This post is a personal story about how debt has intersected our lives and not intended to be any big lessons. You’ll see that how we paid off our debt doesn’t necessarily apply to others as I’ve been rescued a couple times! We also still go back and forth over whether or not we are officially debt-free.
Between me and Kyle, I have more experience with debt so I’ll start with mine.
I took out some small, (nearly all) federally subsidized student loans for each year of my undergraduate degree. They totaled to about $17,000, so they passed the one-year’s salary test even though I was on a low-paying educational fellowship in my first year after college. I wasn’t really cognizant of them or their amount until after I graduated and they entered the 6-month grace period.
Neither my parents nor I had realized that one of my loans was unsubsidized until after I graduated, but that one was only for $1,000. Even though I was able to defer all my loans while I was doing my educational fellowship (and continued their deferment in grad school), I decided to pay off the unsubsidized loan as soon as I could because I didn’t like the idea of the interest accumulating. I paid off that loan about six months after I graduated.
I didn’t really think too much about my student loans for the first few years of their deferment. I was figuring out the whole personal finance thing regarding budgeting, buying a car, and saving for retirement. I guess I thought I would either start saving up to pay them off later in grad school or I would just pay them off quickly when I got my first post-PhD job.
How it actually turned out, though, was that Kyle was a crazy saver before we got married and built up quite a nice nest egg. We agreed that we would use the savings he brought into our marriage to pay off the debt I brought in. His savings were a few hundred dollars short of my balance, so we saved for a few months until we got the full amount put aside and then we invested it. When I graduate, we will cash out our investments and pay off the loans before they come due, so the only interest paid on my student loans will be what accrued in a few months for the small unsubsidized loan (i.e. not much).
When I moved from the DC area, where I lived car-free, to Durham, I knew I would have to purchase a vehicle. I researched used cars for several months and determined what brand and model I wanted, and when I saw one come up for a great price on craigslist I jumped on it. I had saved up $1,000 for a down payment, but needed to finance the remainder of the price of the car. I had some hiccups actually securing the loan and had to take out one for more than the car’s worth, but it worked out.
I had a three-year loan that I decided to pay off in two years because that way the payments worked out to be about $200/month, which I thought was manageable. About one month after I took out the loan my parents passed on to me a small inheritance, so I took part of that to pay off my car loan completely. Because I paid off the loan within the first year, I had to pay a $50 fee. 🙁 I kept up my $200/month payment schedule back to my savings account to repay myself for the car loan, and I completed that self-repayment right before our wedding.
I applied for my first credit card after college when I started working full-time. I had read about how insidious credit card debt is and I didn’t trust myself to not overspend, so I used debit cards for all but rare purchases and I always paid off my card in full before the balance came due. After three years I had pretty well convinced myself that I could be trusted to use credit cards for all my purchases. Since our marriage, Kyle and I have used credit cards perfectly in the sense that we have never paid interest or fees.
I’ll sum up Kyle’s experience with debt in two sentences: One time he forgot to pay off his credit card and he was hit with a late fees and a tiny amount of interest. After that he set up auto-drafted credit card payments!
I don’t feel like I’ve had a real debt experience because I sort of got bailed out from the two loans that I’ve had. To the extent that saving is similar to paying off debt, though, I do have that experience, from repaying myself my car loan money (in addition to retirement and targeted saving accounts). It’s probably mechanically similar but not psychologically so.
Have you ever used a windfall or sugar spouse to pay off debt? Do you think paying off debt is a valuable experience or would you rather have it dismissed somehow? What has been your experience with debt and is it very different from your spouse’s?
photo from Free Digital Photos