- I borrowed a total of $ 81,000 in student loans for two degrees. Over nine years, I paid everything – and it wasn’t easy.
- I made a lot of mistakes along the way. On the one hand, I spent years paying only the minimum, even though I could have afforded to pay more.
- I also postponed my retirement savings, deprived myself of health insurance, and looted my emergency savings, all of which I would regret later.
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Like many people, I had to resort to student loans to pay for my college education. I borrowed a total of $ 81,000 in student loans for two degrees. Over nine years, I paid everything – and it wasn’t easy.
It took a lot to cut back and earn more and stay focused. But I made a lot of mistakes too. Looking back, I might have done some things differently. Here are six mistakes I made while paying off my student loans.
1. I only paid the minimum
During the first five years of my student loan repayment, I paid the minimum. I treated it like a bill and didn’t let it bother me. Could I have afforded more? Yes. Ironically, it wasn’t until I took on even more debt to go to New York University – graduating with $ 68,000 left – that I started paying more than the minimum.
I struggled to make my payments after graduation and wished I could move on when I could have afforded it. If you can, pay more than the minimum.
2. I haven’t saved for retirement
Most of my career has been spent in the non-profit sector. These jobs didn’t offer a match for retirement, so I didn’t contribute to a 403 (b). I used this as an excuse not to save for retirement.
Then, when I decided to pay off my student loans after graduating from New York University, I decided to focus on my debt. I haven’t saved for retirement. I felt good about this decision. But when I paid off all my debts at 31, I felt like I was starting all over again. I was happy that I was out of debt, but now I felt the added pressure of being behind on my retirement savings.
3. I left without health insurance
In 2012, I tinkered with several temporary jobs and was trying to get out of it and pay off my debt. My income was scarce, so I decided to do without health insurance. This was before the Affordable Care Act, so there was no penalty, but I still felt anxious that I wasn’t covered.
I once got sick and went to the emergency room and faced a bill of $ 1,600. I was so stressed out, but my saving grace was the hospital’s payment policy. I was able to demonstrate that I could not afford to pay the bill by submitting my pay stubs and tax returns.
At that time, I was earning so little that the hospital forgave me for the amount. But it was still a scary ordeal that I don’t want to repeat, and I probably should have shelled over $ 200 a month for health insurance.
4. I pushed too hard
When people ask me how I paid off my debts, the main thing I say is that I focused on earning more while keeping my expenses low. For context, my half the rent was $ 400 for a studio in Portland, Oregon. My initial income was low, so I had to increase my income to make the progress I needed to pay off my debts.
So I jostled like crazy. I found gigs on Craigslist, on TaskRabbit, friends of friends. I was a pet-sitter, brand ambassador, event assistant, etc. For several years, I worked several days a week.
While I was certainly earning more, there were certain consequences for so much scrambling.
First of all, my restaurant expenses have increased. I had no energy when I got home and ate in restaurants more often and bought coffee to stay afloat. My shipping costs have gone up here and there.
As my income increased, almost imperceptibly my expenses increased too, to cope with my lack of time and energy.
5. I used my emergency fund to pay off my debts
Towards the end of my debt repayment, I saw that I had a few thousand dollars left. I wanted so much to be debt free that I drew on my emergency fund to pay off my debt. It was awesome! I had finished! While I was cash poor, I now had positive net worth.
But several months later, it bit me in the buttocks. I ended up moving from Portland to Los Angeles which was an expensive move. Also, I had to face a surprise tax bill because I didn’t know I made more money and entered a new tax bracket as a self-employed person. I ended up using up all my savings to deal with this, and it took a while to replenish them.
6. I didn’t understand how credit worked
Even though I have taken out $ 81,000 in student loans, I am actually quite averse to debt. Having money or anything to someone makes me anxious. So for a long time I had no credit card; I didn’t have my first one until I was 28.
I knew that the student loan payments had helped me establish a credit rating. But I had no idea that there are different types of credit and that getting a credit card could help. For example, student loans are installment loans, while credit cards are considered revolving credits.
When I received my first credit card, my credit rating went up. Plus, a funny thing happened when I paid off my student loans: My credit rating has gone down a little – not a ton, but about 20 points. I was puzzled, but since the account was now closed, it affected my credit rating. Not really understanding how credit or borrowing worked didn’t help.
I am so happy to be debt free, but these six mistakes didn’t help the process. If you’re paying off debt, think twice about dipping into your savings or giving up saving for retirement. Balance being financially smart while enjoying today and have a responsible plan to pay off debt.