My debt story

I have read a lot of personal finance blogs like The Simple Dollar, Get Rich Slowly and Make Love, Not Debt. Many people have these incredible stories of huge consumer debt (five digit figures of credit card balances) and large student loans looming over them, hitting a crisis point and then fixedly paying these debts down. Some of these numbers are truly jaw-dropping in number and I applaud everyone for not only acknowledging these hefty debts, but focusing on getting the debt monkey off their back.

My only current debt is a 30-year fixed mortgage. I was determined to find a place in my price range and I found one. It is not perfect (is any house?), but it suits my needs for a garage, a quiet location not more than 20 minutes from work, and my own space. In fact, if I had waited a few more months to purchase my home, I could have been completely debt-free. How unAmerican, I know! I was still paying off my student loan and decided to pay off the entire last $1,000 as a lump sum. It was a great feeling to get rid of that debt!

However, graduating from college was not a debt-free experience. In 1995, I had almost $11,000 in student loans and about $2,000 in credit card debt. While I did earn a stipend in graduate school, it was not enough to pay much more than the minimum on the credit card. My recollection of my credit card debt is vague at best as I recall doing the usual card hopping for lower interest, paying regularly an amount more than minimum, but not getting very far until I found my first job.

While my consumer debt dogged me through graduate school, my student loan repayment was deferred until six months after I graduated. This meant since I was attended graduate school, my undergraduate loan stayed in the background and would not bother me for a while. My first job doubled my income in one fell swoop. That is heady stuff for 28 year old. However, I was determined to pay down my credit card. Since I was still living on a graduate student budget for the most part, I could throw a lot of money at the credit card. In less than a year, I had gotten rid of my credit card balance and decided never to carry one again. There was one incident with a 0% check written against the credit card that I ran afoul of, but I had the cash to pay off the balance after realizing my mistake. Since then, no balances. Excluding the one incident, I have paid off my credit card in full since 2000. I am quite proud of that accomplishment.

Unfortunately, student loan did not disappear so quickly. I did have lifestyle inflation, but not too badly. I was able to pay $200 or more per month toward my student loan when it only required about $125 per month. However, it took me nearly seven years to make the final payment so despite determination and extra payments, I needed more than five years (my original target timeline) to pay it off. I did start paying my loan at 9% interest and it dropped to 4% over three years. I may have been able to deduct the interest on my taxes, but having such a high rate at the start of the loan means less of my payment went toward principle.

During the student loan repayment, I also took out a modest auto loan ($5,700) and paid that off in less than three years, quit my job and took a severe pay cut for several months, found a job in industry rather than academia that required more driving, and gave up my inexpensive apartment I had since graduate school to move to a $200+ more expensive apartment closer to work. I had to pay the minimum loan payment a few times, but generally, I paid more than required amount to reduce the repayment time.

My debt hole may not have been a big as others, but I am proud that my student and auto loans as well as my consumer debt are paid off. I do pay a bit extra each month for my mortgage and am saving for a newer used car. Right now, my car is quite reliable and I do not anticipate any changes in the next 3-5 years. However, rather than being unprepared to replace my car, I make regular payments into a high-yield savings account so I can pay cash for my next car rather than needing a loan.