Pretty much every day I come across an article telling people not to worry about paying off student loans because they are “good debt.” Then in about an hour, I read another article saying you are crazy for keeping loans around, they’re ruining your life, now please click some crazy link about a 22 year old who paid off $90K in 6 months.
I’m in camp #2 if you haven’t realized that by every other post in this blog, the title, and the numerous references to being brokeAF. I agree with Dave Ramsey 100% that ANY debt is bad debt besides the occasional mortgage. Having said that, I completely understand why some people with student loan debt choose to pay it over the life of the loan versus paying it outright and investing that extra money instead. The decision really depends on your personal financial situation and goals. Below are five reasons I’ve decided to go ahead and knock mine out for good.
- Interest Costs: Reason numero uno I hear people defend student loan payments as “good debt” is because the interest is tax deductible. Well the fun part of that is the income limits. I’m over the income limit for the deduction so none of the interest I pay is tax deductible at the end of the year. That means that whopping $600+ I pay per month in interest might as well be flushed down the toilet. That was a fun realization this tax season …
- Lack of Freedom: Coming in for a close second, is the lack of freedom. I feel very trapped in my current job because it pays enough to deal with my loans. I do enjoy my job but I working in banking; I’m not exactly curing cancer over here. I can’t imagine feeling trapped for 10 more years in a job just because of the money. There is no room to pursue what I really want or the freedom to quit and start my own business eventually until the loans are gone. Oh you got me good on this one B school!
- New Relationship Debt Bomb Dropping: I’m recently divorced and the thought of getting back on the dating scene and dropping the D(ebt) bomb on a new guy is just depressing. Who in their right mind would date someone with a -$140K net worth? It is also awkward to even try to date because it mostly involves going out for dinner/drinks when I’m broke and more focused on stuffing the free rolls in my purse.
- Can’t Discharge in Bankrupcy: Ok.. I’m not planning to file for bankruptcy anytime soon but you just don’t know! If I lost my job I would literally be on the streets. I just want to be completely rid of that beastly loan payment so if something does happen I won’t have to worry about taking a $1,500 loan payment lurking around.
- Homeownership: Even though I make close to six figures per year, I wouldn’t be approved for a mortgage because my debt to income ratio is so high or I would only be approved for a very small amount. Even in the small city I’m in now, I would barely get approved for a trap house by the city jail (trust me I’ve tried). I put this last on the list because I’m very transient in where I live and I probably won’t buy a house for a while, but just knowing that if I found my dream home I couldn’t even try is depressing AF.
I would love to hear any comments you have on your own debt payoff journey and what has worked for you!