We Are Debt-Free, We’re Not Debt-Free, We Are Debt-Free, We’re Not Debt-Free…

OK fine, we’re not debt-free! … technically. Upon graduation from college, I had a little over $17,000 in student loans, which immediately went into deferment and will stay deferred until I graduate with my PhD. (During a deferment period, no payments are due.) All but $1000 of the loans were subsidized (not accruing interest), and I paid off the unsubsidized loan within a few months of graduating. So my debt balance stands, unchanging and undue (yet), at about $16,000. Not a huge amount compared to others but nothing to sneeze at, either.


Through some kind of mystery (how he accumulated the money) and magic (how the money didn’t get spent on our wedding), my husband was both willing and able to pay off my student loans in full after we were married!


But then we got stuck in a debate cycle. If we paid off the loans immediately, we would be completely debt-free, which in addition to being amazing and brag-worthy (as I’m sure any PF enthusiast would understand!) is much more secure. However, if we invested the cash, we could get a little work out of our money before the loans came due. The danger in that approach is that we might end up losing part of the money, either to a bad investment or to ourselves because of an emergency.


It took a year of back-and-forth, but we finally decided to invest the money. About 40% of it is in a CD, about 30% is in low-risk mutual funds, 20% is in moderate-risk mutual funds, and 10% is in high-risk ETFs. This is all completely on top of our emergency fund, other cash savings, and retirement accounts. We know that is a riskier allocation than many would advise, but we have confidence that the economy is not entering a double-dip recession and in our own ability to generate the income to repay the loans should some disaster befall our accounts.


I hope you can see why I’m conflicted when posed the question “Do you have any debt?” Yes, we do – but it’s sort of frozen in time. And we could pay it off if we wanted to, but we’re trying to earn a little bit of a return first. It’s a rather complicated answer.


Do you think I should stick with “yes, we have student loans” and leave it there? What would you have done/did you do when faced with our decision? Do you invest in the market with any money you need in the near-term?


photo from *BlueMoon


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26 Responses to "We Are Debt-Free, We’re Not Debt-Free, We Are Debt-Free, We’re Not Debt-Free…"

  1. Kate says:

    That is awesome! We had about the same amount in loans when we got married… unfortunately neither of us had the cash to pay it off so that’s what we are busy trying to pay off as quickly as possible.

    I don’t know if we would have thought to invest our money had we had the cash. Had the thought crossed my mind, I think I would have been nervous to given the volatile economic market right now. You seem to have the perfect situation for doing something like that, though. I would love to hear how it goes!

    1. Emily says:

      I really lucked out that my husband had the money! If he didn’t, I would have tried to save up to pay off part of it before they came due but I doubt I could have saved the full amount before graduation. I’m so glad this way we don’t have to pay interest. The lifestyle you have adopted to pay off your debt is amazing and inspiring. I’m so glad you’re documenting it with your blog.

      I was pretty nervous to invest the money, even though in an average year it’s the “smart” thing to do. So far this hasn’t been an average summer/fall and it wasn’t so smart. But we don’t need the money for a couple years and it’s pretty diversified so I think we’ll at least break even. I’ll definitely write a post when we finally sell the shares when I graduate about how it all turned out – what kind of return (if any) we got and if it was worth the stress.

  2. Colin says:

    If I had that choice early in grad school, I would have probably invested the money. From my prospective now having just recently finished grad school, I would have paid off the loans. Yes, would mean passing up the possibility of earning a return on the money, but I the peace of mind from being completely debt free and not even having to think about it would be worth more to me.

    1. Kyle says:

      Thanks for your comments Colin :). I think from our (my) perspective we just consider the loan paid off. So we don’t consider using that money for anything but the loan, and then we don’t have to “think about it” any more. Of course for a risk adverse person such as myself investing is always risky, which is why it took us so long to actually come to a decision.

  3. […] to use his savings to pay off my debt, and move forward from there as a debt-free couple.  While that’s not exactly how it worked out, the decision-making process that followed unequivocally enhanced our sense of being a team and […]

  4. […] it’s a liability.  I trust myself (and my husband) with credit cards.  And we’re not in debt (sort of).  What we need to know about personal finance is how to sustainably manage money, how to invest, […]

  5. […] invested the money we saved to pay off my student loans so the balances are basically just subject to what the various markets are up to.  We contribute a […]

  6. […] 6: I think putting money you needed in 3 years into the stock market was too risky.  You should move more of it to CDs and money market […]

  7. […] talked over our stipend offers for grad school, possible places to rent, how I was dealing with my student loan and car debt, and where to invest our Roth IRAs.  There have never been any money secrets between […]

  8. […] is that we don’t have a down payment/closing fund.  We would have to raid our Roth IRAs or our student loan payoff money to come up with the cash, and I don’t like de-allocating […]

  9. […] Once I graduate, pay off my student loans with our earmarked savings/investments and throw the excess earnings into our down payment […]

  10. […] student loan interest – we aren’t making any student loan payments now and plan to never pay interest on our outstanding loans […]

  11. […] of the wedding expenses.  We felt like we were starting from zero, in cash anyway.  That summer we put in CDs the amount of money we needed to pay my student loans (later invested part of it), and the rest of our cash became our emergency fund (about $1,200) and […]

  12. […] 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. […]

  13. […] zillions of other college graduates, I have student loans – and, like a good chunk of those debtors, my loans are through Sallie Mae.  When I graduated […]

  14. […] decision to make!  We have some subsidized and deferred student loan debt (i.e. sitting at 0%) and we also have the full amount of money we need to pay off these loans set aside.  Most of that money is invested in mutual funds, but about $6,000 is in a CD that is maturing […]

  15. […] 1.79% feels radically lower than 3.61%.  Our plan has been to take the money we have set aside to pay these loans (currently invested in a few vehicles, though without a divestment plan) and pay […]

  16. […] saved by age 30 or 35.  I actually think this isn’t an ambitious enough goal (especially for relatively debt free people like us), so I am pleased that we are ahead of […]

  17. […] set aside (baby step 1) since before we were married, and within 3 months after our marriage we had put aside the money to pay off my student loan debt (effectively completing baby step 2).  At that point we implemented our targeted savings account […]

  18. […] in marriage, frugality, grad student finances, etc.  I don’t often write about debt because we’re not (really) in debt and don’t plan on getting into it again except for a mortgage.  I don’t often write about […]

  19. […] two cards available now that can help you pay down your student loans or save into a 529.  I have Sallie Mae student loans and a Upromise account so either one of these cards would work well for us.  Both cards are issued […]

  20. […] a life recently.  As of this writing we have about $20,000 in cash-equivalents, not including our student loan payoff money.  Even if we can’t cover our expenses between Kyle’s paycheck and whatever income I can scrape […]

  21. […] process, but Kyle is extreme even in comparison with me.  It took us over a year to decide how to invest our student loan payoff money!  That slow decision actually cost us a lot of money.  We also delayed properly combining all our […]

  22. […] by the stock market run-up we’ve seen since 2009, compounding our retirement savings.  We also invested our student loan payoff money and that alone has added $3,500 to our net worth over the last three years.  So we’re doing well […]

  23. […] of deferment. Kyle and I at long last had to come to a decision about what to do with the loans. We have had the money set aside to pay them off since we got married in 2010, and our original plan was to pay them off right before they came out […]

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