My mom taught me good etiquette, which means that I don’t really talk about money. However, today I am going to break the rules because I am feeling very blessed and want to share my excitement after one year of paying towards student loans.
Two years ago, Junwen and I were facing scary times financially. He had just finished studying and taking the bar exam, which meant he hadn’t been working and was now searching for a job. I was being paid, but on a graduate student salary. (It was plenty when I was single and had a roommate, but not adequate for supporting two people.) We were locked into a year-long lease that wouldn’t be up for months, although it was almost the cheapest thing you could find on the market to begin with. We were also hit by huge, unexpected medical bills. We didn’t own a car, we’ve never paid for T.V., we were paying my parents only about $50 a month for both our “dumb” phones…yet my little salary wasn’t enough to keep us in the white. Slowly our savings were drying up…We were starting to consider our options…
But then, Junwen was hired at his first job as an attorney, and I graduated and started earning a post-doc salary…Neither were very large for the area we live in (Los Angeles has a high standard of living, and believe-it-or-not it’s just a stereotype that attorneys are rolling in dough), but for the first time there was surplus. We kept living the same way we had been, except a year later we bought our first car (primarily so that Junwen could drive to a new job in Pasadena).
Then the student loan deferment ended, and we started hacking away at them with all the surplus we’ve got. I didn’t really realize just how much $49,171 is when I took out those loans. I honestly can say that I didn’t comprehend what it would mean to be fighting interest rates that are an order of magnitude higher than the interest rates for savings accounts. (Well, in my defense, savings accounts and CDs had MUCH higher interest rates when I was an undergrad taking out those loans prior to the market collapse when I started grad school.) What that means is that there is no point in saving, because those dollars are just sitting there doing nothing while interest accrues on those loans. There’s not really any point in investing, because not much can get you more than 6.5% return without high risk. (For those less math-inclined, if your investments aren’t returning you more than your loan’s interest is making you pay, you’re losing money overall.) So it means that for as long as those loans exist, it doesn’t make sense to save for a house (not that it’s really feasible to do here in LA anyways)…and at times it doesn’t feel feasible to save for a family.
But I’m stubborn. So starting a year ago we starting throwing everything we’ve got at those loans. I am actually quite proud to say that in one year, we carved out $18,908 from that beast. Sometimes I feel empowered, while other times I feel deflated seeing over $30,000 left to go. Honestly I think it does play a role in pushing kids back…While kids are invaluable, they are expensive, and the thought has crossed my mind multiple times that the longer we hold off, the faster the loans go away, and the more we’ll have for to provide for them in the future.
I play a lot of little games…I throw all the excess at the loans that accumulate the highest interest each month…For now that means the largest loan with the highest interest rate (6.5%). When that loan decreases enough that another loan is accumulating the most interest, I switch to paying off that one. (They all get a minimum payment per month, but it’s the one accruing most interest that I throw all our excess at.) It’s not David Ramsey’s method—his method states that you should throw all of your money at one loan (starting with the smallest) until you pay it off, then move on to the next one. I think this method is good if you lack will-power…if you need the reward of paying off a loan to keep you motivated. And that’s fine—whatever works to get you on it! However, you’ll end up paying more in the end using his method, because of the interest accruing…you’re not optimizing the pay-offs.
Anyhow…One thing we learned in our first years of marriage is that we really have no control over what life throws at us, and a medical emergency or an accident or a job loss could suddenly throw a wrench in the works. I therefore don’t take the past year’s blessing lightly, or consider it the norm or expectation for the following year. I am thankful, however, and will keep fighting as long as I can. I just wanted to share my mini-celebration! 🙂
As an afterthought, I just wanted to share that money quantities really vary across the country…I saw that a house near the city I grew up in can be afforded as long as you pay a $200 monthly mortgage…I can’t even fathom that out here in LA, where $1400/month for a two-bed one-bath apartment is cheap. So I hope that providing numbers (such bad etiquette) isn’t cause for comparison. Everyone has to do what they need for their own families and situations. 🙂