I'm Torn

I'm torn.  There are a variety of methods to paying off debt (the Debt Snowball and the Debt Avalanche - I'll definitely cover these in more detail in another post), but where do I even start?

If I want to take a bold first step, I could start by paying off Private Loan 1 ($11,523.96 at 5% interest) and Private Loan 2 ($10,139.89 @ 4.43% interest) in monthly lump sum payments as soon as next month (a total of $21,663.85 over the next two months), but then my available cash + emergency fund would be down to about $8,452.  That's less than 3 months of living expenses for me.  It took me a long freaking time and a lot of hard work to save that cash up!!!  If I use the cash to pay these loans off, would less than $8,500 be enough to cover me for a while if I lose my job or an emergency came up (like unexpected medical expenses)?

The emotional high of paying off two private loans in full would be an amazing first step and might motivate me even more to tackle my huge student loan debt.  But after giving up that much cash, I fear that I will feel a bit empty (and not just in my bank account).  On the one hand, I worry that I'll pay that much money and feel like I'm back at the starting point, trying to work hard and save money.  On the other hand, starting strong and paying off these two loans could be a good motivator and would free up an additional $246.00 per month in student loan payments so I could save even more money and start attacking the other loans full force.  That's definitely one way to make a dent in my monthly expenses.

In terms of savings in interest, I used the handy tool at unbury.me to find out how much money I would save over the life of the loan in interest if I pay off these loans in full:

• Private Loan 1: $2,189.42 (paid off in Feb. 2021)
• Private Loan 2: $3,480.53 (paid off in Dec. 2027)

That's a total interest savings of $5,669.95 over the life of these loans.

The thing that reassures me is that I am starting a freelance job on the side of my regular job in February, which could help me pad my cushion emergency fund more and give me some of the added security I need while I'm getting rid of this debt.  And hey, bringing down the Debt Monster to $152,621.03 sounds a whole lot nicer than being $174,284.88 in the hole.  It's a risky route, but maybe I just need to have a little more confidence and faith in myself that no matter what the circumstances, I am ready to face the challenge.  I am fortunate to have lined up some freelance income through September and if all else fails, I trust that I could always find work and cut expenses to make ends meet.

I haven't decided yet what my first major step will be, but I will definitely let you all know!  

Student Loan Interest Paid in 2013

I'm starting to prepare taxes for 2013, and I just realized that I paid $3,806.70 in interest alone for my student loan payments in 2013.  That is almost 50% of my total loan payments in 2013.   Yikes!  Almost $4000.  In.  Interest.  Alone.  This amount will likely increase in 2014 due to an upcoming significant increase in my IBR payments for my federal loans. 


I'm also starting to plan out a detailed budget for the next several months, which is difficult for me because I'm realizing that I'm not very good with numbers.  But this is all about to change!  I'm going to get good at numbers.  I need to if I'm going to figure out the best methods of paying off my loans.  I want to set out a detailed plan for debt payoff, with goals, dates, and spreadsheets.  I'm going all out!  And I'm going to have to get creative.  Stay tuned.

The Name of My Blog

You may be wondering why my blog is named "My Debt Emergency."  After all, just considering the amount of my outstanding balance of student loan debt would be enough to freak anyone out.  Now I have to look at the word "emergency" every time I go to write a new post.

This is intentionally so, as the name "My Debt Emergency" simultaneously freaks me out and makes me laugh.  One of the bloggers who inspires me and is causing me to make some serious shifts in my attitudes towards money, finance, and debt is Mr. Money Mustache.  You may have heard of him.  He retired from his office job around age 30 and is living a good life with his family, unburdened by debt and only works on things he wants to work on.

His blog post called "News Flash: Your Debt is an Emergency!!" really resounded with me.  Here is what he wrote:

"Your Debt is not something you 'work on'. It is a HUGE, FLAMING EMERGENCY!!!"

He also compared debt to having a swarm of killer bees constantly stinging you:

“AAAAAUUUUUUGGGHHHH!!!! THERE IS A CLOUD OF KILLER BEES COVERING EVERY SQUARE INCH OF MY BODY AND STINGING ME CONSTANTLY!!!! I NEED TO STOP IT BEFORE I AM KILLED!!!”

I had a few laughs over this.  So whenever I read the name of my blog, I have a laugh when I'm reminded of this quote by Mr. Money Mustache, and I hope you do too.

The truly insightful portion of his blog post:

"The more vigorous method has multiple exponential benefits: every dollar of debt you pay off creates a compounding snowball of savings that continue for a lifetime. And every dollar you manage not to waste, builds your skill at saving money and learning to spend it more efficiently. These skills stick with you for life as well.

So if you still have a car loan, credit card, department store or even a student loan debt, you should destroy that as a prerequisite to beginning the more relaxed stage of saving for financial independence. At the later stages, you can start to take it easy, but right now is the time for some hard work. Depending on your life situation, you might decide to go car-free, live with roommates, eat a vegetarian diet, take on extra jobs, delay parenthood, enjoy only local travel, and do any number of other things to get the job done. This stage will be short and effective."

While I have no consumer debt (anymore, thankfully), I have to come to terms with the fact that I am indebted to several lenders and will be until this debt is eliminated, and that killing this debt will take a lot of hard work.  It may hurt a little, but it will be worth it.  The biggest thing I have to gain from all this is that the more effective I am at eliminating this debt, the more I will have learned about being smart with my money and making it go as far as it can.  That, in my view, is one of the best investments I can make over my lifetime.

Denial Isn't Just a River in Egypt - Detailed Breakdown of What I Owe

The first step to recovery is admitting you have a problem.

In tackling this debt monster head on, my first step is to outline exactly what I owe.  Here's the breakdown, in order of highest to lowest outstanding balance:

• Federal Student Loans: $107,875.14 @ 5.75%
• Private Loan 1: $11,523.96 @ 5%
• Private Loan 2: $10,139.89 @ 3.03%
• Private Loan 3: $44,745.89 (made up of 6 separate loans) @ various, ranging from 3.22-3.72%. Here's the breakdown for this one:
• $11,761.26 @ 3.22%
• $10,928.05 @ 3.72%
• $9,079.46 @ 3.72%
• $8,734.15 @ 3.72%
• $2,128.50 @ 3.72%
• $2,114.48 @ 3.72%

And the grand total is.................   $174,284.88.  

Breaking everything down in detail like this felt surprisingly cathartic for me.  Knowing exactly what I'm dealing with makes paying off this indebtedness somehow seem more doable than I imagined, because I am seeing real, finite numbers that I am totally going to tackle with a bit of planning, hard work, and some time. 

Welcome (and Why I Have $175k in Student Loan Debt)

I'm starting this blog as a way to mark my progress in eliminating almost $175k* in student loan debt.  You may think that is a preposterous number, but after going to a public undergraduate institution as well as a public law school, with tuition and living expenses paid for mostly with student loans, the cost can quickly add up.  I know I am not the only one in this situation.

I am making my effort to eliminate "My Debt Emergency" public because I can already feel the excitement and joy it will bring me to publicly announce that I have eliminated $175k of debt.  The debt feels like a burden to me and I've told myself that I can't really build wealth, save money for a house, or afford going on extravagant trips until this debt is dead.  So I am going to Kill the Debt!

I've been inspired by several personal finance blogs which have shown me that no, I cannot buy designer shoes or clothes when I have this much debt and that I'll have to continue hustling in a job I don't enjoy for a really really long time, longer than I'd like, in order to pay for everything and pay off the debt.  Since student loan debt is not dischargeable in bankruptcy, except for limited circumstances, and you can even have your wages garnished if you default on a loan, the stakes are extremely high with this type of debt.  It's a Debt Emergency and I have to do something about it!!!

My personal situation is as follows:

• I have already eliminated consumer debt, i.e. credit cards, as I pay those off in full every month.
• I have already saved for an emergency unemployment fund 
• I contribute to my 401(k) at work up to the employer match
• I invested in a Roth IRA last year
• I have a little bit of money in a Rollover IRA
• I have invested a little bit of money in Bitcoins (this will have another post - disclaimer: I don't recommend you invest in Bitcoin without doing your own research first, as it is highly volatile and currently unregulated)

I'm going to use what I call the CSEHP (Cut Save Earn Hustle Pay) strategy going forward for paying off the student loan debt.  This means:

• Cut expenses more - Cut out extraneous expenses and see how I can save on necessities
• Save more - I'm going to save the maximum amount I can from every paycheck
• Earn more - I'm going to ask for a raise at work
• Hustle more - Work harder in my current job and take on freelance work
• Pay more - Pay off more of that debt so that I am no longer indebted to those lenders.  Hmmm.  

Follow me along on my journey and feel free to share your stories.  Let's make 2014 the year of eliminating debt and let's do this together!  

{*Update: I later realized that the beginning amount outstanding on my loans was actually $189k, not $175k.  This was because I failed to take into account accrued interest.  I am leaving the original post as is, but just wanted to point out why there may be discrepancies on the blog, and why some places refer to $175k and others $189k.}