Lessons in Lending ($85,686.42)

Just a reminder, when I consolidated the majority of my loans the standard repayment plan was going to be 30 years (360 payments) and the interest that was going to accrue over that 30 years would be…

Interest

Deep breath in and…damn it. This was the panic I had before and what had prompted me to write President Obama about the future of people like me. It has been a great journey and I decided I’m going to be public about how much is left for me to pay in the title of my posts as I make progress. I had a stretch goal of $3,000 each month and I decided to bump it up so I’ve been paying $3,500 per month towards my student debt. I continue to find opportunities to make money and cut expenses. I just wanted to share a few things I have learned about student loans. Some of this might be old news or new news, but this is what I have learned.

Paying extra doesn’t automatically go towards the principal. When I started paying extra on my loan beyond the minimum, I would get to the next month and wonder why they weren’t asking me to pay. It was because the loan company used the extra amount to go towards next month’s payment. Depending on the lender, they typically don’t use the extra amount by default to pay down the principal. You usually have to tell them what to do with the extra amount by writing them a letter or making a note on the electronic payment. Some lenders don’t have that option electronically so they make you snail mail the payment with a note. God forbid the lender have a default action that helps the person borrowing the money save on interest. Jerks. Below is a screenshot from my errors and learning moments where I paid extra and it was going towards the following month’s payment. You have to tell them what to do, they are evil and want you to never pay this shit off.

Payments

For lenders that you have multiple loans with, be aware. I had one lender that I had multiple loans with that could not consolidated because of the type of loan. For example, I borrowed $2,000 in one year and another $2,000 the following year, so it’s the same lender but multiple loans at different interest rates. You need to tell the lender how you want your payment to be applied. If the minimum payment is $100 and you want to pay $200 that month, you need to tell them how to allocate the extra amount across the various loans. Otherwise, they just default to applying it equally across all loans and you may be losing money in interest depending on the rates.

Automatic payment may be convenient but it doesn’t get it paid down quickly. I had enrolled in automatic monthly payments and I stopped. Why? Awareness and motivation. Most lenders cut you a “deal” by .25% for enrolling in automatic payments but really it’s a ploy to suck you into minimum payments and only paying on the interest so you never actually pay off the principal. I also found that it created a feeling of pain manually paying each month which I’ve used to motivate my behavior. I’ve learned to channel that frustration into something productive and it forces you to be more aware of where your dollars go every month.

Read your FAQs. Grab a coffee and read through the frequently asked questions (FAQs) on your lender’s website. It’s boring but it will save you money and energy. Each lender is different and evil in its own way. At one point, I had 5 different lenders to log into. Now I have 2. I am hoping to pay another one off in the next 2.5 months.

In January and February, I paid $7,000 in total towards student debt. We can do this!! What lessons have you learned about loans?

Stop the Bleeding

We’ve established the why and some of the attitudes and beliefs that I’ve held over the past couple years or so in order to make actual progress. Let’s call those the first 2 steps of my financial aid repayment journey. I just pulled up my 1098-E forms for 2014 taxes, and I paid nearly $6,200 in interest last year (almost $11,500 in 2013). According to Mint, I paid just over $27,000 towards loans in 2014. Boom. Let’s get to some of things that I have done to make that sort of insane progress.

Tax tip: You cannot take a student loan interest deduction if your modified adjusted gross income (MAGI) is $75,000 or more ($155,000 or more if you file a joint return). More info at IRS.

Assess the damage. Step 3. Money in. Money out. Simple, right? I felt no control over money. I didn’t think I was spending that much money outside of my monthly expenses, but at the same time, I did not have a good idea of where all my money was going at the time. I was making good money but still felt like I was living paycheck to paycheck. Mint.com has been my savior. For those of you who aren’t familiar, it is a website that you can sync with all your financial accounts (e.g. checking, savings, 401(k), credit cards). Based on the types of transactions in those accounts, Mint will categorize them. You can customize categories, set goals, and my favorite feature is that you can setup text messages and other types of alerts when you get close to your budget for the month. It recognizes patterns of spending too, so I have it text me for unusual spending, which is a great safeguard for theft.

After I set up my Mint account, I quickly discovered where I was financially bleeding the most. Food! I love food, but I had no idea how much I was spending on eating out. I lived alone in a 2 bedroom apartment at the time and cooking for one is kind of a pain, so going out to eat was both convenient and a social event for me. We’re not just talking about an extra $50 each month going to food, we are talking hundreds of dollars going to eating out every month. Insanity. Working in downtown Minneapolis, I was grabbing lunch every single day and most nights was eating out. I also realized how much I was spending on little things here and there online that I didn’t really need.

bleeding

(from memegenerator.net)

Another moment of anger. I felt like a victim again to my own habits. I heard a powerful phrase this week, which is “patterns are our prison.” It’s true. Behavior is a bitch. Let’s say you could cut back $100 per month on eating out. That’s $1,200 extra to put towards anything. That’s an awesome vacation, a new television, some bling bling for your honey, or of course, extra each month to pay off some debt.

While I have made progress on this one category, I still have weeks here and there where I am terrible. I slipped and fell back into bad habits for a while and just over a month ago, I started focusing on this category again. I created the following rules for myself to guide my decisions and behavior.

  1. Eat breakfast at home.
  2. During the work week, I am allowed to eat out for one lunch per week.
  3. I can go out for dinner up to 2 nights per week, and if it’s with my fiancée, we try to use gift cards that we received over the holidays or coupons.
  4. Have only one drink at happy hour.

Rules have helped me. Since I have re-committed to this aspect of my financial wellness, I have saved a lot of money to put towards school, and I lost 7 pounds. If you focus on one goal, you might find ripple effects in other areas of your life. I’ve also coined January as Introvert January. Winter sucks in Minnesota, so I’m hibernating and saving a bunch of money. Food is just one category I changed my spending in and I’ll talk about other categories (some are very embarrassing) in my next post.

The Victim Mentality

Last post, I talked a lot about why it is important for me to quickly pay off student loans. Again, the ‘why’ is what should drive and motivate you.

For a while, I felt a lot of resentment towards my parents about how much student debt I had. For some reason I thought they should have helped me pay for school. I was very jealous of my friends who did not have any school debt (and still am). I was angry at my universities for how much they charged. I was angry at the decisions I made to study abroad on school loans and go on another international trip in grad school on school loans. I was angry I didn’t budget better in college. I was overwhelmed at the thought of what my paycheck-to-paycheck life was going to be for the next 20 years. Yep. Pissed off and disappointed in myself. I didn’t feel like I was in control at all.

The last time I felt like this was in high school. Early in high school, I had no plans to go to college. My parents divorced at the beginning of my freshman year. I decided to stay with my mom who battles bipolar disorder. At school, many of my friends probably viewed me as the happiest kid walking the halls with my big smile and high energy when it was quite the opposite at home. I could probably write a novel about my childhood but I’ll save that project for later on. I had a guidance counselor at school that saw me come in and out of her office frequently with tears in my eyes in between football/baseball practices, work outs, classes, and my job at a fast food place in town. Frustration about the life I had at home and the sense of resentment I had towards my family. I was jealous of my friends who had parents that were present and active in their lives. I was an angry adopted teenager who felt like he was the victim of some terrible crime. I was overwhelmed by the balancing act of school, sports, work, and life at home.

My school counselor saw something in me that no one had ever vocalized in such a beautiful way. She said, “Eric, you are going to get through this and go to college away from here, and you are going to do what you want with your life.” She helped me fill out college applications and registered me for advanced placement courses my junior year and kept me focused on getting the hell out of Madison, WI.

Fast forward to 2013 and I ran into my guidance counselor back home, and I told her I had a master’s degree and worked at a Fortune 50 company. Tears. Hugs. It was a powerful moment of accomplishment and lesson of gratitude. I’ll have to write more about that later on.

Resentment. Jealousy. Anger. It was happening again but now it was financially driven and had come full circle from my high school hopes to go off to college to escape my life at home. I have been there before and I have won. I could not let the victim mentality win again.

It is easy for us to fall victim to the barriers that lie ahead. The barriers that are between us and our goals. For me, it has been a change of attitude. While the sky seems to be falling, I realize that I still have two feet on the ground. I’m still breathing, and I have the resources to overcome these obstacles. I am in control.

control

(from troll.me)

Now that I’ve spent a few posts talking about my vision for being debt free and the attitude shift I’ve gained, I’ll finally talk about how I’ve been making it happen…in the next post.

Why?

Why? There are two ways to view this question in the world of leadership coaching. Some view this as a question that can raise defensiveness in the person being asked. Some view this as a powerful question to analyze the root cause to a problem. In the context of this blog, it is a powerful question because it motivates the shit out of me. Since my first blog post, I have had quite a few people reach out to me with a variety reactions and inquiries, but my favorite question I have been asked is, “why? why do you need to pay this off so aggressively?”

why-god-why

(from icanhascheezburger.com)

“It’s not bad debt, you should just pay the minimum on your loans because the rate is low and you can invest the rest in retirement accounts.”

This is what a financial planner told me. He clearly did not listen to the goals/vision I laid out below. I’ve also heard this from friends and family. I crunched the numbers on average returns for various accounts over the next 20 years versus having the loans paid off 15 years earlier and investing that $45,000 of interest into anything that gains a return. Lots of free financial calculators online. Do it. The numbers were in favor of my plan over his. Pick a financial planner that has the same values/goals and not just someone trying to sell you bad products, so they can make a commission. Ask them about how they make money and you’ll get a pretty good idea on their intentions.

Disclaimer: I’m still saving through a 401(k) because the employer match is free money. Your financial situation is different and you should do the math or get someone else who is better at math to crunch the numbers. You could even get one of your finance buddies to run some numbers over a beer. Maybe coffee, keeps her/him alert.

Here is why I have decided to pay the loans off so quickly versus the slow bleeding that could occur over 20 years.

  1. Math. Think about what I could do with $45,000 saved from interest in the next 20 years.
  2. Going into my early 30’s with no debt sounds pretty rad.
  3. Financial freedom, so I can save long term for a variety of things like retirement, education funds for kids, a house, etc.
  4. I could take a pay cut some day. I love the community and giving back, so having the financial option to go to a nonprofit would be great. They just don’t pay like a big corporation, unless you’re at a big nonprofit like the NFL. Yes, they’re a nonprofit.
  5. Give money to help others. Whether that is writing a big check to a nonprofit I’m passionate about (not the NFL) or it’s helping someone I know, I want to be able to help others financially when the time comes.
  6. Freedom of choice. The reasons above all tie back to the ability to make financial choices without the financial restraints of a nearly $1,000 minimum payment every month.

Some people have the attitude that debt is just part of life. I don’t want to carry that attitude based on the vision I have set forth in the list above. Whether you’re paying off school debt, trying to lose weight, or debating whether or not to quit your job, I believe it is important to explore the answer to ‘why’.

Let’s have a conversation. Make a comment below and tell me why or why not aggressively pay school loans (or any loan for that matter). Thanks team.

Eric + Blog = Therapy

For several months I have been debating whether or not to start the blog again. Should it have a general theme, focus on my personal stories/experiences, or be complete randomness about whatever crops up in the old noggin? I also was concerned about professionalism knowing my coworkers are reading this right now, but this is who I am and this is my experience.

I have been on a financial journey over the past year. It has been a transformation full of frustration, momentum, and insight…

loans

(from someecards.com)

Student loan debt. My. Living. Hell. SallieMae/Navient, Firstmark Services, Great Lakes, and ECSI are not companies I have worked for but rather, names that have haunted my dreams since 2008 when I graduated college. If your parents paid for any of your school, call them right now and thank them. My parents love me, but my dad’s business went under when I was a kid and the family went bankrupt because Walmart moved to town. Oh and I did a master’s degree shortly after the job market went south. I am making progress, and I am part of the $1.2 trillion of national student loan debt. Selfishly, this blog is therapy for me during my journey. Selflessly, I hope some of you can learn from my experience and be inspired to take some action now rather than 20+ years later.

Disclaimer: Before I go into specifics on the awful epiphany I had just over a year ago about my “progress” on repaying my school loan debt, I will say that I currently have a great corporate job working with very intelligent people who I admire, and I am happy with what I am doing. Not a lot of people can say that, so getting the advanced degree was well worth it.

Sometime in 2011 I began getting those lovely letters about repayment and that my grace period had ended. Once all of them came in, I had about 6 or 7 payments per month from various lenders. It felt like every few days I had a reminder of how stupid I had been with budgeting when I was an 18 year old boy. I made poor financial decisions and I’m paying for them now. I managed for a while and finally felt in control, paying my minimum payments every month while still enjoying my 20’s with full-time employment IN the field I studied. Victory! Minimum payments for 20+ years can’t be that bad, right?

Fast forward to just over a year ago when I finally took some time to check in on my “progress”. Just about $128,000 left to pay!!! Interest was slowly killing me at 3 to 7%. I remember sitting in front of my computer, completely helpless. I felt sick. My head throbbed and I wanted to vomit. I laid around a lot that day feeling angry, sipping a beer. Then I felt sorry for myself. Then I felt angry. Then I felt hopeless. I then went to the google and explored my options for reducing my interest rate, consolidation, and forgiveness options. There are pros and cons to consolidation, interest rates weren’t negotiable, and the only forgiveness option I was eligible for was death

Here we are just over a year later and I am happy to share my progress. I have just over $92,000 left to pay off. It is still a ridiculous amount but man have I made progress. How the hell did I do that? I didn’t get some enormous raise. I didn’t sell some large asset I had. I did a lot of little things from cutting cable when I lived alone to going without paying for a haircut over the last year.

This blog is about taking responsibility for past actions, setting goals, making plans, taking action, and being frustrated and elated along the way. Care to join me?