by Ashley
I pre-scheduled this post since we just got back to Tucson late last night. I’ll try to pop in later with an update from our travels!
I keep making, and changing, our debt-repayment plan of action. It has become such a regular thing for me to change up the game plan that last time I even added the disclaimer “subject to change.” Haha!
Well, here we go again!
I have been stewing over the game plan for awhile. I keep coming back around to the fact that I prefer to pay off the car rather than the student loans (regardless of the difference in interest rates). The problem, of course, is that my minimum student loan payment is so high (over $1,000/month) and deferment ends in February so I’m scared of getting stuck with BOTH the super high student loan, in addition to my hefty sized car payment ($415/month).
In addition to that, I’ve got to be honest. I’m loosing the power of focus. I’m starting to take on additional monthly expenses (gym, extra monthly savings, and something else I can’t reveal yet but will be discussed in the weeks to come), and have been fantasizing over starting a savings fund for a house down payment (don’t worry – its not happening yet, but it doesn’t stop me from fantasizing!). Basically, I’m wanting to split my goals into a ton of different things (instead of focusing solely on debt-reduction).
This is a debt-reduction blog. Not a savings, or an investing, or a lifestyle blog.
The problem is that I have a LOT of debt. It will take me several years to pay it all off in full. And I have admitted before that I believe we will start splitting priorities before the debt is gone (e.g., buying a home before the student loans are completely gone).
So while I still have momentum on my side I want to switch gears. I’m going to finish paying off the license fees first (and put that chapter of our lives behind us). But after that, I’m going to tackle the car. Once its gone, I’d feel more comfortable about starting a house down payment fund and splitting my goals between student loans and other “life” things. I owe about $20,000 on the car (last debt update here). At this point, it seems like it could take 9 months to a year to pay in full. But then again, I managed to pay off over $10,000 in credit card debt (plus other minimum debt payments) in just a little over 3 months. And now I have the benefit of not having those pesky credit card bills every month eating up my income. So we’ll see.
I’m calling it, “the race to 20K.”
Wish me luck!
Note: Some have asked why I would want to pay off the car before the student loans, particularly given the discrepancy in interest rates. Paying off the car will mean we’re free of any consumer debt (only remaining debt would be student loans). Additionally, my student loans have no actual “asset” associated with them. The car is an asset so once its paid we will own something with a monetary value associated with it (as opposed to my loans….which, even when paid in full, have no monetary value on their own).
Hi, I’m Ashley! Arizonan on paper, Texan at heart. Lover of running, blogging, and all things cheeeeese. Freshly 40, married mother of two, working in academia. Trying to finally (finally!) pay off that ridiculous 6-digit student loan debt!
Ashley, I admire your tenacity and will power. I too have over $100K in student loan debt (at one point it was closer to $200K). Thank you law school! Like you, I find myself trying to piece together jobs in search of the full-time more permanent position. I recently located to a new state and closed a law firm that I had built for the last 5 years for my spouse’s job relocation. Although it will be the right move in the long run, it has not been without financial challenges. I do understand the need to get rid of the car loan first, but I have to admit I am not sure I agree with you. I am a business law and bankruptcy attorney, so I see a lot of people with various types of debt. Student loan debt, IMHO is the worst type of debt there is, but people often pay it off last. Because it is not tied to any fungible consumer lien and it is not dischargeable in bankruptcy (ever!), it is the type of debt that never goes away!! If a person cannot make their payment (trust me mine is over 1,000 a month too so I know the struggle!), it will continue to accrue interest, etc. Whereas, a car can be sold, repossessed, etc. If I had to do it all over again, I would have tackled student loan debt much sooner than upgrading our house with the move. Although, I am lucky that my spouse makes a good living and can meet all our financial obligations on his salary alone, I still HATE that out of every $1100 a month I send to the student loan company less than $400 is going to principal!
Have you considered delaying the cash you’re putting into savings since you feel like you are losing focus? You might have too many different things pulling at your cash flow right now and delaying the savings line items just two or three months could help your focus.
I completely understand why you want to get rid of the car debt – and agree with your Race to 20K! It’s probably not the best in terms of math, but in terms of motivation and commitment I think it’s best for YOU!
FOCUS on the license debt, then snowball to the car payments and I truly believe you guys will have that car debt gone before your student loan debt kicks in…..there really is power in focus!
You are doing great and kicking some major debt to the curb – I have no doubt you will kick that car debt too!
Maureen makes a very valid point about student loans not being included in any bankruptcy proceedings. However, from the looks of your zeal and determination – that’s not an issue anyway. With that being said, I think your plan of license fees, the car makes great sense. Should your income be dramatically reduced, you could also ask for forbearance or hardship deferment on your loans. That is something you can’t do with car loans, consumer loans, etc. It is very difficult to keep focused when the goals seem so far away, but look back at where you were a few short months ago and use that to re-energize you in your debt free determination. Debt and budget can get very boring…and sometimes I know I tend to look at others “not struggling” and enjoying their life, boats, vacations and can get the green eyed monster…but then I remind myself of the blessings I have and that I don’t have access to their financial situation. Those vacations may be built on a house of cards and one wrong gust of wind…for my family, I chose a firmer foundation that will withstand life’s storm. So I plod on thankful of whatever progress I have made for that month – spoonful by spoonful. At least I’m going in the right direction. Try to find whatever works that will help you maintain your focus and before you know it, you will be having success after success.
i agree with your decision. if everything goes to crap and you are forced to stop paying, they can’t take your education away, but they could take your car away. pay the car first.
That’s the personal part of personal finance! I have also paid things off in the “incorrect” order because it was what I was motivated to pay off and get out of my life. In your position, I believe I would choose to pay off the car first also. I actually paid off my car very early on, as I’m still working on credit card debt. It was what worked for me, and I didn’t care what anyone else thought about that choice. Student loans will be the last thing I pay, and I deferred them for a couple of years while I focused on medical and consumer debt.
I’m having some of the same issues- I am down to only student loan debt, and mine is also a big number that will take many, many years to pay off. I do want to own a home at some point, but I don’t know what my “magic number” will be for student loan debt before I start working on saving for the down payment. I definitely understand where you’re coming from with leaving student loans for last. You’re thinking through what motivates you and what will work best for you, which is the most important part!
Ashley, you inspire me! I stumbled across “Blogging Away Debt” because of an errant Google search that found one of your post and after binge reading all of your post, I continue to return each week to read your post.
I, like you, have approximately $100,000 in student loan debt (both federal and private at interest rates between 2% and 8%. I also have a car loan of roughly $11,000 at 3%. I also have about $5,000 in credit card debt that I am paying roughly $1200 on each month and should have payed off by my 29th birthday in December. While it seems like it would make more sense to then tackle the higher student loans first, especially since some of them, like yours, are coming out of deferment/forbearance in February, I would prefer to pay off my car loan first for a couple of reasons: 1) I would like to be free of “commercial debt” by the time that I am 30. 2) I think after payoff of my credit cards, I will need the psychological boost of getting rid of my car payment a year later (December 2015) and it’s $249 payment. 3) I think that despite the bad rap that student loans get, they are an easier form of debt in terms of repayment. While the private student loans can be tough to negotiate, federal loans can be deferred in instances of financial hardship. 4) I cam considering returning to school to get my PhD (at a funded program that offers full tuition remission and $30K stipend, and while I am in school I could defer the student loans while continuing to make substantial payments.
I just posted this to say that I understand your decision and I am right there with you despite conventional wisdom to the contrary. Thank you for your continued inspiration.
Hi Candice! I’m so glad you stumbled across the blog! Thanks for the comment and show of support – sounds like we could nearly be twins in our debt! ; )