A Story About Paying Off Debt and the Obstacles Along the Way

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State Of The Finances, Late Summer 2018

This summer has been a little disorienting from a financial standpoint. It started with our big win in June - paying off the credit cards - but since then our progress, at least with respect to debt reduction, has plateaued. In July, we used our disposable income for fun stuff (vacation, home supplies, a few pricy toiletries for me), and in August, we paid the minimums on our loans and threw the rest of our extra money into our savings account. We've made minor headway on the student loans, but we're talking a few hundred dollars.

We're not always going to move at lightning speed when it comes to paying off our debt. I accept that. This is a long process, and it's only natural that our pace will fluctuate. But after a year of intensive (more like obsessive) focus, it feels strange to take our feet off the gas.

While we're sitting here twiddling our thumbs, I thought it might be useful to take stock of our current financial situation. This is partly for our own benefit so that we can see how far we've come, but I'm doing it also so that anyone who's recently started reading this blog can get a sense of where we're at on our debt payoff journey. Keep in mind that 18 months ago we were >$76,000 in debt, didn't have a savings account, had almost no investments, and were living paycheck to paycheck. A lot has changed since then!

State of our finances, August 2018

Total debt: As of the beginning of August, our total debt stands at just over $49,000. That debt consists entirely of student loans (my balance totals just under $10K with a 7% interest rate; Fortysomething's balance is at $39K with an interest rate of 7.25%). We don't have a mortgage or a car payment, and we no longer have credit card debt. *stops typing to jump up and down because this never gets old* Since June of 2017, we've paid off $28,000 of our original debt load. That's major progress and we feel really proud of ourselves for getting this far.

Savings: By the end of August, we will have an emergency fund of $5200. In my entire adult life, I can't remember ever having this much cash in reserve. Crazy, right? I'm not going to lie: this savings account helps me sleep better at night. If our car (we're a one-car family) were to crap out, or if we were to get saddled with additional medical expenses, we'd be able to use our emergency fund to buy another used car (outright, ideally) and meet our out-of-pocket maximum. If we needed to travel across the country to see family, we could purchase plane tickets without disrupting our monthly budget. 

I also have a few hundred dollars in my HSA, to which I contribute $360 per month. However, because I'm still paying off medical bills from the Kiddo's appendectomy last spring, most of the HSA money drains out as quickly as it comes in. I keep enough in the account to cover the copay of a doctor's visit or eye exam.

Health insurance: We're covered through our employers. Fortysomething has full health insurance for himself through his work, while my employer's high deductible plan (with a maximum out-of-pocket limit of approximately $7500) covers me and the Kiddo. Having decent health insurance is a big deal to me, and it feels like an absolute luxury in a country where so many people either can't afford it at all or are paying big premiums for plans that offer, well, not much.

Investments: It's no secret that we don't have much in our retirement funds yet. True FIRE gurus would cringe at the total. I will say that Fortysomething and I both have a 401K through our employers (each with a 5-6% match), and we each have an IRA. I hear about people maxing out these funds each and every year and I'm like, #GOALSSSS. But we're not there yet. We won't be there for another few years.

Financial questions we're currently asking:

1. Should we save more before going all-out on student loans? Many people would argue in favor of going after the loans, given the fact that we're paying interest on them. However, in one of her recent case study posts, Mrs. Frugalwoods made a strong argument for squirreling away 3-6 months' worth of expenses before tackling student loans full on. I go back and forth on this conundrum pretty much every day. On one hand, if we commit ourselves to loan payoff, mine could be eliminated by February. On the other hand, having money in savings gives me a sense of security and breathing room that I haven't had in a long time. 

2. Should we purchase a house? I've shared that our current rent is borderline exorbitant: $2100/month. Granted, this sum is not unusual for our area, and services like water, sewer, and garbage are rolled into the rent. Plus, our location is as ideal as it could possibly get. Fortysomething can walk to work, we're a mere five-minute drive from our grocery store, and I can run to our local park. We're also aware that home upkeep is expensive and that many of our weekends would be spent on repairs and maintenance. 

On the other hand, we're committed to staying here, so purchasing a home makes sense in that respect. Even with a meager down payment, it's possible that a mortgage would be a few hundred dollars less per month than what we're currently shelling out in rent. It can't hurt to meet with a mortgage broker to see what kind of loans we're eligible for.

3. Should we refinance Fortysomething's loans? I think the answer is YES, given that a 7.25% interest rate is a few percentage points higher than it needs to be, but maybe the real question is, When will we get off our butts and refinance this loan? Good question. I'll let you know when we get there.

4. What about a college fund? If the FIRE fanatics were cringing before, this next point may make them cry: we don't have a college fund for the Kiddo. I know, I know, that's not good. But keep in mind that we didn't really have our finances together until about a year and a half ago, at which point we started throwing any disposable income at our credit card debt. And we still have debt, none of which I ever want to saddle my kid with. Thus, our focus is on making that debt go away.

I want my kid to make his own decisions after he graduates from high school, but I really hope to impart to him that (a) he does not need to go to college immediately, (b) he can work while he is in school to help cover part of tuition, and (c) he does not need to spend tens of thousands of dollars to get an education. Knowing him, I wouldn't be surprised at all if he wanted to work and travel for a few years before pursuing a degree. As someone who has spent more than a decade working in higher education, I think more students would benefit from taking some time away before going to college.

At the same time, I'd feel pretty bad if he was ready to go to college right after high school and we couldn't help him out at all. Thus, starting a college fund - albeit several years late - is something that is on my radar. 

So that's where we're at! And while plenty of questions remain, I still can't get over how much progress we've made in less than two years. It's been a challenging road, but it's also been incredibly rewarding because it's shown us what we are capable of accomplishing if we put in the effort. 


  1. Great post as always.
    In regards to your questions
    1) top up your emergency fund before going all in on those student loans. At the end of the day, if you both lost your jobs (heavens forbid you don't!), you need something to live off. Top up that emergency fund to cover all expenses for at least 6 months. Then tackle those loans.

    2) Personally, I would wait till you have more cash behind you. The larger the deposit, the less time you'll spend paying the mortgage. But it also doesn't hurt to see a mortgage broker and find out where you stand in the grand scheme of things.

    3) Yes definitely, if you can find somewhere to take on that loan and at a lower interest, go for it! Hop to it :)

    4) I think college funds are a good idea, the US has over a trillion dollars of student loan debt. But ... what about setting up an investment fund for kiddo instead? Even if its something like $10 a week into the S&P500, that way by the time he leaves school he can decide what he wants to do with it and its making good returns (probably better returns than a college fund)
    I dont think people should go to college straight out of school. How many people know what they want to do when they leave school. They should get out into the world and experience life, then go to college if that is what they wish to do. but at least in an investment fund, he can take that money out and go travel if thats what he wants to do.

    Keep up the awesome work :)

    1. Thanks so much, Glittergirlz! I completely agree with you: SO many students go to college just because they think it's the requisite next thing to do. In reality, they'd be better off learning more about themselves first.

      I love the idea of an investment account and will certainly look into that (particularly the tax aspect of it).

  2. 1. Yes. Maybe not all the way to 3 months of expenses, as you're not likely to be starting from zero if you both lost your jobs (UI would kick in), but a good, solid amount that would make you feel comfortable ($10k?).

    2. No. I'd wait until the housing market crashes (it will, again) or until your student loan debt is closer to gone.

    3. Yes!

    4. Not sure...leaning towards no. There are a lot of ways to pay for an education (merit aid, your son could work for a year or two before attending, or work while in school...), but only one way for you to pay for your retirement. In any event until your own student loan debt is significantly reduced or gone, I wouldn't focus your money and attention on that.

    1. Thank you, Deborah! I appreciate the feedback and advice. I worry about the housing market where we live. It is SO robust, seemingly bulletproof. On the other hand, do I feel like moving again in a few months? Not really. LOL.

  3. While I don't have any answers for you (other than, I agree with upping your savings before paying those student loans), I just wanted to drop in and say hi. I found your blog a couple of days ago and read through every post! Our situations are totally different, but I find your progress really encouraging for my own financial journey.

    Great job with the debt pay off and savings!

    1. Angie, it means so much that you read every post. Truly. I was having a terrible day yesterday and this comment lifted my spirits. So thank you!

  4. I think it's fine to build up savings a bit more, but set a goal ($10K seems fine) and then stop, really, and go back to the debt. Think how good it will feel when you're down to one (refinanced!) student loan.

    As for college funds, take that off your list of things to worry about right now. There'll be plenty of financial aid out there, there's instate tuition, you can always help out with his student loans later. Getting rid of your own debt and getting yourselves some retirement savings is MUCH more urgent than putting money in a fund that your kid might not even want to use eight to ten years from now.

    1. Thanks, C! :-) Solid advice as always.

      We do have some great in-state tuition deals, assuming his grades are high enough (and if they aren't high enough, well... maybe college isn't the best option straight out of high school anyway!)

  5. Amazing progress!!! 28k in a year or so is no fucking joke.

    I agree wholeheartedly with #3, and getting the student loan refi'd. It's a GREAT way to make even faster progress on debt repayment.

    1. Just have to get the partner on board with that one, since it's his loan. I think he's worried it's going to be a boatload of hassle.

  6. I wouldn't jump into a mortgage just yet. Saving more for a down payment and also getting the student loans paid off will put you in a far better position to handle everything that comes with owning a home. I also wouldn't worry too much about kiddo's college just yet. Once you are debt free, you can hit that hard. Great job on paying off so much debt!

    1. Thank you so much! I appreciate the advice and the encouragement. You're right... home ownership carries a lot of hidden costs!

  7. the age old should we buy a house question... i was on this road a year ago...just being part of the community made me realize it didn't need to be part of my life plan... i'm not in the housing market currently and like you my apt was a little ridiculous but made my life really convenient. the houses aren't going anywhere... i guess the prices are, but so what?

    I've enjoyed reading a ton of your posts and your stories! really easy to follow along :)

    1. So true. Rent is high, but location + no maintenance = renting is super convenient for us.

      Thank you for reading and commenting. It means a lot to me.