Our Experiences with Paying Off Debt

handing over moneyThis 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.

 

Student Loans

 

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).

 

Car Loan

 

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.

 

Credit Cards

 

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.

 

Kyle

 

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

 

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27 Responses to "Our Experiences with Paying Off Debt"

  1. I’ve never had a windfall, so couldn’t speak to that – unless you count the bonus that I earned which was enough to wipe out all of my student loan/car debt in one swoop. But considering I had been working 100+ hour work weeks for months, I definitely felt like I earned that check when it came!
    Mrs. Pop @ Planting Our Pennies recently posted..Update To Gympact Review – Gympact Anywhere

    1. Emily says:

      Well it’s definitely different in earned vs. gift and also in expected (I assume) vs. unexpected, but it’s very similar in terms of getting rid of the debt as long as that was the plan you had all along for the money and you didn’t have to un-allocate it from other areas. How long were you paying on the debt before you got that bonus?

  2. Emily too says:

    Haha, I offered to be a “sugar spouse” when we got married, but my husband wasn’t comfortable with using my savings to pay off his student loan debt (it would’ve pretty much wiped them out), so that’s now our emergency fund. The loan has been off my radar as he’s been making monthly payments from his “allowance.” But since most of our money goes to joint, and as the possibility of living on one income in the somewhat near future would make all our money issues shared ones, we’ve just realized it would make more sense to attack it together. Figuring out HOW is the hard part – wiping out the emergency fund no longer seems like an option given that we’ll be job searching before we could replenish it, but just making monthly payments out of our current income will take several years to pay off. It’s a work in progress, I guess.

    1. Emily says:

      It is difficult to make that decision – which I guess is the appeal of the Dave Ramsey Baby Steps. “Throw everything above $1k at the debt no matter your life situation!”

  3. Do or Debt says:

    I haven’t had any major windfalls, but any extra birthday money or xmas money I put towards debt. My partner and I have discussed that once he graduates and finds full time work, that we will live off one salary and pay off my debt, then switch, since mine has the crazy interest. We both only have student loans, which still sucks. That is awesome that Kyle was willing/able to help!
    Do or Debt recently posted..Being busy isn’t the same as being productive

    1. Emily says:

      I like having a defined purpose for all that random unexpected money that comes in so I’m not tempted to spend it less than optimally. Once we got married our attitude was that it was “our” savings and “our” debt so we may as well put the two together. It helped that I wasn’t guilty of doing anything that he didn’t do – we went to the same superexpensive private college.

  4. I’m not going to bore you with repeating the same story about my wife’s debt or our hybrid joint/split finances as I’ve mentioned multiple times here.

    We haven’t received very many windfalls, but when we sold our mobile home, we used the proceeds to pay off my wife’s credit cards.
    Edward Antrobus recently posted..Why the Post Office Dropping Saturday Delivery Isn’t a Big Deal

    1. Emily says:

      There are always new readers/commenters, Edward, who might not know your story as well as I do!

      The mobile home sale is similar to the bonus Mrs. Pop mentioned, I think – it wasn’t just given to you, but it did come all at once, and it helped you wipe out the debt.

  5. Leigh says:

    Until I took out my mortgage, my experience with debt was about that of Kyle’s. Some people in their twenties might have piled up cash instead of buying a place, but I’m really enjoying having a stable home while figuring out life!

    When I was in college, I often paid my credit card bill out of different accounts (like your targeted savings accounts!) and one month, I accidentally swapped some numbers around in the figure I paid and had to pay an interest charge! That was quite unfortunate and they wouldn’t reverse it despite my record of on-time payments. That’s the only time I have had an issue though!

    Part of my reason to start paying the mortgage down aggressively was so that I didn’t waste my extra money each month (> $2,000). I think I’m doing well enough with it now that I would be fine, but it’ll still be nice to have the mortgage gone in a few years…
    Leigh recently posted..Updated Savings Plan

    1. Emily says:

      I think that a one-time “oopsie” should be forgiven by credit card companies – I think the lesson will sink in just as well even if the charges are reversed! I believe the Discover IT card advertises that perk.

      If your other option was wasting the money, then yeah I guess the fast mortgage payoff is a good idea! J/K. I like to have ambitious savings rates so I’m not left to my own devices at the end of the month.

  6. lucas says:

    No “Sugar Spouse” for me 🙂 Although my wife likes to claim that when we met I was in debt (3k student loan, 7k car), and she was not 🙂 We were debt free (other than house) when we got married and it has been uphill since. Most windfalls go into house payments (12 more months!), but some go towards ROTH savings which will be increasing a lot in the next year.

    1. Emily says:

      That’s great you paid off all your non-mortgage debt before getting married! Your wife really can’t complain!

  7. Pauline says:

    Honestly I wouldn’t have paid your debts even if we’d gotten married. I have seen too much drama around me to want to join finances or pay someone else’s debt with my savings.
    My BF and I only have a property in common that we each paid cash for, he has no debt and I have mortgage and other loans for investments, but would not want him to pay for that either. My sister went your way and just got through a divorce now she has to build everything again (she was the saver).
    Pauline recently posted..Investing in farmland: my coconut investment

    1. Emily says:

      Well, I guess that’s why you and I didn’t get married! 🙂 Not that I was looking for someone to pay off my debt – it will be a small fraction of my post-PhD starting salary. You and I just have different ideas about the function of marriage. I didn’t even have to ask Kyle to use his savings toward my student loan debt – we just agreed that we would have joint finances after we got married. If my debt vs. his savings had become a sticking point during our engagement, that would have just pointed to a larger disconnect in our conceptions of marriage.

  8. I was fortunate to have a windfall once when one of the stocks I invested in had an unexpected jump of 20% in one day. I saw it by accident and, thinking maybe it was a “short squeeze” (translation: this won’t last) I sold enough to pay off our second mortgage.

    Few things compare to the joy of an unexpected windfall wiping out a mistake from the past! We have a framed copy of that check hanging on our bedroom wall. 🙂
    William @ Bite the Bullet recently posted..Are You An Investor?

    1. Emily says:

      What a great way to commemorate the lessons you learned through that experience!

  9. My parents paid all my (subsidized) loans for college. For my sister, instead of doing that they gave her stocks equivalent to her loan amount and a little more to pay capital gains taxes and let her decide what to do.

    My husband came in with 10K in student loans, but I didn’t have enough money saved to be a sugar momma. In fact, I had to borrow a thousand from my parents in order to have deposit money for our apartment (we paid that back as soon as we got the stipend.)
    nicoleandmaggie recently posted..Ask the Grumpies: Should I get a PhD in Accounting?

    1. Emily says:

      Did you and your sister know all along that your parents would pay the loans (or equivalent)?

      It is a rough period between when you have to put down deposits and buy food and such and when you get paid for the first time! At my university, and I’m sure at many others, they also only seem to forget that the semester starts in the last two weeks of August and they only pay for September (at the end).

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  17. Erik Flores says:

    Honestly I wouldn’t have paid your debts even if we’d gotten married. I have seen too much drama around me to want to join finances or pay someone else’s debt with my savings. But I would have started a small business instead so that it generated the chasflow to pay the debt. 🙂 http://millonario-pasoapaso.com/4-pequenos-negocios-rentables/

    1. Emily says:

      Not sure how that’s any different? You would still be paying off your spouse’s debt from your hard work building the business.

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