Learning to Live With Debt

Learning to Live With Debt

Over the last couple of weeks I have been doing a lot of reflecting on our financial position, where we should go from here, trying to make adjustments to our student loans, and just reflecting on things in life. Those reflections haven’t necessarily been bad, but a cold reality has started to sink in. I think we might have to just have to get used to living with debt.

What Do I Mean By Living With Debt

Over the past two years I have paid off about $50,000 in debt. A good chunk of that was personal debt like credit cards and the like. If you were to take the personal debt of Mrs. ROB and I and what we have left we are probably talking about $25000 or so. Most of that is a car loan.

Moreover, we have refinanced our mortgage to a super low-interest rate at 2.875% and we only owe $157000 on a 12 year loan. If we just make normal payments we will probably pay off the house in a little over 10 years.

Then we have the student loan debt. Mrs. ROB and I have a lot of student loan debt. So much so that we are on an income-based repayment plan and I have begun the process for public service loan forgiveness, but that will take another 9 years until it kicks in. Mrs. ROB might be eligible for PSLF as well depending on how they qualify her teaching (her combined teaching potentially makes her eligible for public student loan forgiveness). If she is eligible it would be at least 7-9 years before she would be eligible to have her loans forgiven.

So that leaves me with a conundrum? Do I go all in and try to pay off our student loans as fast as possible? Or do I accept this debt, continue to make payments and put my efforts toward paying off the mortgage and/or the car?

Making the Smart Decision

When I see these choices I basically want to tear my hair out because it seems like an untenable position. I guess I didn’t put the third option above. The third option would be to just dig in and pay off these loans in less time. I have already written here about my conflicting views over student loan forgiveness (here and here). I am still conflicted. Very conflicted. And I am not sure why.

The truth is that if Mrs. ROB were to be enrolled in the PSLF program (and even if she wasn’t) the best FINANCIAL decision is to actually just make payments on the loans for basically the next decade and have them forgiven by the government.

We would get the BEST return in that way.

We would get the best return because if I add up all the payments we would make for the next basic decade vs. the balance we have now we actually SAVE money by just making those payments.

On a purely rational basis making basic student loan payments and living with the debt seems to be the SMARTEST decision.

However, I can’t help but feel guilty about this position.

I feel guilty because it feels like I am almost cheating the system. At the same time, I HATE DEBT! I mean I hate it. While I am not a faithful reader of the Bible it is true when it says the borrower is SLAVE to the lender. I feel weighed down by this. I want this gone.

But the smart, rational, and better position for my family is potentially keeping this debt around for the next 7-9 years.

And when I stare at the decision; when I do the numbers I hate it. I hate it.

But I am someone who prides themselves on research. I am someone who wants to employ the right and rational reasons. So at the moment, unless we somehow get a windfall or I get some different numbers, it might be just smart to continue to make my student loan payments, knowing there is a light at the end of the tunnel, but that light is a LONG-WAY off.

A Benefit to This Viewpoint

Now while I hate coming to this potential conclusion there is a potential benefit that comes with it. If I decide to just keep making payments then I would have to decide what I would do with any extra money? I mean I have been able to find extra money to pay off additional debt. What do I do from here?

Part of this blog has not only been about chronicling getting myself out of debt, but also about lessons on investing, and trying to figure out how to have “balance” in my financial life. Well, I can obtain some balance by taking that money and investing it. I can increase my investments and increase Mrs. ROB’s investing experience as well. And my increasing my investments and also making extra payments on the mortgage I can still get to my ultimate goal of financial independence.

Financial independence, for me, has always been the ability of not having to work. That only is possible if I don’t have debt AND the ability to have enough in investments to meet spending needs at home.

I am not sure how much extra money I will have or even if I will just have extra money for investments I might just put it on the mortgage, but I can increase my net worth through this increased investment/mortgage payoff.

So it isn’t all bad.

Where Do I Go From Here?

What I write here isn’t set in stone. I mean it is contingent on certain things. Even with student loan forgiveness there will be a tax cost to it someday. So I could also choose to pay down some of Mrs. ROB’s loans to reduce that tax burden in the future.

Whatever I decide it seems like I have to change my mentality a bit and get used to living with debt for the time being. That doesn’t mean my attitude will change.

Financially, however, it seems that the smart play is to ride things out and take any extra dinero and put that away for a rainy day, invest, or dedicate to paying off the mortgage.

Big thing is getting my mind right on this. It is still hard because I hate it so much, but I have to put the emotion aside and focus on the potential upside for our family.

3 thoughts on “Learning to Live With Debt

  1. I read somewhere that it is helpful to distinguish between “good debt” and “bad debt.” Good debt is debt that advances you financially. So, for example, a mortgage can be a good debt, if the market doesn’t crash, etc., as a mortgage will eventually get paid off and you will have a place to live rent-free in retirement (or sell it and take the money to wherever you want to retire). Student loan debt can be good or bad debt–depending on the amount of the debt and its relationship to recovering that money in a career, e.g., MD. Bad debt is credit card debt as it usually can’t be leveraged into something financially rewarding later. I try to keep this in mind when I am feeling anxious/unhappy about my mortgage. I would love to write a check to pay off the mortgage (but that check would definitely bounce!). So we all have to learn to live with debt (unless we’re wealthy and can afford to buy a house outright without a mortgage), but I try to think about debt and what that debt buys in the future.

    1. I don’t actually buy that distinction per se. To me debt is debt. However, there are times when you may just need to live with it (e.g. mortgage debt). The only reason I would live with the student loans is because it is potentially smarter. If not, I would be on a quest to pay it off as soon as possible.

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