Sometimes I wonder if I have OCD when I look at my student loans. There are days I can’t move on to my work until I figure out the best solution or come to terms with my pay back options. And this can sometimes take 30-60 minutes until the calculations stop running over and over in my head trying to pinpoint when I’ll be free of them and how quickly that will happen.
The reason I am overly obsessed with calculating my pay off timeline, while it seems like all of my other friends are much more lax with the idea of just hanging onto the “good debt” since “everyone has it”, is because I made the promise to myself that I would pay off my student loans and treat myself with travel. Now I don’t know if that was a good thing or a bad thing. If you’re my father, it’s probably a good thing to save money on the interest. If you’re my roommate and coworkers, it’s the lowest interest rate I will probably ever have and I’m only young once. Both are valid arguments. Save money in the long run or capitalize on my reserve of youth and freedom now?
For some this seems so black and white. I have this problem of living my life in the grey.
The faster I pay the loans off, the more money I’ll save to use for travel later. I’ll also have one less expense to worry about as I travel. However, that extra $1500 or so I’d be saving in the long run wouldn’t be immediately at my finger tips like magic when I finish paying off my loans. In truth, I’ll probably have less savings right after I finish paying off my loans quickly than I would if I paid them slowly, saving as I went, but it’s the projection of what I’d save that I fixate on. Plus the faster I pay them off, then the more I can save each month once they are gone, but it’s that much less I save while I’m still paying them. You can see my conundrum. See the money grow quickly later or watch it grow slowly right now.
It doesn’t help that I’m competitive and see the Sallie Mae website as a game I have to win. I get irrationally excited when I see one of my loans drop drastically and even more giddy when one hits 0. Interest is the enemy because it puts me back a few dollars each month.
I’ve worked the numbers at least a dozen different ways. I’ll pay lump sums here and here while upping my monthly payments starting here. I’ll plan to have the highest interest loans all paid off by the end of this year and then drop down to paying half as much each month and drag out the lower interest rate loans. I’ll pay extra big amounts each month and don’t save any money but then they’ll be paid off really quick. I’ll pay only the minimum and say “Eff it, I’m traveling!”
All of these look good and bad at the same time.
My current plan is to pay off the 6.8% loans by the end of this year. Then drop down to paying half as much as I currently do each month and worry about saving up $15000 as quickly as I can for traveling and a cushion for coming home as well as paying my bills while I’m gone. But the “graduated repayment plan where next year I pay off just a little bit more each month so that I’m done with loans by the end of next year” idea has been sticking around to possibly take over next year. One allows me to travel sooner while the other allows me to travel debt free.
Then, just when I finally come to terms with one of the plans, a coworker likes to point out again that I’m young and should travel as much as I can. It’s a never ending debate.
The only advice I think I can put forward through all of this is to budget. Pick your reward (which for me is traveling) and then plan out what you can save each month. Then rework that budget often to make sure you are maximizing everything.
What works for me is that I figured out my monthly income after taxes and made sure to estimate it on the low end. Then I wrote up all of my expenses (these estimated on the higher end): rent, electricity, internet, gas for my apartment, gas for my car, insurance, car payment, groceries, and student loans. I figured out how much that would leave me at the end of each month. (If I just look at my savings it gets a little messy because not every bill comes every month so I have to break it down and know that I’m prepared when the big insurance bill comes every six months). Then I adjust certain expenses that I’m in control of, like my student loans payment and groceries, and either lower my allowance or maximize it’s potential. From there I figure out what bills I will put on my credit card and what will be billed directly to my bank account. It’s not super important to do that, but my strategy for keeping myself on budget is to say that each month I can only charge x amount to my credit card. That includes the groceries, gas, and internet bills as well as anything fun I do. When the end of the month comes I have to start turning people down for drinks or dinner because I am always conscious of how much is on my card. Check your statement often! Some months I go slightly over my limit, but I try really hard not to let that happen and some months as a sort of punishment I carry over the extra money so as to tell myself I now have less money to spend this month. I only do this though because I am paying off my card in full most of the time and when not in full I’m paying a lot more than the minimum, which means I don’t incur interest. This is how I force myself to keep a budget, and that way I don’t accumulate credit card debt which detracts from my future travel budget.
However, don’t let this keep you from enjoying your life. Since I’m holding off on travel for a little, I still want my life leading up to it to be an adventure in and of itself. Sometimes I’ll allow myself to use my savings for an improv class or to buy the new curtains I really want. It’s knowing what to allow yourself and not indulging every desire. It can be like waiting for Christmas Day. How sweet will it be when after the wait you finally get what you want? And on top of that wait you also saved money for travel because you didn’t just charge everything as soon as you wanted it! Double win! At least that’s how I see it.
The budget was a slight tangent, but it linked in with planning out your student loans. I choose to pay about 4x as much as I’m required to pay back each month because I can. This also doesn’t allow me to save as much money in the short term, but like the debate you read early said, right now I’m weighing the pros and cons of saving short term or long term and long term is currently in the lead. The end of this year that might change. That’s why I go over my budget/student loan plan about twice a month. Just to make sure I’m happy with the direction I’m going. I constantly question my money choices because I’m no expert, but this is what I can make work in my mind. I’m still debating if my financial planning side is the better voice or if my wanderlust should be winning. Where do I draw the line?
