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
Filed under: debt, investing · Tags: debt free, student loans
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3… 2… 1… WE’RE STILL IN DEBT!
Delay Marriage Until You’re Debt-Free?26 Responses to "We Are Debt-Free, We’re Not Debt-Free, We Are Debt-Free, We’re Not Debt-Free…"
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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!
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.
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.
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.
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