This is an amazing guest post from Natalie a.k.a. FinanceGirl. If you are looking for some encouragement along the road to debt-freedom, this post will do just that! Thank you Natalie for such an awesome debt-free story!
I am a practicing attorney in Cleveland, Ohio. I cannot tell you how incredibly amazing it felt to graduate from law school and pass the Ohio Bar Exam. At that point in time, I truly felt so proud of myself and accomplished. I got a job at a big law firm a few months later, and I’ve been working there ever since. About the same time I got my job, my student loan repayment was set to kick in. Prior to this point, I really hadn’t thought much about my loans or finances at all.
I graduated with $206,000 in student loan debt
I got my paperwork together and made some phone calls, only to discover I owed $206,000 in student loan debt. My payments would be near $2,000 / month. Oh em gee. This was horrifying. This wouldn’t be as big of a deal if I was making $200,000+. But, I graduated in a really tough economy and at a time where the structure of hiring and promoting lawyers was changing. My salary hovers around the $80,000 mark. Factor in health care and taxes, and my take home pay is about $4,000/month. Now, $2,000 of $4,000 is 50%!! I was nearly shocked and horrified. That is when I started learning everything I could about finance. I became so passionate about it and so shocked that I was actually among so many who didn’t have a clue about their personal finances. That’s when I started Financegirl, where I decided to write about finance and intentional living for young, professional women, like me.
I paid off $50,000 in 3 years
At first, I paid close to $2,000 month on my repayment plan. That became really difficult given my living expenses in a one bedroom apartment. I felt poor – not just broke, but poor. I changed my repayment plan to the 25 year extended plan for a bit, and that was more manageable. My payments went down to about $1,100/ month. After some time, I began to pay attention to the total amount owed and realized I was getting nowhere because my interest rates were an average of 7.9%. Let me tell you – it’s so discouraging to pay $1,100 / month and never see your total amount owed go down.
So, the following year, I decided to put my bonus onto my loans. Seeing that principal go down immediately was so gratifying. I wanted to see that progress more. So, I decided to go back on the 10 year repayment plan. (I wrote a post about that decision here.) Now that my loans were a little lower from my bonus payoff, my payments on the 10 year plan were (and still are) $1,605/month. And since then, I’ve paid off a grand total of $50,000. That seems crazy to me! I try to focus on this so I’m encouraged and not discouraged by how much is left. $50,000 paid off is a substantial start.
I still have $156,000 to go
After paying $1,600 / month and being on the 10 year plan, I finally feel ahead of my interest. In fact, I usually see the principal number going down another thousand almost monthly. This is huge. Seeing the progress keeps me going. And every little bit counts. The momentum from being on the 10 year plan and seeing the principal go down has been so inspiring and encouraging, that I’m launching my own automated 12-month accelerated repayment plan for 2015. I haven’t announced the full details yet, but here’s an overview of what I’ll be doing: I’m going to add an additional $1,100 / month to my student loan repayment every month, so I will pay off $2,700 / month for 12 months assuming my income and living situations stay the same. So, my goal is to pay off $32,400 in 12 months. I’ll live off approximately $1,400 / month or $16,800 for the year. (You’ll have to visit Financegirl in January for the rest of the details 🙂 )
What it feels like
I think about my debt constantly. It feel horrible to be in this kind of debt. But that is exactly why I keep focused on my debt – because it’s my job to do something about it. The feeling of owing that much money is daunting and frightening. But I instead turn that around and ask “What does this make possible? What can I do about this?” This mentality is so much more productive for me than sulking or having a pity party.
My attitude about my student loan debt is this: “I got myself into this mess, and I’m going to get myself out of it – and share my story along the way.” Having an attitude that pushes me forward is so empowering. If you owe money or are struggling in other ways do whatever you have to do to avoid the victim mentality. I never knew anyone who became successful and wealthy who acted like a victim. Become the victor; make things happen that wouldn’t be possible otherwise.
If it weren’t for my student loan debt, I probably never would’ve learned this much about finances. Nor would I have started my blog or freelance writing. I am so passionate about personal finance now, and that is due to graduating law school with massive debt. I never would’ve found my purpose but for this debt.
My financial philosophy
Although my debt has empowered me to write and create a blog that I’m so passionate about, the reality is that my debt is still there. As a result, getting out of debt is my number one priority right now. This means being “frugal” and trying to increase my income in order to get out of debt as fast as possible. It also means focusing in on my debt and not becoming side-tracked with investing or other fun financial things (I’m saving that for later).
Additionally, I don’t use a credit card. I don’t have a credit card. In fact, I’ve never had a credit card. Ever. (You can read more on that here.) If I am trying so hard to get out of debt right now, it makes zero sense for me to add any consumer debt. It’s against everything I believe about personal finance.
Overall, my personal financial philosophy encompasses becoming debt free, learning to manage my finances (including budgeting and being frugal), and building wealth over time. I’m grateful for the opportunities that have come from my student loans, but I can’t wait to say bye to them forever.
Natalie Bacon is the author of Financegirl, where she blogs about finance and intentional living for young, professional women. She’s an attorney by day and a personal finance freelance writer and blogger by night. You can join her as she digs her way out of student loan debt on Facebook, Pinterest, Twitter, Google+, and Instagram.
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