Student loan debt sucks. There isn’t much else to say about that. Yes, it did help you increase your earning potential (hopefully), but it can crush your monthly cash flow. I keep track of my monthly cash flow via Personal Capital. In my family’s case, attending college and having a relatively small amount of student loan debt was definitely worth it.
That isn’t always the case as can be witnessed by many Millennials struggling to find work in their field of study. Don’t get me wrong, college is probably the safest path to increasing your earning power, but it is not the golden ticket that it was for Gen X or Baby Boomers. Let’s get onto our debt story.
As of November 2015 my wife’s student loan balance was $11,653. The minimum payment is $280 which we had been making for more than 5 years. We finally had enough and wanted to free up this ~$300 in cash each month.
- Ultimately provides increased cash flow which provides flexibility
- Guaranteed $1 for $1 increase to your net worth through the reduction of liabilities
- The general relief you feel when you pay off a debt
- Decreased liquidity as you are giving up cash on hand to pay off the debt
- Cash is not invested in the stock market and no investment returns are generated
- Less tax-deductible student loan debt interest
Student Loan Debt Pay-off Tables
Like I mentioned above, we had been paying the minimum on my wife’s student loan debt for several years. This was the case again in November 2015 and then we decided to get serious about paying the balance off. In the table below, you can see the payments pick up in December but then really start to take off in January 2016. We have consistently been paying off close to $1,000 per month in principal since then (with some down months May and June).
Principal Reduction since November 2015
Planned Principal Reduction
We worked out a plan to pay off the remainder of the debt between now and the end of November 2016. This consists of committing $1,110 to $1,300 per month from August to November and paying the remaining $630 in November. Late Summer and early Fall are typically low expense months for us so we are putting as much cash as possible toward the debt. The annual Christmas expenses start to ramp up around the November/December timeframe which this plan takes into account. Hopefully we can stick to this schedule and be done come December. I am going to think of it as an additional Christmas gift to ourselves.
You can make a compelling argument that we should keep paying the minimums on the student loan and direct the cash into investment accounts. However, for us, financial flexibility today is our motivating factor. Plus there is definitely a strong sense of achievement as you see this balance drop. We are to the point now where the finish line is in sight, only four more months until this weight is off our shoulders. The thought of that is very relieving and exciting. I can’t wait!
I will circle back and discuss this again when we have truly eliminated this debt and see how we performed against the plan in the table above.
Comment and let us know about your debt pay down plans or successes. Let me know what you think of my plan and financial priorities. Thanks!