Being transparent with your finances online is interesting. I know it helps to see real numbers which is why I share everything, but there are obvious downsides. Like, all of the times people tell me that they wish they had my income. I can’t help […]
Tag: student loans
My relationship with debt has never been a resolute one. I’ve made a lot of mistakes along the way. I’m not an expert in personal finance and I still have a long road ahead, but I hope my experiences might help you along your own […]
My former roommate and one of my best friends in university was the textbook example of an overachiever. She would study at all hours, survive on coffee and adrenaline, and exist only in a frazzled, constant state of imposter syndrome. At times I was so worried about her that I’d do her grocery shopping so she wouldn’t starve at her desk.
One night, we’d invited friends over to our dorm. She came out of her room, textbook in hand, and proceeded to continue studying while she ‘socialized’ with us. At that point, I had a bit of a moment. In front of everyone, I told her that she was pushing herself too hard, that she shouldn’t be there if she wasn’t going to be fully present, and that the additional effort she was putting in wouldn’t even show up on her transcripts.
It wasn’t my finest motivational speech, to say the least. I found out later that I’d made her cry, which was awful and something I still feel terrible about. I’ve never been the best at tactful communicating – I want nothing more than to see my friends succeed but sometimes my commentary comes out more judgemental than caring. I’m working on it. Fortunately, after my words had settled she did see the logic behind them. The extra hours of work she was putting in and the stress she carried to get 95-100% on exams and assignments were giving her diminishing returns. It doesn’t show on a transcript whether you received 91% or 100% – once you hit 90% it’s all the same grade: A+.
Fortunately, this story has a happy ending. My friend started to enjoy herself a bit more, still received stellar grades, won awards for her research, and went on to medical school where she tried (unsuccessfully) to encourage her new classmates to lighten up just a little.
90 Is Still An A
At some point I realized I’d fallen into the same trap of aiming for 100 when I really should have been aiming for 90. I’d read too many near-perfect expense reports from too many near-perfect spenders. You know the ones. Grocery bills less than someone else would spend on their pet food because they only eat oatmeal, lentils, and rice; one coffee in their meals out category but they’ll try harder to kick that vice next month; and zero other non-housing costs because walking and thinking are free. I admire these people, but I am not one of them and I never will be.
If you haven’t already guessed, I’m not naturally frugal. I’m frugal sometimes, in some categories, because I’m prioritizing other things, but I don’t naturally gravitate toward low spending. I’ve had to come to terms with the fact that that’s okay. Just like I don’t need to aim to earn billions because I’m not interested in a life of luxury, I also don’t need to aim for minimal spending because I’m not interested in retiring that early. I love my job (when I don’t hate it), I’m finally at a place in my life where I’m earning enough to enjoy my success while contributing to my financial goals, and I do value some things that cost money.
In my life, for my situation, retiring at some point in my early 40s is what I’m aiming for and what I would consider a 90 in my books. I’ve limited my lifestyle enough to reduce my career by 20 years. Sure, I could try to cut more and reach financial independence even earlier, but I’d be trading things I truly value for the next 10-15 years just to reach a milestone a few years earlier. The last 10% isn’t worth it to me, because it wouldn’t change the transcript.
I’ll always fall somewhere in between, and above average is not failing. I’ll still be able to leave mandatory work behind on my own terms if I buy new things and travel and go out to dinner occasionally. I’ll still be able to save 50% of my net income when many Canadians who earn much more than I do are saving less than 5%. It’s okay to delay a milestone for a few months or years if you have other goals that you want to tackle first. It’s all about prioritizing – 90 is still an A!
…Except When It’s Not
I couldn’t talk about financial goals without acknowledging that sometimes, 100 isn’t even an A. Sometimes you’re pushing yourself to the limit, doing everything that you can, and you’re still not making it. I used to earn $10,000 per year while I was in university, barely enough to cover my rent even with two roommates, and no amount of budgeting or reducing my grocery bill would have made that math work.
At the time, I had to choose between having more debt, not spending time with my spouse, or less relevant work experience for my future career. I chose having more debt, because I didn’t want to sacrifice my relationship or the higher probability of a solid job after graduation. Fortunately, it all worked out. My experience at part time jobs, my success in university, and a significant amount of luck landed me a great position within a few months – and my relationship stayed intact. If I didn’t get that first job, my life with six figures of debt could look very different right now!
As much as I despise my student loans, I’m also grateful that I was able to use debt to attain my goals without giving up other things that were more important to me. I’ve had my cell phone cut off, my credit card has been declined, I’ve lived out of the pantry because the month lasted longer than the money – but I’ve never been in a long-term place of financial insecurity. I’ve always known that if I was in a dire situation I could ask family for help, or move back in with my parents. Living in your childhood bedroom again is often seen as an undesirable last resort scenario, but it’s also a major luxury that I’ve tended to take for granted.
Money is not as easy as we sometimes make it seem. Part of being on a debt free journey or pursuing financial independence is trying to stay motivated. We tell ourselves it’s easy and that we can do it and that anyone can do it because we need to tell ourselves that to be able to keep going. The reality is that it’s hard, and it’s harder when you have less of a safety net, or no safety net at all. I hope that if you have space to breathe, you take it. I hope that if you don’t have space to breathe, you find it. If you can, remember that it’s okay to aim for 90.
Facing a desperate situation – a six figure student loan debt with no six figure income – I did what many graduates do at first.. I ignored it. I decreased my spending enough to make slightly more than the minimum payments. In some months I […]
I no longer have any credit card debt. I have an emergency fund. I’m paying down my six figure student loan debt and increasing my net worth at a decent pace. Even though I’ve made massive changes, you would never know it from my thoughts […]
Despite what many personal finance experts will tell you, there is no debt repayment method that fits every situation for every person. The ‘do whatever works best for you’ model isn’t going to sell any books though..
I’m not a personal finance expert, so I’m free to share my honest opinion of the two most common debt repayment methods, the debt avalanche and the debt snowball, and suggest an alternative that I think brings out the benefits of both.
Is anyone else bored stiff with the snow metaphors? I think it’s time to crank up the heat with the debt bonfire! Let’s visualize!
Imagine that you’re on a beach. The sun is setting and you’re building up a fire. You’ve got a pile of wood next to the fire pit – your debt. You start small at first, building up a base and preparing the kindling. You light the small pieces and even though you’re just getting started, you begin to feel the heat. You keep adding bigger sticks and then logs, one by one, and the fire grows. Eventually you’ve built it up so that the flames are licking the sky. You watch your wood pile dwindle as you add each piece. Eventually you set the last log onto the fire and break into a triumphant grin. The final things you toss in are your loan documents and you watch them shrivel up and burn to ash, viking funeral celebration style.
Now that got me fired up more than the image of snow sliding down a hill.
Order your debts from highest to lowest interest rate, and tackle the one with the highest interest rate first.
The debt avalanche will save you money over the course of your repayment, but only if you stick to the plan. If you lose motivation, even for a short time, you can completely wipe out any gains you’ve achieved by choosing this method rather than a more psychologically efficient one. Use with extreme caution, and only if you have the willpower equivalent of an obedient robot with a passion for mathematics.
Order your debts from smallest to largest amount, and tackle the one with the smaller amount first.
Support for the debt snowball method abounds, from Dave Ramsey‘s decades of success stories to research from the Harvard Business Review and the American Marketing Association’s Journal of Marketing Research. If you’re a squishy sack of habits and urges like me, this method will give you the psychological boost you need to stay the course and kick your debt to the curb. One disadvantage is that it doesn’t take into account other motivating factors like the urge to ditch ultra high interest debt, or to save face at home by paying back a personal loan to a family member.
Order your debts from most to least motivating, and tackle the one that you find motivating first.
Instead of finding a suggested plan and following it, I recommend creating your own plan. This way, you can have the structure of a plan but in a customized way that will keep your motivation bonfire burning right down to the coals.
Which Debt Payoff Method Is Right For You?
I prefer the hybrid method of the debt bonfire, because I want to utilize every available method and take advantage of the best aspects of each one. If you find yourself making exceptions to the debt snowball or debt avalanche method, maybe it’s time to admit that you should be creating your own plan too!
Let’s say that these are your debts:
- $3,000 / 20% / credit card / bank
- $25,000 / 5% / student loan / government
- $2,000 / 0% / personal loan / family
Using a repayment calculator with a monthly budget of $1,000, you’ll find that the debt snowball and debt avalanche method resulted in the same debt free date, and that the difference in interest was only $358 over the 34 month payoff timeline.
If you happen to get discouraged using the debt avalanche method and stop paying more than the minimums for a few months, say goodbye to some of that extra cash and potentially your debt free date too! I’ll happily pay $10/month more in interest as insurance on my debt free date.
That being said, if the $25,000 student loan happened to be at a 10% interest rate, the debt avalanche method would save you one month and $695 in interest. Maybe you’d be more motivated to pay off a higher balance first at that rate.
Individual considerations for your debt free journey:
- interest rate
- payment history
- type of debt
- cash flow
- legal consequences
Let’s look at the example above again. What kind of considerations might these three debts bring?
- $3,000 / 20% / credit card / bank – high interest rate, emotions from overspending on credit, unsecured debt
- $25,000 / 5% / student loan / government – medium interest rate, high amount, socially ‘acceptable’ debt
- $2,000 / 0% / personal loan / family – low interest rate, low amount, relationships, emotions from borrowing from a family member
What if, above all, you hate your credit card because the interest rate is insane and it constantly brings up feelings of shame for overspending? You might start following the debt avalanche method because of this preference for paying a high interest debt first.
What if you then felt guilty for borrowing money from a family member, but it’s at 0% interest and therefore last in the prescribed order? You might decide to follow the debt snowball method to clear this one before your student loan.
What if I told you that you could do both?
Using the debt bonfire method, you order your debts from most to least motivating.
- $3,000 / 20% / credit card / bank
- $2,000 / 0% / personal loan / family
- $25,000 / 5% / student loan / government
Now you’re free to tackle your debts in the order that will fuel your motivation and encourage you to stick with the program for the entire debt repayment timeline. As you pay off one debt, the thought of paying off the other debts will become more motivating because you’re also getting the psychological benefits of completing an item on your list.
This method has the added bonus of not making you feel like you’re cheating on the process. There can be a lot of guilt associated with making ‘exceptions’ to the debt snowball or debt avalanche methods. Questioning yourself on the method can lead to losing motivation and potentially delaying your debt free date. If you include these ‘exceptions’ in your plan from the beginning, there’s no guilt! In fact, there’s another motivational boost from following your goals as outlined.
If math is your ultimate motivator, and you can honestly say that you will stick to your debt repayment plan, go with paying the highest interest rate debts first.
If relationships are the most important to you, and getting that loan from your grandmother off of your conscience will get you fired up, pay that one first.
If you owe money to the government and could potentially go to jail if you don’t pay it, maybe start there.
Are you following the debt snowball or debt avalanche, or did you make up your own method like the debt bonfire?
Do you know where your money is going, from the time it comes into your life to the time it evaporates into thin air? (A short time, in my case!) I was inspired by Apathy Ends and Budget on a Stick to create a map […]
When you’re in the weeds of a long term goal, like paying off six figures of student loan debt or saving enough money to reach financial independence, motivation is EVERYTHING. One of my key motivators is my FIRE (Financial Independence / Retire Early) playlist. There’s […]
The first post I ever wrote for Debts To Riches was Above Average, At Least In Student Loan Debt on July 11, 2017. At the time, I was writing almost entirely for myself and only partially for a vague potential future audience. I had been living my debt free journey online mostly through the Instagram #debtfreecommunity throughout 2017 and found that I couldn’t fully express this process I was going through in just pictures and short quotes.
When I didn’t abandon blogging after the first couple of posts (I’m a dedicated serial quitter), I decided to migrate the site from the WordPress domain to its own debtstoriches.com domain on August 2, 2017 and put a little more effort into writing and engaging with the personal finance community. Don’t worry, I didn’t lose too many stats – I’m pretty sure I was the only one viewing my blog up to that point!
I think one of the reasons that blogging has been so interesting for me is that I have zero experience doing it! I had a very primitive understanding of HTML, but everything else has been this completely new adventure. I started with a basic WordPress template and a few experiences to write about, but everything else I just picked up along the way. I taught myself how to change certain settings or create images just by trial and error and searching for tutorials. I still don’t really know much about SEO, plugins, marketing, branding, or.. anything it feels like.
That’s why I was so shocked to hit 7,000+ page views in August! You mean 4,469 people actually wanted to read something I wrote?! I haven’t even done anything yet! This isn’t one of those blogs that started from ‘How I Paid Off $100,000 in 2 Years By Selling Pet Rocks’ or ’30 Year Old Millionaire With 5 Kids Retires To Travel The World.’ I’m just starting out on my debt free journey, I have no background in personal finance whatsoever, and I still feel like a complete beginner when it comes to so many things. I didn’t really expect this blog to get much attention at all until I was close to paying off my debt, but.. here we are!
Thank you so much to everyone who’s been following along on this random experiment of mine! I’ve had an incredible amount of fun discovering so many new blogs and podcasts, and connecting with people from around the world that are paying off their debt and finding financial independence!
I’ve been reflecting on my first month of blogging, and these are my takeaways if you’re interested in starting your own blog, or connecting more with your audience.
- Have $130,000 in student loan debt. (Just kidding.) I do think there’s always a place for storytellers out in the blogging world though. All of my favorite blogs are the ones that are personal and touch on real day-to-day struggles rather than general how-to guides that could be written by anyone. It’s fun to read the guides too, but most of the time I just want to hear about your life!
- A genuine interest in personal finance, debt, financial independence, or whatever your blog is about. This blog never feels like work to me. I haven’t monetized it, and I didn’t start writing for the search engines and affiliate links. I write as an outlet and a way to motivate myself through this process. When you’re writing because you truly enjoy it and not because you want the traffic, I think that shows in your style.
- A passion for connecting with and encouraging others. I comment on other blogs and interact with everyone on social media because there are some f*cking amazing people out there doing epic things and I love watching them crush their goals. Generic comments and auto-replies have their place, but they don’t build community.
- Connecting has the added advantage of helping you find your tribe. I found out about the Rockstar Finance Directory, which has been my hands down number one source of traffic, when someone posted about it on Instagram! That one post led me to the directory, which led me to so many other amazing personal finance blogs, and then to the forums, and then to the personal finance community on Twitter. If you can believe it, I didn’t even have a Twitter account until a couple of weeks ago..
- Finally, if you’re like me and you don’t have any set direction for your blog or preconceived notions about promotion or material, you can write whatever the f*ck you want. Occasionally that produces interesting content. A few days after I joined the Rockstar Finance Directory, I saw an email from J$: “You’re famous today!” with a link to the Rockstar Finance homepage and my third blog post ever – The F*CK YES Budget: If It’s Not A F*CK YES, It’s EXCESS – front and center as a featured article. COOL! (When your record for page views in a day is 33 – probably largely from yourself testing things out – and suddenly a week later it’s 2,240.. I’m not going to lie, that felt nice.) That article continues to be a favorite, I think because it introduced a new method of budgeting that hadn’t been explored much before. Or maybe it was because I used the word f*ck in the title.. Who knows! I had a second feature on Rockstar Finance this week with my Letters To My Future Self post, sharing the motivational tip of sending yourself encouraging emails into the future. My most recent post – Keeping Up With The Mustachians, a rant about how comparing ourselves to others is always going to be garbage – was just included in a weekly roundup at I Dream of FIRE‘s blog. It always comes down to the content in the end, doesn’t it?
All I have left to say is.. wow. It’s been a ride, that’s for sure! Even if this blog completely crashes and burns, or I never reach the same number of page views again, I’ve had so much fun learning in the last month that it wouldn’t even matter.
Thanks again for reading! It’s been amazing to connect with all of you on this journey of ditching debt and finding freedom.