A Diploma and 75,000 Dollars of Debt

Growing up I always considered myself good with money. I was able to pay for my own monthly bills, saved and invested small amounts, and never spent more money than I made. I thought that my childhood budgeting would be a plan that I would stick to and be successful with for the rest of my life. While that was wishful thinking, reality was much crueler than what I had imagined.

Although I was very responsible with my finances growing up, I also did not have the financial burden as many other people have. I was able to go through high school working a weekend job to pay for bills and spent the extra on friends, events, and other expenses that were to my amusement. I planned on following the traditional blueprint of most adolescents; get good grades, go to college, get a good job, and go live your life. I came from a divorced, middle class family and I thought that working hard in school and obtaining  good grades would eventually lead me to the career I always coveted. Things started on track; I graduated top 10 in my high school, did well on my SAT, and got into a top 20 school for the major I chose. I planned on going to medical school and dedicated all of my time to making sure I had the best possible grades to fulfill my dreams. However, I never once considered the cost or how things were going to be funded. My parents individually both made good money, so I never viewed education as something that needed to be purchased. My dad told me to just worry about doing well in school and everything will follow. So I did exactly as he said, I left the responsibility of tuition to him, and completed my entire first year of college. Nevertheless, circumstances change. My dad got remarried and moved away, telling me that financing school was now something that I’d have to shoulder with him.

Being an understanding child, I agreed to try and take on more responsibility. I thought that the burden put on me for school would be to save a bit more money from my summer job and put it towards tuition, but I was so far from wrong. He wanted me to carry the entire fiscal load. Tuition, books, housing, transportation, food, and everything else that needed to be paid for during the school year. I had no idea how I was going to accomplish this. I went to an expensive school with a tuition around $25,000 a year in a city where housing was even more expensive and I was a 17 year old soon-to-be sophomore that had a job banquet serving making around $6,000 dollars in a summer that I used over half of just on expenses and leisure each break. I also received no financial aid because of the high salary my parents retained. Concerned, I talked to my dad about how it was not possible to even cover the cost of even tuition. He completely agreed and told me that we were going to need to take out a loan.

Now I was somewhat familiar with loans. My dad filled out the FAFSA with me and I already had a small amount of federal loans from my first year, but now I was taking out a private loan. I had no idea how this worked and I blindly followed my dad’s instructions with the lender, lifespan, deferring, and rate. All extremely important details that I was completely ignorant about at the time. I knew that I was borrowing enough money to cover myself to live and go to school, which was completely fine with me.

I continued to take out my federal and private loans for my junior and senior year of college, and finally made it to what I had been borrowing and working hard for the past 4 years.. Undergraduate Graduation. I graduated as planned and finally received the diploma that everyone told me I needed to obtain in orer to reach my path of a successful career. I decided to take a year off to work and strengthen my application for medical school, so I continued working my usual summer job while I looked for a full time position to strengthen my resume and gain a better income for the year. I was fortunate enough to get a good, entry-level job related to the medical field and diligently worked day in and day out. Everything seemed to be going as planned until 7 months later when my dad handed me several letters. I opened the letters and I was hit with several documents stating that I owed over $75,000 dollars!

My first thought was “this can’t be right” and reasoning with myself that I only borrowed a portion of that. I quickly went through the documents to see the math and how the interest of my loans had accrued over the past 4 years to my demise. On top of that, my dad had given me the letters over a month later from when the first payment was due so I had another thousand dollar fee. Taking all of this in at once was terrifying. Due to the late fee and interest built, the first payment alone was $1,300 for a single month! That was over 50% of my monthly income and around a third of what I had saved over the past 7 months. My medical school applications had cost me an arm and a leg, and I had no other savings to pull from. I had been enjoying getting a steady paycheck for the first time; going out with friends, going on trips, and spending money on entertainment. Receiving those letters brought me right back down from cloud nine to the cruel reality any borrower will one day have to face.

Facing the reality of the situation, I sobered up from my current living style; spending much less on going out and entertainment, while making the payments on the loans each month. This continued for around 4 months when I looked at my loan balance once again and it still read $75,000. I was baffled. I had spent hundreds of dollars in loans over the past months and the balance had barely budged at all. I didn’t have the income to enjoy anything anymore and I wasn’t making progress. I couldn’t understand it at all, but I knew something needed to happen. It was at this moment when I first began to truly take control of my finances. I started with reading about student loans since it was most relevant to my situation. I learned about different rates, principal, the type of rate, the life of the loan, the difference of being subsidized and unsubsidized, and soaked in any piece of information I could find. Next I took everything I learned and dove deeper into the details of my own loans, which wasn’t just the big $75,000 that I saw between two papers, but several smaller loans with varying rates and amounts. I started calculating out how long it would take to pay off the loans with my current payment plan and how much the total would be when everything was paid off, and I saw that in 20 years I would have paid over $150,000 in total towards my loans. Seeing this I started thinking even more. I was planning on going to medical school, which would require me to defer the$ 75,000 loan another  4 years and take out approximately another $250,000 dollars in loans. This left me with a total of around $400,000 of loans and monthly payments of around $3,000. I understood that my income would be much greater when I finished medical school and started my career as a physician, but what would happen if I didn’t finish medical school? I’d still be left with around $120,000 dollars worth of debt and a thousand dollar monthly payment. Even with my full time job making the average college graduate salary, about half my income would be going to loans, while the other half of my income would be going towards bills, rent, and just trying to live. Thinking this over, I decided that no matter what, I’d never chose to live a life where I just pay bills and die. There had to be more than that and I was eager to find out how to get there.

Once again I turned to learning from others. I started reading excerpts from people that paid off their student loans quickly. Finding examples of how everyday people like me were able to overcome loads of debt. I started writing down every tip they gave and looked at what I could incorporate into my own life in order to put myself on the right track. This led me to start following several personal finance writers and to start diving deeper into the world of finance as a whole. I was no longer thinking just about how to get myself out of debt and pay for myself just to live, but for the first time I was thinking about growing my net worth as a whole and how to create a life where I can truly be Financially Independent.

I began to construct a plan to take control of my finances and drive my net worth, and as most of you can imagine, the first step was to take care of my debt. My plan to pay off my student debt could be summarized as:

Do everything you possibly can to increase your income, minimize payout, and put all of the net towards paying off your loans as much as possible.

Although this seems rather simple, being able to actually accomplish this effectively requires a huge amounts of willpower, dedication, and planning. It’s much easier said than done to take $40 and put it towards a loan payment than to spend it. Well maybe not for everyone, but for me having a girlfriend, friends, and family that I’m very close with; it was much more tempting to take that $40 and go to a concert or buy tickets to the next game than to make these payments. The main way to overcome this temptation was to develop the mindset of considering  where every dollar is going. When dealing with twenty dollars, it’s not hard to just spend it and say that twenty dollars wasn’t going to make a big difference to a $75,000 loan. On the contrary though, if you look at that twenty dollars in terms of the monetary value along with the interest you’ll see that twenty dollars in your loan over a twenty year payment plan will actually value at about 100 dollars. So by putting that 20 dollars towards your loan now you’re actually saving yourself 80 dollars that you won’t have to make in later payments. Taking that information and incorporating it into a mindset made it much easier to rationalize and even look forward to being able to make additional payments on my loans.

Additionally, I took action towards the “increase your income” and “minimize payout” portions of my plan. My current job simply wasn’t enough money to pay off $75,000 dollars in the one year timeframe that was available before medical school. Heck, after taxes and bills, it wasn’t even enough to cover one third of that amount, so I needed to increase my funds. I picked up a second job working as a bartender/server at nights like I had as my summer job while I was in school. I started doing odd tasks such as yard work and babysitting whenever the opportunity arose. I even started completely saving the Birthday/Christmas money I was given in order to have extra money paid towards my loans. All of this was awesome and really helped me make progress towards getting the net income to make much larger payments towards my loan, but the most important aspect of my plan for paying off my debt and building my net worth in the future was minimizing payouts.

Although I do think that increasing your income is extremely important, it’s often limited to how much you can increase it right away. You can’t always get a new high paying job, find a passive income stream, or even have the hours/availability to work a job on the side that immediately increases your income. Those types of things take time and they’re extremely important, but minimizing what you’re paying out can be done right NOW and it leaves you an even greater net gain when you eventually do increase your income to a higher level.  By the same token, there’s a ton of different ways to accomplish keeping more money in your pocket. This is where all of those “I paid all of my college debt in 6 months” anecdotes and other personal finance articles that I constantly read come into play. I started assimilating these tips from other people into my own life and I was instantly able to find money saved each month, week, and even day. As I mentioned before, there’s tons of ways you can minimize payouts, but the three that I found most useful were:

  1. Refinancing – It actually took me much longer to come around to refinancing than I wish. The interest rates on my loans were atrocious and I just continued paying them off month after month. Refinancing your loans instantly gives you a long term way to save potentially thousands of dollars on the life of your loan and can also lower the monthly payment you’ll be making. I’ve put together a list of refinancing lenders that I personally liked in this link so check it out if you’re interested in saving.
  2. Paying off the right loans first – Another important thing to note is that not all loans are created equal. Make sure that you’re always paying off the loan with the highest interest rate since this is the one costing you the most money in the long run.
  3. Homemade cooking/Packing lunch – Making food for yourself everyday is a simple, yet extremely effective way to cut back on monthly costs. Although it can be a little bit tedious, but switching from eating two $10 meals of takeout to spending 20 dollars a week on groceries saves you around 120 dollars weekly or 17 dollars a day.

Since setting off on my journey to take control of my finances, I’ve paid off over half of my $75,000 debt in student loans in a one year time span. I’ve also invested money for the future and continue to have a pretty active social life. I’ll be starting medical school in a few months and putting myself into a lot more debt than what I started with, but I’m much more informed to take on debt this time and will be sticking with the plan that I made throughout the entire journey. Everyone says hindsight is 20/20, and I couldn’t agree more with the notion. I’m by no means a financial expert ready to take on wall street, but having even a sliver of the financial knowledge that I have now would’ve impacted a large amount of decisions I made before and during my time in school. I made this site to act as an agent for anyone that will be making important financial and career decisions that I blindly overlooked in my past. In the future, I’ll be posting about tips, experiences, and other things that helped me in school and can jump start your own path towards financial independence.