Tales from the Wallet: Tackling Big Debt

how to pay big debtHow do you pay off big student loans?  Can you manage your debt when you’re facing huge numbers, such as six figures? We’ve talked about when to save versus when to pay down debt before, but a number of readers have asked for a post on Really Big Debt, so let’s discuss (particularly since the interest rate just doubled on new Stafford loans!).  I polled some friends to ask who had a plan or success story that didn’t involve inheritance/lottery, and thought I’d round up their stories, anonymously, below — but readers, please share your own! Have you paid off major debt (student loans or otherwise)?  What is your plan to pay it off? (Pictured: one of Nordstrom’s top rated wallets: Hobo  ‘Lauren’ Double Frame Clutch, with 95 positive reviews. Available in six colors for $110.)

M’s Story: Some repayment assistance / A whole lot of payment discipline

So, on my loans: the total between grad and law school was about $130k. I was fortunate to go to a law school with a repayment assistance program for graduates working in non-profit organizations… which requires the 10-year repayment plan. I bit the bullet and went for it, feeling like I’d rather suck it up for ten years and be FREE than have student loans following me into my 50s. Consolidated all the loans (with super-low interest rates, hooray), signed up for repayment assistance, and made sure to sign up for auto-pay on the loans to make non-payment/paying less not an option.

Repayment assistance lasted 5 years or so, at which point I switched positions to a non-JD role; from then on, I just paid, sending extra to the principal when I could, even if it was just $10 or $20 a month. I graduated law school in ’04, so with the 10-year plan, the end is finally in sight – $17K to go of the original $130k. Throughout the past nine years, the loans got paid before anything else — I think of them as my own little mortgage.

(Psst: M has her own blog, King of States — check it out!)

T’s Story: Spent all discretionary income on loans / used bonuses to make one-off “super payments”

Basically, it was a mixture of living WAY below my means (sharing a tiny, rent-stabilized studio with my boyfriend, and cooking at home a lot) and spending basically all of my discretionary income on making additional payments, and, yes, using bonuses to make one-off “super payments.”

I definitely would target one loan at a time (I never consolidated for some reason).  It was helpful to have lots of smaller targets (I must have had 13 or 14 different loans at the beginning?). Much easier psychologically, and more motivating, to say, I’m going to target the $7000 loan than thinking about the fact that in their entirety they added up to somewhere between $125,000 and $130,000.  Once a particular loan was paid off, I kept paying that payment amount, but to the current loan I was targeting. So it snowballs: once you’ve made that first dent at paying off a chunk, it just goes quicker and quicker the closer you get to the finish line.

The other thing I did was make strategic use of all of those interest-free credit card balance transfer offers that come in the mail. I probably took advantage of those offers 3 or 4 times to “pay off” loans by paying for them with balance transfer checks. (This article describes it pretty well.) The trick is that I would only use ones that were interest free introductory offers for 5 or 6 months, and then I would make extra certain to transfer the balance elsewhere before the normal interest rate kicked in. It also gave me the motivation to get that loan paid off before I had to actually start paying at a higher rate. The other thing is that opening too many credit card accounts too quickly supposedly can actually be bad for your credit score, so I didn’t want to go too crazy.

It also helped that I spent a good chunk of my first years away on business, so I had basically no personal expenses during that time.

I thought it was important to give myself goals to look forward to, so I bought myself a Cartier watch when I had paid off half of my loans (I’m wearing it right now). I had a couple of smaller milestone purchases, too.

While I hated being in debt that much and wanted it gone, I can’t deny the effect that luck also played — I started at my law firm right when salaries were being raised, big time. So, in short, it was a mixture of extreme focus and motivation combined with that bit of luck that enabled me to really see significant results from my hard work.

We applied similar focus to paying off our mortgage (not using credit card offers, but by putting all of our extra cash to the mortgage) and our main residence is now mortgage free – yay.

R’s Story:  $45K in Three Years by Targeting One Loan at a Time

Obviously, $45K is not six figures, but since one friend shared a lot of details on how she and her husband paid off $45K in three years, I thought I’d add her story as well.

When we started it looked like this:

Loan Interest Rate Original Balance
1 6.8% $8,500
2 6.8% $10,000
3 5.8% $5,000
4 5.8% $4,250
5 4.9% $10,429 (consolidated)
6 2.5% $8,500

My husband got his master’s degree in May 2008 and had been paying the minimum each month since then; once we got married (3/09) we decided to make a joint effort to get out of debt as quickly as we could. We always paid the minimum, and then we would target one loan at a time — our first was #1, the 6.8% one.  The loans were with Citibank then and it was very easy, online, to add extra money to one particular loan payment each month. I don’t remember exact numbers but if the minimum was $70 for Loan #1 we would instead pay $300 (or whatever we could). We paid off Loan 1 by July 2010, set a new target (Loan #2), and then mentally moved what we HAD been paying for Loan #1 towards Loan #2.  If we had a lot of extra money (from a bonus or a gift) we would send in a single payment of anywhere of $1000 to $2500, and loans 2, 3, and 4 were gone by Summer 2011.  Somewhere around that point, the remaining loans were sold to Sallie Mae by Citibank, and the new online interface made it 1000x harder to pay individual amounts for specific loans. Spurred by annoyance, we stretched a bit and finished paying off Loan 5 in December 2011.

With Loan #6 we stopped for air — 2.5% is lower than our mortgage interest rate, so we just paid the minimum on that for a while, very occasionally mailing in a big check when we had extra money. We finally paid it off earlier this year — we dipped into savings a little bit to pay it off, but it was then less than $3K and we just wanted to not think about it.

We didn’t vacation, we don’t have expensive hobbies, and it helped that the market was giving really poor returns at that time — it felt a lot better to put whatever excess money we had into paying off debt instead of buying stocks or funds.  I was also always happy that we had lots of smaller targets — it was that much easier to mentally tackle one.  Between all six loans, we still paid almost $7,500 in interest. 

When we finished paying all of the loans, we decided to split the money that we had been using for our monthly loan minimum payments to a) increase our mortgage payments so we’re paying off more principal every month and b) increase our automatic contributions to our kid’s 529 plan.

S’s Story: A Family Member Won the Lottery

It actually does happen, ladies!  One friend told me this under strict secrecy, and I’m so happy for her — I was grinning like an idiot the whole time we were emailing.

I know lots of people joke about having to win the lottery to pay off their student debt, but it seriously happened. Without that miracle, I’m not sure I would have paid off my loans (about $130K) before they were due in about 25 years. In my family, the miracle of my loan’s disappearance is something we just don’t talk about or tell anyone about — almost like talking about it will make it unreal — but we are so thankful for it.

Readers, how much student loan debt do you have?  What’s your plan to tackle it? 

Comments

  1. My plan is to pay more than the minimum every month. Right now I can only pay $10 more. I’m 85K in student loan debt (no credit card debt at all) but I make less than 50K a year. I’m only 1-2 yrs working full time and expect my salary to go up accordingly. I hate the debt but I wouldn’t have gotten my job/been in my field without my specific masters. I’m hoping next year when I live with the boyfriend I can pay at least $50 more than the minimum.

    • Hats off to you, sounds like you are financially savvy and are well on your way. I make a lot more and have only been paying the minimum on my student loans. Though I am lucky to have a super low rate locked in (less than inflation) so I *think* economically it doesn’t make sense to focus my resources here. At least that’s what I tell myself!

    • That extra $10 or $50/month will make a huge difference down the road. For me, the trick was to set up an automatic payment for an amount higher than I had to pay. I never saw the money so I lived without it. Because I was paying ahead of schedule, if something had happened to my income source, it would not have affected my ability to pay the loans because I had no payment due for many months.

  2. I was lucky enough to graduate from undergrad debt free (thanks to parental support) and from law school with only about $30K of debt thanks to a big scholarship, some parental support and saving a lot of money from summer jobs (including 1 summer in big law). I paid it off in under 1 year in big law in a high cost of living area. I spent about $1000 a month on rent (my share of a $2000/month 1 bedroom with my husband), put about $1000-$1500 a month on my credit card (food, restaurants, entertainment, clothes, travel), put $2500 into the loans every month, which left about $3000 of my take home pay into savings every month. I was able to significantly “upgrade” the lifestyle I had in law school while still living frugally enough to make big loan payments and put a lot into savings. My #1 tip (especially for those in high income jobs, like big law) is to keep living basically like you did in law school. You can splurge a bit more (for me this meant more clothes shopping at affordable stores, more Starbucks, more mani/pedis and more travel), but if you try to basically live the same day to day lifestyle on this huge salary, you’ll have a ton of money leftover. It can be hard when some of your colleagues are buying BMWs and Louis Vuitton bags and you consider Starbucks a splurge but for me it was worth it to get rid of the debt.

    • Yes, we were lucky to gradeuate when we did. Dad told me last month that in this economy, no one would hire me, NOT even the manageing partner. I said he was WRONG, b/c the manageing partner calls me his “billeing machine” and would never part with me or have any choice BUT to hire another billeing machine to get all of the billeing’s in and collected! YAY!

      Today Roberta called to see if I was doeing anything special for the 4th, and I told her of the manageing partner’s boat ride. She said that she wanted to be invited to see his new boat, seeing as how she paid for some of it. I think she was seareious, so I told the manageing partner. He said he was planning a cleint’s outing around Labor day, so I could tell Roberta to keep her caleandar open. Roberta was happy. She also know’s that I onley have 3 open case’s from her, so she is goeing to see if there are any other type’s of cases she can “throw me”. I told her I do NOT like antietrust, but I can do loan agreement’s now. We will see what I get. She also told me she would talk to Jim to have him give me more case’s. YAY!!!!!

    • Agree x 1000. DH was working on his MBA for 2 years. When he graduated, he got a good job. We put the vast majority of his take-home pay toward loans and continued to live essentially as a one-income family for the first year. The rest of his take-home pay went to slight lifestyle upgrades, such as replacing our old car with a newer/nicer one (but not nearly as new/nice as we could have gone…), and being able to eat lunch out at work once in a while.

      We knocked out $25k in the first 7 months he had been working. Still have a ways to go, but the key is to continue living like a poor student for as long as possible, if your goal is to pay it down ASAP.

      • Agreed! Our plan is to live like a one-income family for expenses and most savings and put the other salary toward debt and a down-payment on a house. My hope is that we can actually do this forever, even after the debts are paid and the house bought. It seems like such a secure position to be in if something were to happen to one of our jobs.

        • We have lived this way and it allows for opportunities as well as security. I was able to work for a startup (it didn’t pan out but I got some great experience) and he was able to quit his day job and start his own business. These are still risky choices but doable since we are used to living on 1 income.

  3. Graduated in a bad economy as did my SO. With two law school debts to pay we’re paying what we can and thanking the heavens for income based repayment and his school repayment assistance.. Paying them off ASAP is a goal but staying afloat is taking priority at the moment.

  4. momentsofabsurdity :

    What a timely article, considering I just completed my loan applications for grad school yesterday. A little terrifying, but here I go into the land of debt…

  5. I’m just frustrated that I can’t find some way to lower my 6.55% interest rate on my grad student loans. I have a good job with decent job security and I feel like I’d be a pretty safe investment. It kills me that my mortgage is at 3.65%, my savings account is making .25% (seriously), I have no credit card debt, yet I’m saddled with this high student loan interest rate.

    My parents have told me that they’d be willing to buy up my loans and loan back to me at a lower rate (around 5%, maybe 4.5%), but I don’t know if this is really a good idea. I have a good relationship with them, but money has always been a tricky issue. They like when their children are somewhat financially dependent because then they can exert subtle control over our choices. It’s not really malicious, just kind of frustrating and demeaning. Has anyone used a family or friends “loan” to lower their interest rate? Any suggestions?

    • I am in the same boat with the same rates. I had talked to my parents about having them buy out my loans and pay them back for a lower rate, but now I am in the process of refinancing with Sofi. I also keep saying an add on facebook about refinancing with DRB, which seems to have rates similar to Sofi. Does anyone know anything abotu DRB?

      • I am a banana. :

        I am refinancing with SoFi right now, too. I can only afford to do the fifteen year term (not BigLaw or anywhere close), but I’m really excited about it because I am currently on extended repayment plans and am basically still paying only interest even after almost three years. SoFi is going to save me almost a hundred thousand dollars over the long term and my payment will be almost the same.

        • Gail the Goldfish :

          I am also refinancing some of my loans with SoFi at the moment for the same reason. I can also only afford the fifteen year term, but even that was still a pretty significant interest rate reduction for me (My grad plus loans were at 8.25%, SoFi 15 year is ~6.55).

      • Happy to speak to anyone about the DRB loan. DRB just lowered its rates and they are certainly lower than SoFi. Application process is quick and simple and there are no fees. Msg if you have any questions.

    • I would not do it. It doesn’t even save you all that much money, in the grand scheme of things. I don’t know how much you have in loans, but let’s just say it’s $50k. Over the life of a 10 year repayment plan, you’d only pay about $5k less in reducing your interest rate from 6.5% to 5%. And you’re going to want to try to repay your loans in less than 10 years anyway if you can, so then it would be even less. You want to feel like the adult that you are now, not dependent (even in part) on your parents financially. We had a similar situation where my in-laws “lent” us the money for the down payment on our first house and then we paid them back on the side. It was exactly what you describe — subtle efforts to control our choices and just a little bit demeaning. If I could turn back the clock, I wouldn’t do it again.

      • It really depends on your relationship. I borrowed the down payment for my first house from my parents and am still paying it back on the side. They haven’t tried to exert any influence on my decisions. They are charging me fair interest and my dad the accountant is keeping careful track of outstanding principal and interest. Obviously they want me to pay it back (and I do too), but they know it is happening slowly but surely and don’t pressure me. It enabled me to get on the property ladder and has worked fine.

    • Lady Harriet :

      I was lucky enough to graduate debt-free thanks to a scholarship, so I haven’t been in your situation. However, I don’t think borrowing money from your parents is a good idea because of the strain it puts on your relationship. A friend of mine did this and it’s definitely caused problems in her family. Her mother especially wants to control her career choices and this makes it worse. I just don’t think it’s worth that just to save money.

    • Jenna Rink :

      I think you answered your own question! Saving less than 2% on your loans doesn’t sound like it would be worth adding a frustrating/demeaning aspect to an otherwise good relationship with your parents!

    • anon for this :

      Definitely depends on the relationship. My parents and I don’t have an always smooth / get along perfectly relationship, but they very generously paid for my undergrad. We had a huge fight before my senior year regarding what I wanted to do with my future career, which did not mesh with what they wanted me to do. It led to me taking out a loan for my senior year so I wouldn’t have to be financially dependent any longer, and a very strained relationship. However, we then reconciled, and things are much stronger. They paid off my grad school loans the day they became due so I wouldn’t have to pay interest, and did not charge me interest (only 12K for a one year program where I worked/TA’ed throughout that I have now paid off). This time around, there were no arguments and no subtle attempts at control! The fighting helped our relationship, and I think they were impressed with my financial responsibility in working, saving, and taking out minimal loans.

    • I would not borrow from your parents. If they want to give you an allowance or pay direct to the loan company a certain amount every so often, fine, but I would stay away from a financial dependency on them. If something would happen and you could not repay them, you would feel very upset and they would be out the money as well. Not a good formula in my opinion.

    • Anonymous :

      My brother couldn’t refi his student loans, so my parents took out a home equity loan at a much lower rate and paid off his debt. Now he is paying off the home equity loan. Can you take out a second mortgage / home equity loan at the lower rate?

      • That’s what I plan on doing. I own a home and I plan on taking out a home equity loan as a lower percent to pay off my $35K of student loans. I’m surprised more people haven’t mentioned this option. It seems like a good idea. Am I missing something?

        • Perhaps because not many people own or have equity in their houses. If you have it, and you won’t risk going underwater by doing so, and the fees to do so are better than interest on the student loan, it sounds like a good idea.

  6. I just finished paying mine! I paid down 130K in 2 years, 5 months. I don’t have any smart strategies though, except to just do it. I was fortunate to get a big law job and I paid well over half my monthly salary to loans every month (5K the first year, 6K after that). I also put bonuses towards loans. So, it can be done, but gosh, it makes me thankful to have this job, because paying them down otherwise would be very difficult.

    • That’s pretty impressive. Congrats!

    • About to get a fancy MBA and sign on to big loans for a first time. I am trying to figure out what salary I would need after I get out of school in order to accomplish this. When people talk about a BIG LAW salary. What do they actually mean by that? $125, $175, $250? I have no context.

      Looks like I will be graduating with about $120k in debt that I would love to pay off quickly.

      Thanks!

      • goldribbons :

        “Market rate” for Biglaw starting salary is $168k. Obviously it goes up from there. Bonuses for first years are generally under $10k.

      • Starting salary in major markets for BigLaw is $160K.

      • $160K starting in major markets (NYC, DC, California, Boston, Chicago).

      • In NYC and other pricey cities, $160K with a small bonus. $145K in Philly. Base salary tends not to increase dramatically over time – by $5K-$10K per year typically, though the potential bonus grows as a percentage of base salary as you get more experience.

      • Houston Attny :

        Please keep in mind that most (probably 70%) of recent grads from law schools do not make 6 figures when they graduate from law school. Just wanted to add that since we’re all sure that we will make top grades (after all, we made them in college!), but reality can be a different story.

        • Always a good disclaimer. Also worth note the very high unemployment rate among young lawyers right now, making starting attorney salaries a very strange beast to understand. Only a very small percentage (and getting smaller every day!) of people make this salary starting.

        • Gov't Atty (not DOJ) :

          I am another government attorney using IBR to pay student loans of around $110K. Despite my high debt and low earnings compared to biglaw, I feel fortunate to have most of my loans eligible for IBR and the opportunity to use some of the regular student loans for a bar loan rather than private loans. There’s only $5K remaining in private loans that I might as well tackle.

          In addition to unemployment, some attorneys work low-paying private sector jobs that do not offer the same federal loan benefits of a public interest or government job.

    • Very impressive. Now start saving because law firms are going to be a different beast than they used to be.

  7. I’ve said this here before, but I paid off ~175K within just over 4 years after LS graduation. My first year out (’08 grad) I paid only the minimum amount due, b/c I was afraid of losing my Biglaw corporate job in the economy, and wanted an emergency cushion instead. Then in years 2-4, I paid about $2,500-3,000/mo, while allocating all of my (good because I got busy) bonuses to the cause (except small gifts-to-self as a reward). When I was down to about $15K left in August 2012, we had enough savings that I felt comfortable saying F-it, Citi, I’m paying it off.

    How? Keeping fixed expenses down (we didn’t go for a big fancy condo, don’t have a car, gym membership, cleaning service, premium cable, etc) and otherwise only permitting mild lifestyle inflation (slightly more frequent dinners out, but we didn’t replace the nights we’d heat up a can of soup with getting takeout, etc).

    • Yes, we also don’t have a car, a condo, air conditioning, cable, or a cleaning service. I have a gym membership but didn’t for teh first year. We have a super simple cell plan (and work pays for my smart phone). We cook a lot at home. We still upgraded from lschool though- mostly on vacations/trips to visit family/eating at nice restaurants a few times a month/we give nicer gifts at weddings/I buy more clothes (sames stores though). We could definitely be even more frugal, but this was the balance that worked for us.

      • Sometimes I get frustrated because I live in an area where having a car and air conditioning are non-negotiable (big southern city). I know there are trade offs, cost of living is probably lower and other things I can cut out…but still…

        • Yeah, cost of living definitely can’t be discounted. I also live in a big southern city where car and a/c are necessities. My car is paid for and I estimate that the monthly cost of car plus a/c averages ~ 400 (including gas, insurance, maintenance, etc). An apartment my size in NYC would easily cost me an extra 3K a month. Easily. And I don’t live in a palace.

        • I totally agree — for example, I think the Biglaw salary in Philly, even though it’s less than other major cities, goes much further here — much better quality of life on $145K starting in Philly than $160K starting in NYC.

          • Especially because the difference is even less after takes. I think most of the “secondary markets” that start at $145K are much better off when you factor in cost of living. You also get more for your money in DC/Boston/Chicago than in NYC/Bay Area but they’re generally all paid the same.

          • *taxes. Although I guess ‘takes’ works too ;)

      • Miz Swizz :

        My husband and I started turning off the A/C while we’re both out of the house and it makes a huge difference in our electric bill. Same thing with the heater. It doesn’t make sense to make our apartment comfortable when neither of us is there to enjoy said comfort.
        We’re in an aggressive pay-down mode right now and every lit bit helps. I always take my own cup to Starbucks and I have a registered giftcard there that gets me a free drink after 12 visits. It doesn’t seem like much but saving my freebie for the expensive coffee drink makes me feel better about going there and going there is my daily one-on-one with my mentor so I feel justified in going.

        • Unfortunately our 105 degree heat + humidity means we would have a much higher bill if we shut the A/C off…but I do turn it up during the day :)

  8. Diana Barry :

    I have friends who have just completed the 10 years in a public service job and the remainder of their loans have been forgiven (this was our law school program before the fed public service loan forgiveness program); other friends have gotten a state job and are going to do the federal program.

  9. Sydney Bristow :

    I have a lot of student loans, which luckily are my only debt, but stupidly also include private loans. If I could go back and do things differently, I absolutely would.

    I have my federal loans set up on IBR, which supposedly will be forgiven after 25 years. Because I worked a ton of doc review hours last year, those IBR payments are about 2/3 of what the 10-year repayment amounts would be. I’m just paying those as agreed.

    I have a few private loans, which is where my focus is. I’m paying the min on all but the highest interest one (which is also the highest balance one). I pay at least $50 extra to it each month and put at least 1/2 of any unexpected money/tax refunds toward it. I’ve mentioned it here before, but I also pay an extra amount equal to whatever new items I buy in a month (like clothes I don’t have on a list of items I need, books, etc -things that aren’t necessities). I’m chipping away at it, but it is overwhelming to realize that I’ll be paying these loans back for so long. Luckily my boyfriend and I have decided not to try and buy a place anytime in the near future. $50 extra per month to this 1 loan means it will be paid off in 7 years, so I really need to focus. You all are really inspiring on that though!

  10. $108,383.87: Original consolidated student loan amount, 2002.

    Due to capitalized interest during forbearance and deferment periods, the balance of the loan increased to $163,285.65. By the time it is finally paid off, the total amount will be maybe $164,000.

    Balance remaining on the loan is $14,853; 91% of the total balance has been paid.
    Much of the amount has been paid in the last 44 months. Since November of 2009 I’ve paid $123,161.23 or $34,402.57 per year on average or $2,864.21/month.

    At the beginning of the accelerated repayment, in 2008-2009, I also paid off my 2003 Jetta and about $20,000 in credit card debt. I still have the car and carry zero balance on the cards, except for a 0% interest balance transfer card that I used to pay part of the loan. I pay this one off before the promotion period ends.

    To pay off the loans, credit cards and car I worked as a contract attorney and picked up a part-time job teaching college classes. I just started another part-time job on weekends in June. I share a townhouse near San Jose, eat out only occasionally, and travel to see family twice a year. Not having a car payment is a big help, I bike to work and to do errands unless I’m teaching to cut down on gas and repair bills.

  11. This is a very timely article and I appreciate it! I am finishing my master’s in engineering and starting my first industry job in a few months. I’ve already been thinking a lot about how much of my future paychecks will be going into student debt repayment. The tricky part is my new job is in Switzerland and my student loans are all in the States. Are there any tips to minimize the international payment fees or get the most out of exchange rates in order to maximize student loan payments?

    • See if you can get something like HSBC premier – they will set you up with an account in your country of residence and a US account and give you a slightly more favourable exchange rate, as well as linking them (so you can log in to one internet banking site and see both accounts). Or at a minimum look for US banks that have a relationship with a bank in Switzerland, you may be able to get a similar deal there. Whatever you do, don’t forget to file your FBAR (foreign bank account report) every year once you open an account in Switzerland (I’m assuming you are a US citizen moving abroad for the first time – apologies if you already know this). If you can, it may be worth talking to a tax advisor before your move as it can get complicated on that end for US citizens abroad and they can help ensure you are set up from the start to understand what issues may arise in terms of reporting, and more importantly, pensions/investment planning.

    • Minimize the international payment fees: make the largest payments you can, so you don’t make as many. Otherwise, have you thought about keeping open (or opening) a US checking account and making monthly transfers into it to cover the loan payments?

      In terms of exchange rates, since they fluctuate daily and you don’t really have control over when SallieMae takes the money out of your account and when your bank decides that SallieMae finally took the money out of your account, I would say not to worry about it. Switzerland’s exchange rate right now is almost equal to the $USD. While it could change, you probably won’t run into a situtation of rampant inflation/deflation in either country in the near future, where your loan payments suddenly go from $$ to $$$$$$$$$$$$$$.

      Switzerland’s COL is crazy-high, so you may want to check to see if that would count towards lowering your loan payments. I have no clue if this is even feasible, what loans you have, etc, but something that you may want to check into in case it is.

    • Thanks for the great suggestions, and I will look into them!

  12. I graduated (law school, grad school (joint degree), and undergrad) with $220K in loans in 2008. I married my husband last year, taking joint-ownership of his 60K in credit card debt and loans from grad school and undergrad. And we paid for our wedding, which was really the one financial splurge I’ve allowed myself (to put money toward it rather than our debt, it was not a particularly splurgy event). It has not been easy, but since I graduated, knocking down the debt has been my top priority. I’d say 2/3 of our income goes to our debt, though now that the balance is down to about 50K (and reasonable interest rates, grad plus at 8.5 and Stafford at 6.8 were brutal), we’ve started allocating a third of that toward saving for a downpayment. I have been really lucky in that I held on to my first big law job for 4.5 years, and am now on my (more bearable) second quasi (not quite market) biglaw job. My husband does not lawyer public service work, so I’m definitely the breadwinner. It has sucked because there have been stretches where I’ve been miserable in biglaw and felt absolutely trapped by the salary. After three years or so though, I’d paid off enough that I couldn’t imagine switching to a position that would qualify me for IBR or LRAP.

    We don’t live extravagantly, but we’re in a high (not NYC) cost of living area and we basically live as though we have a combined income of 60K a year. I’ve put off a lot I want to do career wise, kid-wise and life-wise (buy a house-or rent an apartment with appliances that are not older than i am, adult furniture, clothes at the Ann Taylor/J. Crew level that aren’t on clearance), etc. BUT, it’s been worth it to us to get the debt under control. If I’d lost my high paying job back in 2008 it would have been hard to make the minimum payments, now I don’t need the salary to make the payments, which is a huge relief. If you have a really secure job (I didn’t and only kind of do now) and you can make your payments comfortably there is a lot more wiggle room to decide not to pay off extra each month in favor of other goals.

    I’d recommend focusing on the highest interest loans first and snowballing down from there. Also pay attention to whether the rates are fixed or variable. We have some variable loans under 2.0 left that we will prob pay off before my udergrad loans that are locked in at a fixed but slightly higher rate.

  13. Anne Shirley :

    2 years into paying down 120k on the standard 10 year plan. I pay a couple hundred extra a month and send in the equivalent of a 13th month each year. I’m torn, because I could be more aggressive, but I’m also not seeing a huge downside to taking the 10 years. And really the little sacrifices would only add up to a few months earlier- still real money, but to actually make a sent I’d need to move somewhere cheaper and stop traveling. And the only thing that makes my job bearable is a nice place to come home to and the flexibility to book last minute flights when I can.

  14. Associette :

    I am swimming in $170,000 law school debt and regretting it every single day. I work at a mid-sized firm with a mid-sized income. I have been paying the minimum payment since 2008 (first year or two we didn’t make enough to pay extra, then we decidedthat having a house was important for the mortgage interest deduction, now we are planning for our baby due in November). Excuses, excuses. I need to start chipping away becuase I am not interested in taking these loans into my 40s.

    I would love to hear from people who don’t work in BigLaw who were able to take out the debt in a reasonable amount of time while living a fairly normal lifestyle (husband, house, car.)

    • So those of us who chose to rent and be single are not living a fairly normal lifestyle?

      • I took normal as in, not taking fabulous vacations, etc.

        • Associette :

          anon – you are right. Lisa you read into that a bit. I just mean not living beyond your means or living so frugally that you eat ramen every night, that is all. No judgment!

          • Realistically, vacations, fabulous or not, are expensive. Not just for the money being spent, but also for the interest you are paying on the balance of loans/credit cards that are not being paid to the fullest extent. What got me motivated to accelerate payments was the snowballing of the paying down–the balance gets smaller, the interest paid per day (on 7%) gets smaller and nothing in the market can get me a guaranteed rate of return like that 7%. I will save tens of thousands of dollars in interest. With that money I can take a vacation, buy a Cartier watch, or whatever I want without going deeper into debt.
            I am not making moral judgments about decisions people make. Economics is all about making choices on what to do with limited resources that have alternative uses. And people make rational decisions based on what’s important for them. It’s irrational, however, to think that student loans can be paid off quickly or not carried into one’s 40s or 50s without making decisions that prioritize repayment of loans.

    • mama of 2 :

      I’m in the same boat. I work at a big law firm, but I also was a single breadwinner (DH didn’t draw a salary until really recently) and I have two kids. We’ve been frugal and careful but the truth is, between living in expensive cities and the one salary, we just haven’t had the income to throw at student loans and perhaps just as compellingly, we haven’t chosen to throw the income at student loans as opposed to other things. So I’ve just decided to get okay with that. There are other things that are important to me (high quality childcare, a mortgage) and honestly, the student loans just are what they are. I just think of them as another mortgage and pay them every month.

    • I live in the boondocks so my salary is commensurate with that. Thankfully I had considerably less than $170K in law school loans to start, but we’re putting 20% down on our house (again, see living in the boondocks, I can’t imagine doing this if I still lived where I grew up) and honestly I’m not sure if we’ll have my loans paid off in 10 years from my graduation. 15 years is doable for sure but 10 is kind of cutting it close. I worked in midlaw for almost 4 years (where i overpaid my highest interest rate loan each month), then was unemployed for awhile (and took all loans down to the minimum payment), and now have been working for peanuts (although I love my job). I never quit paying while I was unemployed, but I blew through my savings and building savings back up had to be a priority over paying more on generally fairly low interest loans in case I ended up unemployed again.

      Also Lisa, where I live, a mortgage payment is about half what a rental payment on a similarly-sized property would be. Sometimes buying actually makes more sense financially. It all depends on where you live as to what will save you more money so I wouldn’t assume there was any judgment made on renting v. buying.

      • Absolutely, where you live should influence the decision to buy vs rent. I live in Silicon Valley, where prices have gone back up thanks to Google, Facebook, and Apple.
        You know prices are high when people getting Habitat houses have two steady incomes, including one in health care.

  15. Bookmarking to read these…

  16. Slightly off-topic but money-related:

    For those of you with children, what did/do you do in terms of saving for them? I am just starting to think of this now and am trying to decide whether to set up a separate savings account for the little one-to-be, or a registered education savings account, or what. What have other people done, how much have you saved per month, what would you recommend and what would you steer me away from?

    For reference, I am in Canada so specific references to US tax vehicles will go right over my head. :-)

    TIA.

    • Would love to hear about this too, also in Canada. An RESP looks like a good idea due to government matching (up to 20%). But that’s only for post-secondary which here is so much less, although going up all the time.

    • We have a college fund (US- Tax vehicle) that we are contributing to yearly as are the grandparents. We used an online calculator to determine how much we needed to save. We will probably set up a regular savings account in a few years as part of teaching savings and allowance.

    • TO Lawyer :

      Take this with a grain of salt as I have no children but for a Canadian perspective:
      -I would start an RESP for your new baby as (if I remember correctly), some of your contributions are matched. I know when they started the program, my parents contributed the max every year and I believe their contributions were matched
      -I would also start a TFSA for the baby because I believe you can transfer $$ as a gift and would contribute the max ($5500 a year I think).

      I think amounts per month are probably dependent on your income/goals/lifestyle but maxing out the above two vehicles is probably a good way to get the most bang for your buck

      • Canadian here. Our daughter has an RESP which gets maxed out every year. A child under 18 cannot have a TFSA but you can have one with he or she as the beneficiary, this is what I do. I consider it “hers”, although I can do whatever I want with it. I put the $100 universal childcare allowance every month directly into it. So our 31 month old has $9575 in principle in her RESP (I’m not sure how much they’ve made as her grandmother manages it) and she has $3300 in her TFSA.

    • My husband and I each put $5000 into our child’s account since the time he was born, which is when we opened his bank account. So now he has $50k already saved up. By the time he is 18, he will have $180K. Still wondering how best to invest that. We will also do the same for our 1 yr old girl.

      Our intent is to pay for both kids’ college education and hopefully also for whatever type of post-grad degree they choose…MBA, law, whatever, etc. I assume that they will go to the US or UK for both under-grad (univ/college degree) and post-grad.

      PS: We don’t live in the US.

  17. Husband makes $62k (professor), I make $50k (public interest law). We’re paying off all our undergrad student loan debt this year in small chunks out of each paycheck (around $25k in undergrad debt) — it’s our new year’s resolution. We did buy a small house this year and an inexpensive car.

    I have huge law school debt. HUGE! ($170k-ish) I’m on IBR, and I’ve got one year down out of ten for PSLF… holding on for dear life.

    Right now I don’t regret law school, since I have IBR to hang on to, but if IBR/PSLF goes away, I am really and truly screwed.

  18. low interest debt? :

    I am very lucky to have graduated when interest rates were low. I have a sizable loan at a sub-2% interest rate (payment is <1% of my take home pay). I have enough money in investments to pay it off and still have a decent cushion (but not enough for my peace of mind). My investments have returned a nice profit beyond 2%. So I figure that by not paying the loan off, I'm getting a nice return and peace of mind.

    I'm dating a guy who doesn't like debt. Upside: he has no debt. Downside: my student debt worries him (even though I've explained that I could pay it off and why I haven't). I'm not going to liquidate my investments for his peace of mind because then I'll lose my peace of mind.

    What would be a good compromise to propose if he brings it up? Does anyone agree with me that the adage "all debt is bad" doesn't apply here?

    • I would definitely agree with you in this situation. And do you NEED to compromise if he brings it up? It’s your money, your debt, and presumably you two have separate finances.

      Also, you could always consult an impartial third party if/when you do combine finances.

    • Compromise if/when your debt becomes his business. If you’re planning to combine finances in the very near future, or if you live together and you can’t make your share of the bills because of your debt, then discuss it when that time comes. Until then, just tell him that you appreciate his conservative approach to debt, but at the moment you have other priorities.

    • This is me. I still have about 50k left on my loan but at 1.3% so I am definitely earning more on investments. Luckily my guy agrees that it’s not worth paying off early at such a great interest rate and we can use my money in other ways to earn more than the 1.3. Yep, all debt is not bad debt.

    • My fiance is similar to your BF – he has no debt other than mortgages on his income properties, which pay for themselves. On the other hand, when we started dating I had an embarrassing amount of personal debt. It took me months to finally admit to him how much debt I had – I was quite ashamed of it. But it felt good to come clean, and he then helped me devise a plan to pay it off. Sometimes it helps to have another person’s opinion, and his pragmatism helps keep me on the straight and narrow with my spending (which I admit previously veered into the frankly indulgent). We have now merged 60% of our finances, but I’m far more likely now to think much more carefully about what I do with my remaining 40%.

      I don’t have a specific recommendation, but you might find that by opening your finances to your BF, he might have some good insights as to how you could readjust your spending to still allow for your savings but pay off your debt a bit more quickly. (I realize this sounds a touch Ellen, but I don’t mean it to – it’s just that someone with a different attitude towards money might have some good insights for you if you are open to it.)

    • low interest debt? :

      Thanks! I’m a worry-wart so it’s good to know this is something I shouldn’t worry about.

    • Not a lawyer :

      I agree that not all debt is bad debt. My husband is also very anti-debt- full scholarship for school, paid cash for everything- and hated that I had school debt when we got married. However, a year later when we went to buy our first house, my credit score was almost 100 points higher than his because he had no credit history. My small credit cards and 10 years of student loans being paid on time paid off big time, and I was the primary purchaser on our mortgage.

  19. Anon for this :

    I’ll go anon since this may be company confidential information. We were informed yesterday that no one is getting a raise or bonus due to missed earnings. I understand from a business perspective, but it’s still disappointing, especially since the division I support actually did very well. :/ So much for a small splurge and putting the rest in savings.

  20. Paying debt vs. mortgage? :

    I’d be interested to hear others’ opinions on paying down student loan debt aggressively vs. buying a home. DH and I have about $80,000 student loan debt between us, with interest rates from 3.5% to a bit above 8% (the bulk at 6%). We could pay these off more aggressively, but also would like to save for a down payment on a home. House prices in our area are rising quickly, and I have heard buyers really need 20% down to be considered in this sellers’ market.

    Thoughts?

    • low interest debt? :

      I bought a house with outstanding student loans and a 20% down payment (to avoid PMI).

      My impression was that the mortgage broker really only cared about my debt-payment-to-income ratio and not the outstanding balance due. Because the minimum payment doesn’t change with the outstanding balance (except marginally depending on how interest is calculated), paying down the debt wouldn’t have helped me qualify for a bigger mortgage or a better interest rate.

      In your situation, I’d probably pay off the debt above 6% and start saving a down payment. It’ll lower your monthly loan payments-to-income ratio and let you get into the housing market faster.

    • Ditto. My lender just wanted to know how much I paid in loans per month versus my salary and other debt obligations.

      In your case it’s a personal choice as to what to do and you also have to weight costs of renting v. buying, but I would probably try to pay down the 8% loans first and then start saving for a down payment.

    • lucy stone :

      I bought a house at 25 with 5% down four years ago and don’t regret it, but I also will qualify for PSLF.

  21. Anonforthis :

    Such a great topic! I am a 2010 law grad, private law school, 100% student loans. I’m currently in biglaw, married, no kids. At graduation I’d estimate that I had roughly 240k in loans. At present I have about 209k, approximately 158k of which is consolidated federal loans at around 7% interest. I also have about 8k in undergrad student loans floating around at roughly 3% interest. I took out a private loan my first year of roughly 32k (current balance around 26k) (although it also is the one that presently has the lowest interest interest rate), and took out a bar loan for 15k. The rest are federal or state loans that provide fixed rates or more flexible repayment terms.

    Our biggest challenges with paying off this enormous amount of debt is saving money to build up our emergency fund, as well as saving money to pay taxes every year (since getting married we’ve owed several thousand dollars every year), and saving money for fun things like vacations. We live in an expensive city, and budget a fair bit of money for entertainment. We’ve never really been able to live the most austere lives, despite our best intentions, so after months of running over budget and being frustrated we realized that we needed to slightly slow down our savings rate to prevent all of that angst every month. The next challenge for us is that I’m starting to reach a point where I want to make a career move, and my biglaw salary is not guaranteed.

    The first year out of school my husband and I were saving for our wedding, so we were paying the minimums on my student loans. Since then we’ve started chipping away at the balances.

    I’ve used the trick that somebody mentioned above – 0% balance transfers from credit cards. We only transfer enough money that we can afford to pay off over the time period listed (you have to pay a one-time fee of roughly $5 or 3% of the total balance, so I don’t want to credit card hop). Through this method I’ll be completely done with my bar loan in the middle of this month (yay!), and we’ll get rid of the last of my husband’s undergrad student loans next month.

    Our biggest question has been what to tackle next and how much to snowball onto that debt. My mom co-signed the private loan, so I think that will be our next focus so we can get that off her credit report. We are currently paying double the minimum payments on my private loan, but I think we’re going to double that amount, which is less than what we’re paying towards my bar loan and DH’s undergrad loans, but it lets us save a little bit more.

  22. SoCalAtty :

    Well, this is timely for me. After some deferrments, periods of me not working, periods of my husband not working, and just random life things in general, we have a huge pile of debt. My student loans are about $180k, but all at good interest rates. From the unemployment periods, we have about $65k in credit card debt. It is all fixed at low-ish rates (nothing higher than 6%) but I want it gone. I’ve recently decided to sell my horse, which will bring in hopefully $40k or about that, and all of it – 100%, is going to that debt. Since I won’t be paying horse board and training, or the payments on the credit cards that will take out, I’ll be putting $3500-$4000/ month to paying off the rest of the credit cards. I anticipate that all of it will be paid off within 6 months of the date my horse sells.

    After that, I’m going to start putting the money I would have been spending on the horse into savings accounts – a small amount, maybe $500, is going into the “future horse” fund. The rest into a “saftey net” fund. After those are funded I’ll go after the student loans.

    Really this site has been great for me, to see that it can be done with smart choices and some short-term sacrafice.

  23. Anon @ 3 53 :

    I have about $86K in loans on an extended plan. DH has about $140K. Very overwhelming with a non-big law salaries for both of us! I recently came into some money, about $100K, but am totally at a loss as to whether to use it to pay off loans or use it towards downpayment or what. Add to this that we’re in super high cost of living NYC and using it as a downpayment will still leave us with a v. high mortgage + maintenance for even a modest one bedroom, but using it to pay off loans will mean it will be YEARS before we can save that much money on our own to buy something. Complicating it all, my in-laws want to sell their place and retire to FL in a couple of years and have promised us a bit of money from the sale of their place, which is super generous of them, but also makes me feel like maybe we should just sit on my money till theirs comes through and we can buy something with more long term potential. Of course with interest rates as low as they are, that also feels really dumb. Not sure what the best course of action is but it’s great to read all these stories to see the possibilities.

    • What about splitting it up — put half in downpayment fund, half towards loans? No reason it has to all go to the same place!

  24. Anon Debt Haver :

    Interesting topic. I have about $54K in student loans still, but they’re at 0.9% interest. While I could pay them off in full now, it makes no sense to do so and then take out a mortgage (I’m saving to buy property) on the same amount at a higher interest rate. So even though emotionally I hate having the loan balance, I have to stop myself from paying it off. I’m paying the minimum every year, and usually a little more.

  25. Anon Debtor :

    I have nearly 280K in debt from my undergraduate and law school education. I went back to school late, which means I have already paid a boat load towards my undergraduate loans and an amount of interest I do not want to even think about. I am two years out of law school and making 85K. All of my loans are at about 7% interest because my loans never seem to qualify for the various interest rate reductions options available. We also have 30K in credit card debt. And a mortgage. And a child starting college in the Spring. Ugh! It has been a long, painful, financially unstable, scary, scary few years. We are borrowing money from my mother-in-law to lower the interest on the credit cards to 2%. They should be paid off in about 1.5 years. I am beginning the process of transferring student loan debt to 0% credit card offers. I have kept my cost of living as low as possible and finally there are a few spare dollars each month to throw into the maw of the DEBT. It feels like indentured-servitude (self-created, I admit). While I am gratful to have had a wonderful education and the beginning of what I hope will be a satisfying career, I really wish I had made other choices. But seeing as how that horse has long since left the barn, I am grateful to finally feel like there is some hope that I will be able to pay my debts and be free someday. It cannot come quickly enough!

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