Should you pay off your student loans in full is a common debate. Paying off student loans can mean not saving or investing as much. What I learned from paying off my student loans in full was how to find balance, especially when a marriage is financially out of balance.
Paying off my student loans in full taught me the following life lessons:
We’ll give you strategies to pay them off, but more importantly, we talk about how to find balance and not let those loans drive you crazy.
Why I paid off my student loans in full
When Jordan and I started to brainstorm how we should approach the student loan conversation for the podcast, I asked Jordan what he thought the biggest issues were with paying off my student loans fast. His response?
“I don’t remember having any issues with your student loans.”
There was a lot of tension. There was a lot of avoiding the issue. And then there was a lot of having to talk things out. But we made it through unscathed and apparently it was so smooth that he doesn’t remember.
So let this be hope to anyone out there: whatever your financial situation (loans, debt, treading water), you’ll get to the other side. And you may even forget what it’s like to go through debt repayment.
This is not an “I paid off this much in this long” story. Because that’s not what I want someone to take away from this.
Yes, I paid them off. But I want to talk about the lessons we learned along the way in paying off my student loans in full. There were some things we did really well and some things, frankly, were tough lessons. Especially in learning to handle such a financially imbalanced relationship.
We hope they may help give you some insight, ideas, and, most of all, hope that you will pay off your student loans.
The cost of paying off your student loans in full
My thoughts on paying off student loans in full or early is just my two cents. My lessons from paying off my student loans are more psychological then running the numbers.
If you are asking yourself, is it worth it to pay off my student loans fast? You probably want to pay them off. Paying them off feels better than making 1% to 2% more on an investment.
Create a spending plan
Start with making a spending plan. You need a plan on how you are going to pay off your loans. Don’t overcomplicate it, start with Creating a Spending Plan.
If you have a plan for where you want your money to go, you’re more likely to have it go there. Do you want to save for a vacation and pay off your student loans?
Creating a spending plan will help you direct money to where your priorities are. You can save for retirement, your vacation, and paying off your student loans. You just need to make a plan and then automate said plan.
Automate your student loan payments
Second, pay off your student loans in full start by automating your payments. Follow our system on How to Automate Your Finances so you can make those payments without them being a drag on your life.
Paying off student loans in full doesn’t always offer the best return
Many people will say paying off your student loans in early is a bad investment. If your student loan interest rate is below 10 percent, and it better be right now or go refinance, then the extra money you apply to the principle on your student loans would be better put into an investment account.
Historically, the average annual return on the stock market has been 8 to 10 percent. If you extend your loan payment to the 20 to 30 year extended repayment plan, then the stock market could give you a better return.
If you had the choice between two investments, what would you pick?
- Investment #1 pays 8 percent and you can get your money back anytime
- Investment #2 pays 5 percent and you can’t get it back for many years
Investment #1 sounds the best.
By paying off your student loans early, you’re choosing investment #2. The money is gone once you make your loan payment.
But investment #2 is a guaranteed return. That is a huge advantage. Stocks and other high yield securities also come with higher risk, the return isn’t guaranteed.
With a recession looming, you may feel better paying off those loans so you can recession-proof your life.
And as my six lessons will tell you, the feeling of paying off your student loans in full create many other life altering benefits.
Podcast: 6 Lessons from Paying Off 6 Figures of Student Loans Early
TL;DR? Then listen at 1.5 speed to our discussion on the lessons I learned paying off my student loans early.
Lesson #1: financial anxiety is real and it’s really unhelpful
85% of Americans suffer from financial anxiety. I was one of them (and let’s be honest, on a bad day I can still slip right back there). I was handling it until my debt started to impact Jordan’s finances.
Lesson #2: it’s easier to add than to subtract
This is my mantra with anything in life. I first heard it as it related to food and dieting, but I think it’s a perfect example of money. In food, the concept is to fill your plate with more good things, so you don’t leave room for the bad. With money I look at it as we need to do more of the high value, low-cost activities then we won’t have time or interest in the expensive activities.
By doing this I was actually able to save. While I was paying off my loan I contributed to retirement and saved up a small emergency fund. I saved in an IRA that year because it’s a “use it or lose it” tax benefit.
Also, having small savings gave me a safety net that helped with my financial anxiety.
Lesson #3: being open and transparent is really hard
Jordan knew the extent of the debt, but I was always handling it. Cracks started to show once we realized our priorities were diverging. I remember he wanted to save for our future child’s college fund and I was sitting there with a pit in my stomach because all I could think of was the mountain of debt that I still had to get through.
Things came to a head when Jordan was offered a transfer to London. It was too great of an opportunity to pass up but this meant my salary was going away.
This was the kick in my pants to refinance my student loans. I break down refinancing student loans here – Should you refinance your student loans? and Everything You Need to Know About Student Loan Refinancing.
Lesson #4: you can only cut back so much. Sometimes you have to make more.
It was a struggle to get a job in London. Most marketing companies wanted to pay me half as much as I made in the US. Half! Negotiating enabled me to make more, and pay off a big chunk of my debt.
Lesson #5: good debt can still keep you stuck
I wanted to quit my new London job but we were so close to paying it off. Jordan and I were not agreeing on when to quit as he was antsy to pay off the debt. I ended up having a panic attack, as one does.
I had $12k left. I was so close to having it all paid off.
Lesson #6: good habits are hard to break
People will ask what it’s like to make that last student loan payment. Anti-climatic.
Our spending didn’t change at all. While paying off the debt we focused on filling our life up with things we love and value that didn’t cost a lot. Our habits continued after the debt was gone.
Summary on paying off student loans in full
In a nutshell, this is what we learned as a married couple while we payed off my student loans.
Terrible decisions on paying off student loans
- Treated student loan debt like it was monopoly money while in grad school
- Not clueing Jordan in earlier on how I was managing paying off my student loans in early
- Not getting on the same page with goals and vision – we should’ve done the 3 questions to determine why we were saving so we could assess the values and trade-offs of paying off the debt
Great decisions on paying off student loans
- Negotiating like a boss for my signing bonus
- Making micro-payments on the principle to give my minimum monthly payment a boost
- Refinancing to a lower interest rate and shorter payoff term, better late than never
- The biggest impact – getting a healthy mindset and having the right mindset around learning how to love my life, without a lot of money
Life update after paying off student loans
In episode 1 on What Are We Doing with Our Lives we talked about how the three questions helped us define what we wanted in life:
- Move to spend more time with family
- Reduce our impact on the environment
- Start a business
- Be healthy and active
We haven’t moved yet but that doesn’t mean we’re waiting on living our best life.
- The grandparents are out here in the UK and we’re taking more time on the weekends to prioritize quality time with Henry and family, which is getting us out and adventuring locally. A dog with anxiety and separation issues and a 1-year old baby, there isn’t a lot of stuff we can do. Hence, we do lots of walks that end at cute english pubs. We have also been embracing the family dinner. Jazz goes on, apps are served, and we have those conversations that we can’t have over FaceTime.
- Reducing our impact on the environment starts with baby steps. For us this means cutting out food waste. We’ve never been huge into cooking, but have found a love of it now as we focus on eating the best food possible. AND it’s had a huge impact on our budget. We’re buying more expensive food, which I wasn’t thrilled about (like our fish from the local fishmonger who gets it fresh every morning from the coast). But the total cost has gone down SIGNIFICANTLY. Plus, we actually feel creative. Our town makes us have a compost bin so we can measure our food waste. We have a bag of food waste a week, not too shabby. Our fridge is empty at the end of the week thanks to our food planning and Sunday food prep ritual. And, the best part is I get to channel my inner Barefoot Contessa.
- Minimalism is a journey. We realize this more of each month as we get the urge to purge. What was sentimental last month, now goes straight out the door. Jordan has been selling stuff online to get it out of the house, make some money, and let someone else enjoy what we once loved. Goodbye Gilmore Girls 7 season box set.
Thank you for reading and listening to the podcast! Stay tuned for more updates on our journey from someday living our best life to living our best life now, in our mid-thirties. It’s never too late to start.
We would love your feedback as we share our journey. Write us a review on iTunes or your preferred podcast player. We read every review, promise. You can also email us questions and comments at erica or jordan. Thanks again for listening and talk to you next week!