I just paid $100,000 on student loans in 6 months! I am in shock. I just can’t quite believe it. For so long, it felt like I paid “The Man” with my student loan payments and barely moved the needle.
Partly because I don’t believe my eyes and partly because I really feel like I’ve found the key to happiness, I’m going to write down how it happened.
I'm going to be brutally honest with the numbers. People don’t usually talk about finances. But, I wish I had heard this from somebody before I took out all these loans, so here’s hoping this article helps someone avoid the same mistakes I made.
How I amounted so much debt
First of all, I am far from a financial genius. I am also not a natural saver. I’ve made so many financial mistakes.
I am one of the many students who took out too many student loans and lived it up way too much while in school.
I took out $191k for medical school. I chose the cheapest school (in-state and in my hometown). Staying sub-200 is actually considered good if you can believe it.
But, in the middle of med school, I took a year off of medical school to teach for Kaplan in Southern California. During that year, I made $40k but didn’t put anything towards student loans and lived it up. Unfortunately, in forbearance, those loans accrued interest and that interest capitalized when I started repayment in residency.
Thankfully, I made it out of undergrad without loans. My parents had not saved anything for my college and had a toddler in daycare, so I chose to go to an in-state school that gave me a full ride plus another merit based scholarship and a research scholarship. I also waited tables, tended bar, and taught for Kaplan during that time. But, again, I put nothing away. I knew about Roth IRA’s and I knew I should have started one, but I got stuck in analysis paralysis and never quite got around to starting one. I spent my extra money on eating out.
What happened when the student loans went into repayment
After medical school, I went to residency and started making income based payments, which only paid some of the accruing interest on my federal student loans. I came nowhere close to touching the principal. I bought a house in residency in Nashville with my husband with nothing down. (This house actually turned out to be one of our better decisions and has made an excellent rental.) After residency, I took a job at for a private company that was not a not-for-profit so there went the chances of PSLF (Public Service Loan Forgiveness).
My first job out of residency was in beautiful Savannah, Georgia. With my first $200k/year job secured, we bought a beautiful house on an island in an upscale gated community with salt water on two sides. I had made it! Everyone told us we were living the dream. By now, my loans had grown from $191k to $237k (even after making about 25k in payments in residency-barf). So there we have it. We had $237k in student loans and another $335k in house loan (again, nothing down thanks to the doctor loan). Add to that $40k in car loans and another $130k in loans for the Nashville house that we rented out. Add that together and we were a cool 3/4th's of a MILLION dollars in debt!
The Reality Check
Everyone told us we were doing great. We paid our credit cards and bills on time. We had no consumer debt. Our credit was pristine. But, we walked a tightrope of balancing income versus expenses.
Unfortunately, at this point, I needed to take unpaid maternity leave. But, I was the primary earner. Thankfully, we had saved some money and we had the sign-on bonus for my new job, but it felt precarious. My husband decided to stay home to take care of our son and pursue a Master’s degree online. I took 8 weeks for the baby and got my butt back to work.
I hated my job. But I was stuck. We were walking a tightrope and I needed that paycheck to pay the bills.
Add to that, missing my son, being sleep deprived from being up with him at night, and needing to take time at work to pump and nurse, and this was the recipe for unhappiness.
We decided to make a change. We had to make a change. We were drowning.
The Beginnings of Change
We met with the financial advisor and he instructed us to do the usual: draft a will, get life and disability insurance, max retirement, and save up 3-6 months of spending for an emergency fund. That’s all well and good. We maxed my retirement account, put an extra $1k toward student loans every month, $1k in savings every month and with extra money, we started a debt snowball to pay off the cars.
At this point, it was only an extra $500 or so to the snowball. Slowly, we paid off the civic. I got pregnant again and took another maternity leave. Then, we were close to paying off the brand new Honda Pilot when someone hit it and it got totaled. Thankfully, everyone was ok. We got a $23k payout for the car.
We could have replaced our old car with a nicer car. Maybe the touring model. It wouldn’t have cost much more per month if we put all 23k down as a down payment. We could have put that $23k towards loans and financed out another Pilot. I look back at this decision as the real turning point in our thinking.
We looked at the opportunity for lifestyle inflation for a bigger, better car. But, then we looked back at the debt snowball. We were SO close to paying off the Pilot. So, we made the hard decision.
We would buy another Pilot because we really needed the space, but we would buy a used one. It turned out to be exactly the same year as our old one, with exactly the same features and 20k fewer miles. Thanks to a friend who is an excellent negotiator, we paid for that car in cash and walked away.
That felt good. Both cars were paid off! And now we had another $900 to put towards the student loans.
Less is More
Now, we felt the frugal juices flowing. I finally reached the end of my contract at my first job and we looked at moving. My husband really wanted to go back to New York. He had family that could help us with the kids. I love the city, but looking at the cost of living gave me heartburn. So we decided on his hometown, Albany, in upstate New York.
People gave me their condolences. “So sorry you have to move up north with all that snow!” they said. I felt like I needed those condolences, too. After all, we were leaving a warm area where I could run on the beach every morning to go to “the Tundra,” as I liked to call it.
With a hospitalist job secured in Albany and we started our house hunt. Buying another house was tempting because the prices were comparatively better than the islands. But, those New York taxes! It just didn’t make sense to buy a starter home and sell in 3-4 years to upgrade.
We used this rent versus buy calculator. After running the numbers and looking at our goals, we made the decision to rent instead. And, we decided we would rent the minimum we could be comfortable with.
In essence, we decided to “deflate” our lifestyle from that of an attending to that of a resident.
This wasn’t an easy decision.
There was lots of family pressure to buy and “keep up with the Joneses.” After all, I am a doctor and I make plenty of money. But I just couldn’t stomach taking out more debt without making a dent in the student loans.
It didn’t help that the rental market in Albany is dismal.
It took us a lot of time and looking at houses to find one that met our needs. We even had to live in my in-laws’ house for a few weeks after we moved to house hunt. But, we survived. And miraculously, we are still friends with my in-laws.
Living Smaller
Finally, we found an older, small house next to the hospital that had been fixed up nicely, had a small backyard for the dogs, and a large basement for the kids. And it was $100 less a month than our Savannah mortgage and had no maintenance costs, no HOA fees, and no flood insurance.
Albany had a large market for tech jobs, so my husband was able to go back to work. After a failed attempt at daycare, his parents watched the kids for us over the winter. They went back to daycare in the spring. After some drama (hurricanes, flooding, etc), the Savannah house sold. The student loans were down from $237k to $208k after my first 2 years as attending making $4k payments most months. I refinanced my loans with SoFi for a lower interest rate.
With two paychecks and a low cost of living, we could really accelerate the loan payback. I found Dave Ramsey around this time and really took to “your debt is an emergency” mind frame. We made a budget and wrote down our needs vs excess. We found we could pay $5000 towards loans every month comfortably.
Sadly, I found myself in another job that wasn't a good fit. But, I couldn't get out because of my student loans. We crunched the numbers. Starting at $208k at 3.875% interest rate, if we paid $5k a month, the student loans could be gone in 45 months! We would pay $15k total in interest. OR we could cut back even more and pay $7k a month and the loans would be gone in 31 months, saving $4k in interest. Calculations based on amortization schedule calculator. So we gave $7k a try, with $5 being the acceptable minimum payment.
I found ChooseFI and that gave me all kinds of life hacks and ways to cut back. Thanks to ChooseFI and Mr. Money Mustache, I started shopping at Aldi instead of Whole foods, switched to Google FI instead of Verizon, cut the cord with cable, started utilizing credit card points with our Chase Sapphire Reserve Card for travel, and much more.
Cooking in large batches and cutting out buying lunch at work made a huge difference. My husband started servicing our cars. I started cutting my own hair. To our surprise, even with two kids in daycare costing $2k/month, we could consistently meet $7k a month towards loan payments, sometimes even more
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Exceeding our Expectations
It is amazing how once we started paying attention and directing our energies toward student loan repayment, money seemed to materialize everywhere. We got a $14k tax refund. I put all productivity bonuses towards the loans. I took a new job that offered about $15k per year after tax in loan repayment for 2 years. We found a nicer house for rent, for cheaper, and much closer to both our workplaces, so we decided to move again.
We were able to put $44k through our monthly budgeting and about $38k from the above bonuses/tax refund, etc towards the loans. Also, we took the Dave Ramsey baby steps to heart. We had about 3 months of emergency fund saved up from my first 2 years of trying to do everything. Dave recommended putting everything but $1k towards paying off debt. I couldn’t quite get comfortable with that, so we decided to keep a $10k E fund and put the rest towards the loans. So there we have it; with that extra $20k, we came to the grand total: over $100,000 in loan repayment in 6 months!
Be Gone Student Loans!
We are finally moving the ticker and will be rid of this loan monkey on our backs sometime next year! More importantly, though, my husband and I are getting back to the spark we had before taking on so much debt. We have breathing room in our budget.
My husband and I are both freer and generally happier with our condition. Our monthly budget dates went from being tedious to fun, as we found new ways to save money. I went from carrying all the weight of the financial planning to being equal partners with my spouse on an exciting journey towards our financial independence. We are living a “resident” lifestyle, but we have never been happier.
Goodbye lifestyle inflation!
Hello, to aligning our life, our money, and our time to reflect what is really important to us- our family, our time, and our freedom.
We still have a $108k to go but we have a plan and a vision for our future- we are walking hand in hand towards it.
And that, folks, is a real life, frugal physician fairy tale ending.
But, the best part is... our journey is just beginning!
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