Tag Archives: Dealing with Debt

Is college worth it?

Lately, there have been tons of headlines touting the idea that rising unemployment, high tuition costs, and overcrowding in the post-college job market have made college degrees a poor value. Proponents of this theory believe that other career tracks — such as internships and entry-level positions that don’t require a degree — may be a smarter idea to get students into the work force faster without spending thousands of dollars.

I think this Time article does a pretty good job of dispelling this theory:

According to the Bureau of Labor Statistics, in 2010, the median weekly earnings for someone with some college but no degree were $712, compared to $1038 for a college graduate. That’s almost $17,000 over the course of a year and there is an even bigger divide for those with less education. College graduates are also more likely to be in jobs with better benefits, further widening the divide. Meanwhile, in 2010, the unemployment rate was 9.2 percent for those with only some college and more than 10 percent for those with just a high school degree, but it was 5.4 percent for college graduates. The economic gaps between college completers and those with less education are getting larger, too.

These statistics paint a pretty obvious picture. It appears that college graduates are not only less likely to face unemployment, but their salaries are thousands of dollars higher than non-college grads.

That doesn’t mean I don’t acknowledge that there’s a problem, though. As someone who personally made the foolish choice to unnecessarily borrow thousands for a college degree, I think college debt is a serious problem in this country.

That doesn’t mean I regret my decision to go to college. My college education opened doors for me. Not only did I learn valuable skills during my time at college, but I was able to find a job afterward that taught me even more valuable skills — and allowed me to support my husband and me while he earned a master’s degree, which is what allows him to pay our bills now. Do I regret the debt, though? You betcha.

You could argue that a college degree isn’t required for my freelance income. However, it’s unlikely I’d have the skills necessary to earn my freelance income without my degree and previous work experience. Not to mention, I don’t plan to be a stay-at-home mom indefinitely. When my youngest child starts school, I’ll be back in the job market. Depending on how many children we have, it could be a while, but I’m glad I won’t be starting college at that point like my mom did.

I think the question of whether college is “worth it” is silly. The more important question is whether college debt is “worth it.” And to me, the answer is no. The debt isn’t worth living beyond your means as a college student.

Skipping college isn’t the answer. The answer is skipping college debt (or at least as much of it as you can). Attend a state school or community college for all or part of your education. Apply for grants and scholarships. Work as much as you possibly can. Live frugally. Do not use student loans to subsidize your beer and pizza fund or buy expensive gadgets or a car you can’t afford. Work full time and attend school part time for longer than four years.

I’m not naive enough to claim that graduating with no debt is an option for everyone. I acknowledge that middle class students without a college nest egg often have limited options. As someone who attended a state school, worked two jobs in college, received financial help from parents, and still didn’t have enough to pay for tuition and living expenses, I understand that avoiding all debt may not be possible if you want to graduate in under a decade. But the point is to borrow as little as you possibly can — and the ideal is to borrow none.

If you’re a graduating senior, please trust me when I tell you — your first job will not pay you enough to make those student loans payments easy. But don’t feel discouraged enough to skip college all together. An education is absolutely worth the hard work required to pay for it — the debt, however, is not.

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Why I’m a money multitasker

Last week’s post about holding off on paying down debt sparked a little controversy in the comments. I wanted to clarify some of my views, because there seems to be some confusion about my financial philosophy.

First of all, I am not debt free. I have never claimed to be. Like most 25-year-olds, my husband and I both carry student loan debt. I’ve written about it before. I don’t regret a day of my education, but I do regret some of my financial choices during that time. But it’s done now.

My husband is a graduate student. I earn an entry level salary. We’ve been blessed with a few pay increases over the past few years, but our income remains pretty low by today’s standards.

When I started this blog, I was depressed about our financial situation. We had credit card debt, student loan debt, no savings, tuition to pay, and we still felt like we didn’t have any money left over for fun. I wanted to learn to save without sacrificing fun.

Since then we’ve adapted to spending very little money in our daily lives. We don’t eat out. We shop the clearance racks (when we do shop). We meal plan. We share a single vehicle. The result is that 30% of our income goes directly into savings. Another 10% of our income goes toward debt repayment.

As my husband prepares to graduate next month, and we prepare to close this chapter in our lives, we have been spending more than usual lately. After three years of frugal living and hard work to pay off credit card debt, build an emergency fund, save for our move, and save for our vacation, we are rewarding ourselves.

I did not ask for permission. I don’t think any of you should ask for permission from anyone when you make decisions about how to manage your money. The point of my blog — from the beginning — was for my husband and I to learn to live on less than our already low income so that we could have enough money to pay debt, save, and enjoy life. Those are my priorities.

I have never subscribed to the Dave Ramsey philosophy. I understand that it’s worked for many people. I admire them, and would never ever judge their choices. I’m happy for them, because they’re happy. But putting every single penny of my extra income toward debt repayment doesn’t make me happy. I don’t want to wait until I’m debt-free to have children, own a home, or see Europe. So I’m using some of my extra income to save for these goals while I pay down our debt.

I admire the commitment to debt-free living, I do, but there is room in my budget for more than that. Dave Ramsey’s baby steps philosophy is focused on one thing at a time — save, then pay debt, then save some more. Only after you’ve saved and paid debt is there room for fun. I just don’t believe that.

I come from the generation of multitaskers, and I think if you’re smart about your spending, you can do a lot even with a very limited salary — without increasing your debt. You can save money, have fun, and pay down debt at the same time. It will take a little longer, but it’s worth it to me. I will eventually be debt free. That low-interest debt will be there waiting for me when we get back from Europe. And we will pay it off — on our own terms and our own timeline.

What Dave Ramsey takes for granted is that we have all the time in the world. But what happens if you spend your young life doing nothing but saving and paying down debt, and then your life is cut short by tragedy? You’re left with no time to enjoy the riches you’ve accumulated. I’d rather multitask now and know that I won’t run out of time before I can enjoy the fruits of all that saving and hard work.

When we get home, it’s back to counting every penny, just like we have for the past three years. It’s back to saving for our goals through very limited spending. We can’t forget about why we’re doing this, though. We want to build a better life for ourselves, and sometimes that means spending a little money.

The whole point of budgeting is making your money go further. If there’s something you’ve been wanting to save for, don’t wait for permission. Start saving now. I think you’d be surprised at just how far your money goes if you spend carefully.

Photo by amagill

Why we chose to let debt-free living wait

Update: I just wanted to clarify something. We are currently repaying our student loan debt slowly but surely. Our loans are not in forbearance. We just aren’t focusing our efforts solely on debt repayment. We’re splitting our extra income between debt repayment and savings.

In January 2009, we paid off our credit card debt. Compared to some of the debt horror stories you hear, our amount was relatively low — it was about $4,000 left over from college overspending and car repairs. We paid it off in just over a year while Tony was a graduate student and I was working in retail. Money was very tight at the time, so we’ve always been proud that we were not only able to avoid increasing out debt at that time, but we were able to pay it off.

We’re not debt-free, though. Not even close. Between the two of us, we still have a huge chunk of student loan debt — to the tune of $50,000.

For the past year or so, we’ve continued to pay minimum payments on my loans. We haven’t even begun paying Tony’s debt back because his loans are deferred until he graduates.

So here’s my confession: for right now, paying off our student loan debt is not our #1 priority. And it probably won’t be for another 5 years.

When we were working to pay off our credit card debt, we weren’t using every penny of our extra income for debt-repayment. We knew we had a move coming up in a year, and we wanted to build an emergency fund because we wanted to start a family. We made the decision to split our income between savings and debt repayment.

Right after we finished paying off our credit card debt, our plan was to use that money to pay off our student loans. But when you’re living on a small income, there just isn’t a lot of money to go around. We realized that in order to reach our savings goals, we’d need to divert a lot more money into savings.

Then we started talking about Europe. Believe me, I know that in the frugal community, saving for a vacation like that with as much debt as we have is a no-no. But you know what? We didn’t want to wait until we were debt-free to live our lives. Sure, we could put every penny toward debt and really work to pay down those student loans right now. Even then, we’d be well into our 30s before they were paid off. By then we’ll have children, maybe even a house, and a lot more financial responsibility. We’ll hopefully have more income, too.

Does debt-repayment mean putting everything else on hold when you’re young? In my opinion, no. For some people, the rush they get from sending another huge payment to pay off debt is enough to keep them motivated. Not me. If we were using every penny to pay off debt right now, it would be so depressing for me.

Unless we magically double our income overnight, it’s going to take us years to pay off this debt. For years and years, our only focus would be debt repayment. I’m not going to wait to do and see the things I want to see. I’m not going to wait to start a family or save for a house. That debt is going to be there for a long time. I can’t wait that long to live my life.

That doesn’t mean we don’t have a plan, though. There are just a couple things that are going to come first. When we get settled in Indiana, we’ll be in survival mode until Tony gets settled in a job. Then we’ll replenish our emergency fund. Then we’ll start saving for a house. Once we’re moved into a house, it will finally be time for us to put all of our extra money toward those debts.

This method isn’t for everyone. I’m sure many of you think it’s crazy for us to leave that debt alone for the next 5 years or so, accruing interest. When it’s time to pay it off, though, I plan to do it in about 5 years. Our plan is to buy a very modest starter home, which will help us put more money toward debt. It will be tough, but at least I’ll know that I’m not missing out on experiences in order to do it.

Photo by sgw

How do we measure up to national averages?

One of the main concepts of frugality is that life isn’t a competition when it comes to finances. I try to avoid comparing myself to other people, because we inevitably fall short in terms of material possessions.

Just for fun, though, I took a look at some national averages to see where we fall on the spectrum. I was actually surprised to discover that in some ways we’re right on target. I had hoped we’d be considerably more frugal than the national average, but it turns out we’re pretty average.


I couldn’t find any hard and fast statistics newer than 2004. As of 2004, the average American spent 21% of their income on housing costs. But that was 5 years ago, and so much has changed since then. According to CNN Money, mortgage costs should equal no more than 28% of your income. Our rent is about 26% of our monthly income, so it looks like we’re pretty average in that respect.


This is my favorite category. :) As of February, the national personal savings rate reached 4.2%. We save a minimum of 21.5% of our after-tax income every month. Yay us!


I’m sort of bummed about where we fall here. According to the USDA food plans, families of 2 living on a “thrifty” food plan spend $82.10 a week on food. Doesn’t sound too thrifty to me. We typically spend $60 a week at the grocery store, but our monthly food costs are closer to $400 total, or $100 a week.

We’ve become increasingly lazy about monitoring food costs, and those extra trips to the grocery store and occasional meals out really do add up. So we’re closer to the “low-cost” food plan, which is about $104.60 a week (again, that doesn’t really sound “low-cost” to me). We’ve always struggled with food spending, and this little comparison exercise has really opened my eyes. We need to crack down.


The average American owes $8,329 to credit card companies. We owe $0 to credit card companies. Woo hoo! When it comes to student loan debt, we fall above the national average, though. The average American student graduates with about $21,900 in debt (that’s $43,800 per couple). We owe about $60,000 to student lenders, or about $30,000 each. That’s about 37% more than the average. :(


Again I struggled to find recent statistics for what the average American saves for retirement on a monthly or even yearly basis. I guess there are too many factors. But a number that gets tossed around a lot as a “recommended savings amount” is 15% of your income. We’re just getting started on retirement savings, and we made the decision to start slow for now at a 3.5%. Not so good, but our plan is to ramp up our retirement savings when we finish paying down our debt and get our liquid savings where we want it to be.

This was an eye-opening exercise that really showed me where our strengths and weaknesses lie. We should be able to easily cut our food costs, netting us about $160 a month for savings and debt repayment. We just renewed our lease, so there’s not a lot we can do about our housing costs until we move, but when we move we’ll try to get below the national average. I’d like to fall on the lower end of the scale in all of these categories (except savings and retirement, of course).

How does your budget compare to national averages?

A difficult decision about student loan repayment

Once we became credit card debt free, we had an extra $200 a month available. We decided to put some of that money toward retirement savings every month, so we only have $100 left to work into the budget.

Yesterday, Tony and I looked at our budget, and talked about where we’d like to put the money.

We have a huge amount of student loan debt (about $60,000 all told). My plan has always been to pay off credit card debt first, and then move on to my private student loans. Private loans account for about 1/3 of our student loan debt, but they carry about a 7% average interest rate. We also have about $40,000 in federal student loans with a much lower interest rate (about 4%).

When I think about all of that debt, I feel so overwhelmed. To make it easier on myself, I’m focusing on one loan at a time — for now the private loans (about $22,600).

I plugged some numbers into a loan repayment calculator to figure out some scenarios. The numbers are disappointing.

  • If we continue paying our current amount ($200 a month), it will take us 10 years to pay off my private loans.
  • If we put the extra $100 toward student loan debt (my original plan), it will be 8 years before the private loans are paid off.
  • Even if we could come up with $500 a month to put toward the private loans alone (while continuing to pay the minimum payment on federal loans), it would take about 4 and a half years to pay off just the private loans. Then we’d still have to pay off $40,000 in federal loans.

“Don’t worry,” people tell me. “Your income will go up.”

The problem is, it probably won’t. Right now I work full time, and Tony makes the equivalent of a part-time salary teaching. Sometime after he graduates, we want to have children. At that point, our roles will switch. He’ll bring in a full time salary, while I work part time (hopefully from home). So we’re looking at quite a while before we see a significant increase in our income.

Tony and I had a long talk about our short- and long-term goals. As much as I want to be debt free (and believe me, I really want to be debt free), at this point in our lives with our limited income and the economy a wreck, my gut is telling me that saving is more important.

Once we’re settled somewhere that we know we want to stay long term — and we have an emergency fund in place — our focus will shift. At that point, we’ll be able to put everything we have into debt. But for now, I want to have as much money stashed as possible.

So we made the decision to continue making minimum payments on student loans for the next year and a half while we beef up our savings. After that, we’ll reassess our financial situation. Hopefully we’ll have enough in savings that we can hold off on saving and shift our focus to debt.

I’m disappointed that we can’t do both, but I’m also confident in our decision. When I look at the difference an extra $100 a month will make in our savings, I feel calm and reassured. I don’t feel that same calm when I see the minor change in our debt that would result from paying an extra $100 a month on it for the next 18 months.

I also don’t regret putting $100 toward retirement every month. If we don’t plan for our future, no one else will. Putting $100 away for retirement every month makes me feel incredibly empowered.

The important thing is that we’re doing what works for us. The best part? Liquid savings is, well, liquid. If we change our minds, we can always pull that money out of savings and put it toward student loans.

Resolutions for another frugal year

I’m so excited about the year ahead! For the first time, I feel like I’m looking ahead with a clear set of goals and the resolve to actually achieve them.

In the interest of keeping myself honest, here’s what I hope to accomplish in the coming year:

  • Finish building our 6-month emergency fund. We’re a third of the way there now, but I hope to finish it by the end of the year.
  • Spend less than our budget. We’re doing a lot better than we used to, but we continue to go over budget by $50-$100 every month. Technically we’re not spending more than we make because we save at least $300 a month, but we’re cutting down our actual net savings by going over budget each month.
  • Make a dent in our student loan debt. Now that we’re credit card debt free, I want to really crack down on our spending and send every extra penny to our student loans so we can be completely debt free sooner.
  • Learn more at my job and grow my skill set. Someday when we have children, I’d like to work from home, so it’s important that I learn as much as I can now to build my credentials and qualifications.
  • Enjoy the present, and try to stop looking ahead to the next big thing. This is a constant work in progress for me. Planning ahead is essential to reaching long term goals, but sometimes my constant planning makes me lose sight of the present. I need to find a balance between appreciating what’s now and planning for the future.

What are your resolutions for the new year?

Starting the new year credit card free!

photo by b.franchina

This morning I sent my final payment to American Express. We’re officially credit card debt free!! In the past year, we’ve paid off almost $5,000 in credit card debt. I’m pretty proud considering how low our income was for a big part of the year. :)

Unfortunately, we still have quite a ways to go before we’re totally debt free — we have a combined total of about $60,000 in student loan debt. :( But we’re a lot better off than we were a year ago. Now I know what works, and I can apply the same principles to our student loan debt.

I’m hoping to have my $20,000 private loan paid off in 2 years. It’s a pretty lofty goal considering it took us a year to pay off less than $5,000 in credit card debt, but we have more income now and we’re getting better at frugal living.

The student loan debt is overwhelming, but I keep reminding myself that I once felt that way about my credit card debt. High balances and high interest rates made it feel impossible to get ahead. But I just kept sending those payments every month, watching the balance slowly decrease until it was manageable.

I’m looking forward to getting those student loans out of my life using the same method.

What was the poorest time in your life?

Photo  by larimdame

empty wallet

This month, the Extended Group Writing Project at PFBloggers asks a very interesting question: What was the poorest time in your life? It made me think. A lot. So I decided to chime in.

I want to begin by clarifying that I’ve never fallen into the category of genuine poverty. To me, poverty is the point beyond budget cuts when you can’t just cut the budget to make ends meet, because you’re already living with so little. When you’re truly poor, you’re not worried about debt and savings. Your main concern is keeping a roof over your head and food on the table.

Thankfully, I’ve never been there, and I’m certainly not comparing my experiences with debt and low income to genuine poverty. That being said, it’s definitely possible to FEEL pretty poor even when you’re not living in poverty.

My first inclination was that a year ago, right after we moved here, was the “poorest” time in my life. Tony’s teaching job didn’t pay nearly enough to make ends meet, and I struggled to find a job for months.

Technically, we had more money in the bank than ever. We’d spent a year saving $10,000 for moving and living expenses. But with very little income, we sure felt pretty poor. It’s a really scary thing when your bank account is dwindling with very little coming in.

The more I thought about it, though, the more I came to realize that my first inclination was wrong. Last year was not the poorest time in my life.

Our living expenses may have been much higher than our income, but our circumstances motivated me to get serious about personal finance. Even though our financial situation was bleak, I felt more empowered than I ever had before. I started budgeting, cutting unnecessary expenses, and tackling debt. Despite our low income, we managed to get through the year without adding to our debt. We even paid off a huge chunk of my credit card debt.

Because I was making the decisions about where our money went, I didn’t feel deprived or scared about money. It was exactly the opposite. When we stopped spending money out of choice rather than out of necessity, we suddenly felt incredibly rich. We realized just how far the money we had could go if we weren’t blowing it.

We made smart choices to make our savings last. For the first time, I was paying my bills a month ahead of time instead of waiting for a paycheck at the last minute. We didn’t have money to buy a lot of stuff or eat out, but we didn’t have to worry about paying our rent or buying groceries. When I think about that, I realize that I didn’t feel poor at all a year ago. Quite the opposite, actually.

On the flip side, I lived pretty opulently in college. I went out to eat a lot. I bought a lot of “stuff.” On the outside, I appeared to be anything but poor. But I never had money in the bank. I blew through what I had so quickly that I often came dangerously close to overdrawing my account. As soon as I got a little money, it was gone. I was stressed every time I swiped my debit card, because I wasn’t sure there was enough in my account to cover it.

One night, my gas tank was so low that my car started sputtering. I knew I had to get gas, but I also knew that I had less than $5 in my bank account. I pulled into the gas station and put one gallon in my tank to make it home. When I got home, I had to check my account to make sure I hadn’t overdrawn it.

That’s the poorest I’ve ever felt.

Sadly, that wasn’t an isolated incident. Stuff like that happened to me a lot in my college days. I had no control over my money, so I didn’t feel like I was making the decisions. Obviously, I was just making the wrong ones. But every time my account balance dipped that low, I didn’t think about all the things I spent my money on. I only thought about what I couldn’t afford.

I still hesitate to refer to that as being “poor,” because it was my own fault. If I hadn’t spent my money on pizza and movies, then I would have had enough to pay for gas. The point is that feeling poor isn’t about the stuff you have or money in the bank. Some people feel “poor” if they can’t afford all the things they want. For me, feeling poor is stressing about whether I can afford the things I need.

Being frugal means being flexible

Over the weekend, I posted my goals for November. In summary, I planned to pay off the entire remaining balance on my credit card and finish half of our Christmas shopping without reducing the amount budgeted for savings.

Well, this week I received a letter from my student loan company that threw off my plans. My student loans are currently in voluntary forbearance, which is a lender-approved delay in repayment. It has no negative effect on my credit score, but the loans continue to accrue interest.

It’s obviously not an ideal situation. However, when I made the decision I had just transferred my credit card balance to a card with an interest-free introductory period. I was simply too overwhelmed by both payments, so I decided to focus on one at a time. I wanted to focus on paying down my credit card debt before the interest-free period ended, and start paying down my student loan debt once my credit card was paid off.

My remaining balance on my credit card is a little higher than the amount I usually budget toward credit card debt, but I shifted things in the budget to allow me to pay it completely this month. My forbearance period on my loan is set to end in December, so it would have worked out perfectly. I would have made my final credit card payment this month, then used that money in December to begin paying down my student loan.

According to the letter I received from my student loan company, even though my forbearance period doesn’t end until December, my first payment is due November 28. Because my consolidation loan hasn’t finished processing yet, the minimum payment due is $300.

I started moving things around in the budget, trying to fit in this extra $300 payment. I found a little wiggle room in our discretionary spending, but our budget was already pretty tight because of Christmas. I didn’t want to cut too much and risk spending more than our income this month. Even after cutting several spending budgets, including a drastic cut to our Christmas shopping fund, I still came up short.

I came up with two possible options to make up the difference:

We could split the difference between the credit card debt and the student loan debt. It would delay our final credit card payment until next month, but allow us to pay the minimum payment on my student loan this month while we wait for the consolidation loan to process.

Or we could reduce the amount we put into savings this month. If we cut our savings amount in half, we could pay the student loan and still pay off my credit card.

Neither option is particularly appealing to me, but you know what? Tough. This is the way it has to be.

I made the decision to cut our savings for the month. I’ve been looking forward to paying off this credit card for a year now. When I opened the interest-free credit card last December, I figured out how much I needed to pay on my credit card each month to ensure that it was paid down before the interest-free period ended.

Even though we were on a very tight budget before I found a full-time job, we diligently paid the bill every month, always looking ahead to the final payment. Sometimes when I started to feel overwhelmed, the only thing that kept me going was the thought of making the final payment this month. The idea of delaying that another month is just too frustrating. I’m willing to cut our savings for a month to make it possible for us to pay the remaining balance.

I was really bummed when I realized my plan wasn’t going to work out perfectly. But you know what? At least we have the money to pay all of our bills. Even when our plans are unexpectedly derailed, we’re still able to put a little bit in savings. It’s not as much as we’d like, but it’s something.

There was a time when $300 would have been impossible to squeeze into the budget. There was a time when we absolutely just didn’t have that kind of extra money. If cutting back our savings a little for a month is as bad as it gets right now, then we’re doing a-ok.

What would you have done?