Similar to the idea of naysayers in the Optimism post, I feel like a lot of people who graduate with high debt loads get into a self-defeating spiral of Fear about how they are going to live once the debt payments start adding up. I know I was there at one time.
When I first graduated law school, I did not have a job lined up. So I took the bar, and then worked retail until bar passing was announced and I was inducted. After that, I had a part-time job, which led to contract work, which led to a full-time job at a small law firm.
My loans are all federal which provides me with a good amount of flexibility, so take the optimism with a grain of salt. During the time that I was working either retail (low pay) or part-time, my IBR payments were set at $0. Because IBR is based on last year’s income, this meant that for two years I made all my payments on time and in full, because I had no payments. The interest kept adding up during all this time.
Once I started my full time job, the payments increased to $200 a month, which is still well below what’s required to cover the growing interest. It took basically a full year from the time my payments actually started to get our repayment plan squared away. For all that I talk about “having a plan” and “being optimistic” it really can take awhile to get all your ducks in a row.
During that year, however, we made some strides that made it easier to conceptualize tackling the student loan debts. We paid off two credit cards – one was the remaining Barbri loan I had taken out for bar study at 18%. We paid the last $6,000 off with a credit card at 14% because it saved us 4% interest per month. That was a ridiculous loan. Don’t do it guys.
We developed a budget and learned how to track our expenses. This was very important as it allowed us to figure out what we were spending money on that we didn’t care about, and how much surplus we actually had to throw at the debt. That was really the impetus, once we realized we really did have like $1,000 per month to throw at our credit cards, that it really could be doable to start clawing our way out of debt.
And then our incomes both increased. First I got a full time job, which allowed for easier budgeting since I would be on salary. Then, at the beginning of this year, the spouse found a full-time job as well that just about doubled the previous one’s hourly rate. Because we were already budgeting, we knew how much we were spending each month and could put the raise straight towards debt repayment instead of lifestyle inflation. And that’s when I realized that we could get the student loans paid off in less than 20 years.
In all that time, we did end up cutting back on our standard of living. Frankly, it had inflated while I was in law school because there was so much loan money we could afford to go out to eat, and buy new clothes when necessary or video games or what not. We put basically our entire wedding ($4,000 guys) on the credit card, and then promised we’d pay it off (hint: we didn’t until right about two years later). Things really did need to calm down. What they calmed down to is a lesser standard of living than many of our peers because we don’t go out to fancy places all that often – mostly our eating out these days is fast food and burritos because we love burgers and there are so many good burrito places around. One burrito and a side of chips is also a perfectly reasonable meals size for two grown adults. The meat we buy is chicken and pork shoulder, the cheapest at the grocery store, we don’t have huge closets full of clothes or other knickknacks, and we drive old cars and share an apartment with a roommate.
All that being said, we don’t have a BAD standard of living. We still eat out. We still go out with friends. We have two cats. We live in a nice apartment. We own two cars and eat things like BBQ pulled pork (crock pot cooking for the win!). What we’ve learned is that there is still plenty of living to be done, without having to spend tons of money, and things like fancy clothes aren’t as necessary to life as they are sometimes seen. All it takes is a focus on your own priorities and what matters for you.
I say all that for anyone else with vast amounts of debt. You don’t have to live in poverty in order to pay off the debts. You don’t have to give up all the comforts you’ve worked so hard for. But you do need to make a budget and make a plan. Our plan was essentially two and half to three years in the making, all while accruing interest. If you want to get the loans paid off, you’ll need all those details about how much you’re making, and how much you’re spending. Getting out from under isn’t impossible, but it does take time, and patience, and planning.