Category Archives: Debt

Next Steps to Take After Paying Down Student Debt

When you have finished paying off student loans, it is time to start building your wealth. It’s also time to achieve some of life’s most important milestones.

But first, I want to talk about the negative effects that student loans can have on your future.

There are many people that go to the bank to buy a home with tens of thousands of dollars of student debt on their shoulders. The loan officer looks at the debt and you can almost see the look of disappointment in their eyes because they are going to have to tell you that the student loans are driving up your debt-to-income ratio.

If you say, “but my loans are deferred” or “my loans are in forbearance,” the loan officer is going to look at you and tell you that it doesn’t matter because the debt has to be paid back eventually. At some point, while owning a home or car, the repayments may begin on your loans. That consumes part of your income. The bank doesn’t want to take the risk of you not having enough income to make your payments to them.

It is devastating, and it happens every day.

To keep this from happening to you, it is best to pay down your student loans as fast as you can so you can enjoy buying a home or new car without receiving bad news while sitting at the loan officer’s desk.

Think About Retirement

Another milestone that student loans can interfere with is investing. When you’re dealing with student loan payments, it’s difficult to put money into anything else. Of course, you can increase your income with a second job or find side gigs like I did. However, I still didn’t have a lot of room for investing until the student debt was gone.

Investing can take many forms. You can invest in stocks, bonds, or mutual funds. You can even invest in real estate, the mortgage market, or business ventures. There are many things that you can do with your money when you have the funds to do it. Think about being able to retire early or just retirement in general.

The last thing you want to do is retire and find that you don’t have enough income. There are many senior citizens filing bankruptcy because of pensions that fall short, social security that isn’t enough, and medical benefits that are still too expensive.

Think About Your Family 

With student debt gone, it is also easier to expand your family on the financial end of things. When you don’t bring children into debt, you’re able to focus more on the financial needs of your child.

It is difficult to bring a child into a debt situation because so much of your income has to be put into debt while meeting the needs of your family. Of course, it can be done. But do you want to go through that struggle if you don’t have to?

Of course not!

Regardless of what phase of your life you are in, it is important to pay off your student loans quickly. Those high balances are holding you back in more ways than one. Many good people who went to college to do something meaningful and make a good income are plagued with debt for a while after graduation. They make their minimum payments but still pay the collateral consequences of having the debt.

It can be heart-wrenching to struggle or be told “no” by a bank when all you’re doing is what you’re supposed to do.

The fact is that you need to go above and beyond what you’re supposed to do to get ahead as soon as you possibly can.

Even if you already have a family, a strict budget and some discipline can help you pay down the student debt so you can start working on other milestones in life. It’s best to pay off debt as soon as you can, but don’t ever think you are too late. People thinking that they are too late causes them to not be aggressive with their debt when being aggressive can be one of the best things they ever do for themselves and their family.

Jacob runs Dollar Diligence where he blogs about debt repayment, saving money, and side hustles. For more advice and content, follow him on Twitter.

 

I Bought a Lemon

 

The first time I took on debt was the spring when I graduated from high school.  When I was a senior in high school, I was not 100% sure what I wanted to do with my life.  I knew that I would ultimately attend college, but I was not mature enough yet at the age of 18.

After talking about it with my parents, we decided that I was going to work for a year or two before I went to school.  They were not thrilled with the plan, but also did not want me to just go to college without a solid direction.  Looking back, I still think that was a good idea.

Since I was going to get a job, I needed a means of transportation.  I grew up in a part of Pennsylvania were public transportation was limited.  To get to work, I needed a car.

It was 1995, so all the online car buying resources were not available.  At that point, there was Consumer Reports and Edmunds.  As you will find out, I did not read those magazines.

I decided that I wanted a Jeep Wrangler.  I started shopping by looking in the classified ads in the newspaper.  After looking for about one week, I spotted a 1991 Jeep Wrangler with a hard top.  My dad and I took a ride down to this local used car lot to test drive it.

The Jeep was nice, but when we were at the lot, a different car caught my eye.  The other car was a 1986 Audi 5000 CS Turbo.  The salesman called it a 4-dood Porsche.  We test drove the car and we really liked it.  It was a solid driving car.

At the time, I had zero credit.  My dad agreed to co-sign for the loan.  He had one condition, he said if I missed a payment, he would sell the car.  I agreed to his terms and bought the car.

The car had less than 60K miles and only cost $6,500.  The loan payments were around $165 per month.  Because that it was a turbo, the insurance was higher than the car payment.

 

I had the car for about 2 months before the trouble began.  There were many issues, but the major issue was that if I was not driving with my foot on the throttle it would stall and not start back up.  When I was at a red light, I had to slip the car into neutral, put my left foot on the brake, and keep my right foot on the gas pedal.  Yes, very dangerous.

I took the car to a few different local mechanics and they did not know how to fix it.  I took it to a mechanic that specialized in European auto repairs.  He was not able to pin point the issue.

After I owned the car for about 4 months, I had to sell it.  My Mother was driving it on a major interstate highway when it stalled and would not start back up.  She was lucky to not have been injured or even killed.  The state police came and they called a flatbed to tow it away.  The car was simply not safe and had to be sold.

I took it to a dealer to find out what it was worth on a trade-in.  The dealer offered me $2,500.  I owed over $6000.  I did not want to lose $3,500.  At that time, $3,500 was a fortune because I was broke.

On my way home from the dealer, the car stalled at a major intersection.  I tried to start it for 15 minutes, but it would not restart.  This time the state police were not needed, but a flatbed was.

The car had to go.  I spoke to the owner of the car lot who offered me $2,500.  We worked out a trade for a 1986 Honda Accord with a bent frame and 115,000 miles.  The salesman told me to be careful with the car because it had a bent frame that causes it to drift to the right.

This whole situation truly had me upset.  I was not upset about losing the Audi.  What had me worried was the amount of Debt that I now had.  Plus, I felt that I had very little to show for it.

For the next four years, I had to make monthly payments on a $6,500 loan, but drive a $2,500 car.  This experience left a bad taste in my mouth when it came to debt.  I never missed a payment and paid the loan off.  I told myself that I would never get another car loan again.

The Honda lasted about 8 years.  My next few cars were hand-me-downs with well over 100K miles on them.  I received one from my parents and one from my wife.

I did not buy another car until I was 35 years old.  This time I did my due diligence and did some research before making the purchase.  That car was certified used Subaru with a 100K mile warranty.  I also paid cash.

Have you ever had a negative experience with debt?  If you have, please share your experience and what you learned from it.