most ideal either. Compounding the problem was the fact that 18-year-old me viewed community college as something disdainful so I didn’t get my easy credits and transfer in to a univeristy to save money. I was a very traditional four-year type, and turned to loans as a very feasible way to fund my engineering degree.

I also graduated as somewhat of an outspoken Libertarian who viewed debt as something evil that must be exterminated at all costs. (My political activism has greatly waned since then.) I paid off all of my federal student loans with a signing bonus from my first job, then made higher-than minimum payments on my state-funded loans. I also flipped a house and put my profits to paying down another chunk of my loan, and after everything I’ve done I have slightly under $18k left to go.

WHY I HAVEN’T DONE MORE

On to the excuses! I was a pretty typical 20-something that spent a lot of unnecessary money on fast cars. And lots of eating out. So I probably could have them all paid off if I was still driving my car from high school (except that didn’t have AC and I live in south Florida). But I’m a little torn on this, because I don’t want to be someone pinching pennies eating ramen but I also don’t want to be someone who’s racked up all kinds of debt chasing a lifestyle. I think there’s a good middle ground, and getting my mistakes out of the way early helped me discover what that is. I’m a big fan of budgetsaresexy; the way he tackled his debt is very inspirational, but I don’t know if I want or need to do this.

The other part of the problem is that my three student loans outstanding have interest rates of 3%, 3%, and 0.08%. That last one isn’t a typo. With rates this low I could make a better return putting my money to work elsewhere. I started doing this recently, actually. I figure that if I open an index fund and hold it for five years, I could have enough money to cash it out and pay off my loan. I’d have made maybe 5% in the market this way (hopefully!) and therefore I’d be out on top.

But with the rates that low, why would I cash out the index fund at all? Why not make minimum payments on a loan that basically amouts to free money? I know a lot of people with mortgage rates higher than this and they’re doing virtually nothing to pay them off early. The answer is 100% psycological. I still have that libertarian-leaning attitude that debt is generally bad, even if it’s paid for something good like a house or an education. When I’m free of my loans I’ll simply feel better. Even though they’re low interest loans, it’ll still be nice to keep more of my paychecks every month.

But I still have the battle, because the rational part of me knows I could do better things with the money, and the emotional part of me wants to be free of debt at any expense. Like before, I think a middle ground is warranted. I’ll probably end up paying them off early, but not as early as to sacrifice some of my lifestyle. So I might pay off my student loans early. Maybe. Depending on which part of me wins out.

SPEAKING OF WHICH…

I recently started kiteboarding (video below for those who live inland!) which isn’t a particularly cheap hobby, and I don’t want to sacrifice my entry into the sport to pay down loans marginally faster. It’s all about tradeoffs and maximizing happiness! I’ll be writing a little about this sport in the future, though, because it’s crazy amounts of fun. The reason I live by the beach is so I can do things like surf, paddleboard, and kite. It’s not an expensive lifestyle, but it’s not the cheapest, either. At least I’m not into jet skis and swamp buggies.

I’m also going on vacation to my semi-hometown of Charleston, South Carolina this week. Pictures of this will follow as well!

Continue reading How I Plan to Pay Off My Student Loans… Maybe?

Saturday Links! July 18, 2014

For Americans Seeking Affordable Degrees, German Schools Beckon by Soraya Nelson, npr.org. Why hasn’t the United States been able to figure out education while almost every other first-world nation has? It’s mind-boggling, and also sad because I’m one of those millions with student loan debt.

Jobs That Will Pay Back Your Student Loans, mrandmrsbudgets.com. If moving to Germany isn’t your thing, there are a lot of other options that don’t require you to graduate with crippling debt.

Perfection Is The Enemy Of Frugality, Mrs. Frugalwoods, frugalwoods.com. If perfection is the enemy of good, it’s also the enemy of frugality. Also remember: Advertisers create need, and that’s part of the problem for anyone trying to be frugal. The Frugalwoods’ (Frugalwoods’s? English is weird.) blog is one of my favorites and always a great one for inspiration on how to live contrary to how most people seem to live.

3 Ways to Get Help With Your Down Payment, femmefrugality.org. There are lots of ways to get a mortgage, and you absolutely don’t need 20% for your home, especially if you are a first time home buyer. I wish I had this information about four years ago!

BONUS: What I’ve been listening to this week:

Have I linked to Cobalt Cranes before? If so, they’re worth repeating. From California, but they recently made a stop through West Palm Beach. Pretty cool!

Photo: Think roaches are annoying? This is a Cuban Anole, a rather large, aggressive lizard that lives in my banana trees. This one is about a foot and a half long. When he shows up on the porch I have to chase him off with a palm frond which he usually attacks pretty viciously until I coax him away from humans. #tropicalproblems 

Saturday Links! July 11, 2015

I’m rich Baby! (And follow your Heart) by Mr. 1500, 1500days.com. How much money do you really need to be happy? What makes people rich? It’s certainly not a $700,000 kitchen remodel. At least, not in my experience. More stuff doesn’t necessarily equal more happiness.

The Health Benefits Of Early Retirement Are Priceless by Financial Samurai. I linked to a few articles last week about how great and non-boring it would be to retire early, and also it might be easy to just let yourself do nothing but watch TV all day if you retire early without anything to do. But consider that your job actually might be the thing that kills you, not the fact that you got out of it early.

A New Financial Reality at pewtrusts.org. A new study finds that “three-quarters of Gen Xers … have higher family incomes than their parents did at the same ages, but only a third have higher wealth.” Common explanations for this is the disproportionate increase in property values and education expenses, but I bet that spending habits play a huge part of this too.

BONUS! What I’m listening to this week:

I haven’t stopped listening to this album since it came out last year. Fantastic!

Photo: Last week, I showed you a picture of the pineapple I grew in my yard. Did I mention that I also have a grove of banana trees that make these cute little bananas? The only downside is that once the tree produces fruit, the tree dies and you have to cut it down. But these trees grow like weeds to it’s really not too bad!

Windfall Profits From Selling My Truck

OK, so I didn’t exactly make money from my truck, but I did sell it. My plan was to take this sum of money from the sale and purchase an index fund (and also use some of it to pay off some extra principal on my mortgage). Index funds are great because they’re not actively managed. They don’t try to beat the market, they just try to match it. You save a lot on fees (versus mutual funds) and you still get the great return-on-investment that the stock market generally provides. At least as long as you don’t panic.

I’ve had luck with a particular index fund in the past. After I sold my first house, I put most of the money I made from that transaction into a fund. Otherwise, it would have just sat around in my savings/emergency account doing nothing. I got pretty lucky, purchasing the fund back in October at a low point in the market and then selling them off in January at a high point in order to put a down payment on the house I’m currently living in. I made 5% on this investment in just over three months. Pretty solid!

This time around, I invested in the same fund but seem to be having opposite luck. I bought it last Monday, right before the stock market took a huge plunge. It’s recovered some, but I lost almost 3% right off the bat. It’s recovered some since then, but if I know anything about these types of funds, it’s this:

DON’T PANIC.

Index funds are good long-term investments, so while they do go up-and-down with the market, they’ll generally make you money as long as you wait it out. The market has already recovered, but it’s still down. I actually took the stock market decline as a sign that I needed to buy more, so I consider this volatility more of an opportunity than a disaster.

My plans for this fund, though, are more medium-term. I still have about $18,000 in student loans (down from $40,000 originally) that I’m trying to eliminate. $16,500 has an interest rate of 3%, and $1,500 has an interest rate of 0.08%. The plan is to put money that I’d use to pay off the loan into the index fund (while making minimum payments on the loan) because the index fund will probably do better than 3% growth. Once it reaches a point where I could pay off the entire debt, I’ll sell the index fund to pay it off.

I’m hoping this strategy gives me the best of both worlds. I’ll get the better return-on-investment by investing in the index fund instead of simply paying off the loan. I’ll have extra capital (from capital gain on the index fund) to pay the loan off. And I’ll eliminate a debt, which is my #1 financial goal at this point. (Not to mention the fact that my cash flow situation will improve without this monthly payment.) To me, this seems win-win. I just have to hope that we’re not actually in a bubble that’s about to burst. If we are, though, I’ll just have to take my financial advice from the most successful book ever to come out of the great publishing corporations of Ursa Minor!

Photo: Who needs a truck when you can have a Volkswagen and an index fund? I used the Beetle last week to take two people and one dog on an adventure in the Intracoastal Waterway. We took my paddleboard and a kayak and tied them both down to the roof. It was actually easier than getting both of them in the bed of my truck! The Beetle did great, too!