Hello everyone! I am back with another installment of the “two sides” series, which features the viewpoints of R and I on certain topics. I haven’t done one in a while, and with our taxes being done and going toward our student loans, I figured it was appropriate.

We’re both in student loan debt

R has a bit more student loan debt than I do, but he also went away for four years, while I chose to attend community college for a year. Student loan debt is the only debt we have, thankfully, but it still seems like we have a long road ahead of us in getting them paid off.

We are currently focusing on our loans separately, as we are not married or engaged. We also didn’t know each other until after R graduated, so they’re separate from our relationship. If circumstances change, I know we are both open to helping the other out if one of us should finish paying our loans off first. This is largely because we unfortunately feel like they’re holding us back. I don’t exactly want to get married and start off being in debt. We both want to see our balances at 0 in the worst way before continuing on with the next stage of our lives.

debt repayment

R’s side: put any extra money toward debt

R believes in having a small buffer in his bank account, and everything else should go toward debt. The majority of the bonuses he gets from work go toward his student loans. Last year, his tax return went to paying off his car. This year, the entire amount went toward his student loans.

In the beginning, he had three separate student loan companies he was paying; he paid off one, and now he is targeting the next one. These two have smaller balances, and they both had decently high interest rates. His last account has six separate loans, making it a bit more complicated. Three of the six have balances are $2,000 and have higher interest rates. R would rather have the one company to make payments to, as it’s easier. They were all also due at different times during the month, so I can understand his reasoning.

R got back around $1,300 from Federal and was able to bring the balance of the smaller loan down to $1,130. The original loan amount was $3,500, and seeing $1,130 is killing him. It’s not a large amount, and he wants more than anything to get rid of it.

However, he’s being sensible and keeping the buffer in his bank account. I rubbed off on him a little bit in saying he should be saving up, especially with the condition his car is in, and he listened! His bank account has steadily grown since we’ve been together. Of course I attribute that to my awesomeness =) (and his dedication…).

Instead, he decided to pay $500 next month, and then the pay off amount the month after that. Only two more months, but it seems like forever! After that is his larger loan with an outstanding balance of $18k. With the other two balances paid off, hopefully he can afford to make larger payments toward this one.

As you can tell, R kind of chose to go with the snowball method of paying off his student loans. Getting the two smaller balances paid down is a mental win for him, and will help him in his longer journey to pay off his last loan.

My side: save and pay off debt

I take a slightly different approach. For some reason, seeing the numbers in my bank account increasing is more exciting than seeing my student loan debt decrease. I have to admit, as I get closer to paying the smaller one off, it’s a close competition!

I’ve admitted that when I got my first full-time job out of college, I used the 6 month grace period to create an emergency fund, rather than make payments toward my student loans. Part of me regrets this; I think if I could go back, I would have split it evenly.

Before I started blogging, and before I was reading the wonderful PF blogs that exist, I truthfully wasn’t worried about my student loans. They were there, and they would be for many years to come. My minimum payments were not troubling – they were easily manageable. I decided to keep saving my money and pay the minimums.

As we all know, that’s foolish. It took R and I coming to an epiphany on a walk (soon after I was exposed to all the awesome debt bloggers out there), to figure out we should be focusing on paying our student loans off ASAP. I didn’t want to have this hanging over my head ten years from now!

I decided to increase my payments to a feasible amount, and still continue saving. I have a set amount I put toward my loans each month, and depending on what happens during that month, I’ll try to pay even more. In any case, as long as I am paying above the minimum payments (which I have been), I think I’m making progress.

I saw my parents end up in precarious financial situations from not having enough saved up, and honestly, it has “scared me into saving.” Emergencies happen, and you need to be prepared. I know that some people out there think debt is an emergency, but there are other emergencies that life can throw at you (yes, I’m a worrier).

So while I may have enough in my savings to currently pay off my smaller loan and then some, I don’t touch it. Sadly, if R and I were to ever break up, I would likely have to move back in with my parents, which means quitting my job, moving, and a lot of uncertainties in a new area. Regardless, I’m going to be jobless when we do move (together!), and having a nice cushion will help me feel a lot better about it.

I will say that once everything is said and done, hopefully in a few months, I want to pay off my smaller loan. As of right now, it’s pretty close to being $2,000, which probably wouldn’t hurt that much in the long run.

Who is right?

I don’t think there is a right or wrong answer when it comes to paying off debt. It’s whatever you’re comfortable with! As long as you’re making payments and you’re knowledgeable about your situation, you’re winning in my book. I really do admire those that throw everything they have toward their debt, but I couldn’t sleep at night without a buffer in my bank account.

I am really proud of R and all that he has managed to accomplish while we’ve been together. Paying off his $3,000 car loan, paying off one student loan, and getting closer to paying off the other is amazing progress! I’m just glad to be with someone that shares the same intense desire to get out of debt.

How have you gone about debt repayment? Have you used the snowball or avalanche method, or whatever felt right to you? 

 

43 Comments

  1. Mrs. Southboundsavers March 17, 2014 at 7:31 AM

    Regardless of who’s side you’re on, it seems like one way or another you’re both taking care of student debt in an aggressive way. You guys are already way ahead of most people our age. Glad to see that!

    Reply
    1. E.M. March 17, 2014 at 10:08 PM

      Thanks! In a way, we do feel a bit ahead, at least out of our group of friends. It doesn’t seem to cross a lot of people’s minds that they should put extra toward their debt, especially if they know they have so many years to pay it back.

      Reply
  2. Kali @ CommonSenseMillennial March 17, 2014 at 7:52 AM

    I think it depends on the interest rates of your loans. If you have a really low interest rate, it might be smart to save/invest AND work to pay off debts. However, if you have a higher rate, then I would say focus on getting rid of it as soon as possible. But that doesn’t mean you can’t save anything! You can always budget to put X amount towards your debt every month. If you have any budget surpluses – say, you have $50 at the end of the month that you didn’t spend – put that toward saving. Or play some sort of little savings game to encourage you to save something like a dollar here, $5 there. Those little amounts really do add up over time, and it might be a good compromise. R won’t feel like he’s missing out on paying down his debt faster, and you won’t feel like you’re missing out on savings opportunities.

    Reply
    1. E.M. March 17, 2014 at 10:07 PM

      As it stands, I’ve done the saving and investing part, so this year is seeing more of a focus on paying down my student loans, more aggressively than last year. I do evaluate things at the end of the month and put more toward my loans if I can, since I’ve reaching my savings goal for now.

      Unfortunately, R’s mom is going through a tough time, and he agreed to pay her $100 for the parent loan she took out, so he lost some room in his budget from that. Work is just starting to pick back up though, so he is hoping to see nicer bonuses soon.

      Reply
  3. Andrew@LivingRichCheaply March 17, 2014 at 10:46 AM

    I used to not understand Dave Ramsey’s method where he encouraged paying off the smallest amount first. To me, the math says to pay off the highest interest first. But in the end, I see his point and both methods have their merit. Finances are psychological oftentimes and I see how paying off a loan motivates you to continue on that path. As for my, I paid off most of my high interest ones, but I still have a good amount which are at a very low interest…from 2 to 4% so I’m not in that big of a hurry. I’d get rid of the 4% ones though if I was able to, but I plan on keep the 2% ones unless I really had no where better to put that money. I’m with you on this one though…as much as I like paying off debt, I like to have money in savings…just in case.

    Reply
    1. E.M. March 17, 2014 at 10:03 PM

      “Just in case” is the phrase that always lingers in my mind. I’m not a mathematical person at all, but it does make more sense to me personally to focus on the higher interest rate loans. I can’t fault R for going with what feels right to him, though, as long as he’s making progress. He definitely has just as much focus as I do on paying them off.

      Reply
  4. Done by Forty March 17, 2014 at 11:47 AM

    I believe that we work harder towards the things we really want. So if seeing an increasing balance in your investments or savings account, or a decreasing balance on your loan statement, is motivating to you, then that is what you should do. We are, thankfully, not automatons: the human aspect of personal finance is almost always the biggest driver of success and failure.

    I’m glad you two have different approaches, too. My wife and I do as well, and it keeps things interesting. :)

    Reply
    1. E.M. March 17, 2014 at 10:01 PM

      That makes sense! I would like to be debt free, but I would also like to do it in a way that doesn’t compromise my savings. Ideally, I would be in a more stable place right now, able to determine an exact amount I could put toward my debt without regretting it.

      I think our different approaches will benefit us down the road, should we ever choose to take on a car payment or mortgage.

      Reply
  5. Emily @ evolvingPF March 17, 2014 at 11:53 AM

    I think you left out the important set of information to make this judgement – the numbers! The debt becomes more pressing at higher interest rates, though in this low-interest environment it’s difficult to argue that money is better off in a savings account than applied toward debt. But more importantly I think you need to ask yourself how much is enough to have in savings. With a Dave Ramsey approach to debt repayment, that EF is capped at $1k. It doesn’t sound like you’re comfortable at that level, so what is your maximum? I don’t think it’s smart to save and save forever with no cap (and not invest that money) while in debt. The more you want to save, the longer you are going to keep yourself in debt and you will still be insecure. I think it’s better to get out of debt quickly and then be able to save with no cap (but hopefully only keeping a certain amount in cash-equivalents). Just evaluate what is a reasonable emergency for you during the amount of time you expect to be in debt. Is 1 month’s expenses enough? 3? I definitely don’t think you should be up to 6!

    One other comment on an offhand point you made – since you met after college, you don’t associate your student loan debt with your relationship. The situation for us was reversed – my husband and I met in college, so when we got married and combined our finances, we put his savings toward my student loan debt. I had no guilt whatsoever about this, which I think is largely because we went to the same college. It was basically an accident of birth that his education was completely paid for by his parents and mine was only largely paid for by my parents and scholarships. If we had gone to different schools or he had worked his butt off to get scholarships or something like that, it might have taken more psychological work for me to feel okay about benefiting from joining our finances.

    Reply
    1. E.M. March 17, 2014 at 9:58 PM

      I have to say I’m not a fan of the big finance gurus, so I’m not familiar with any of their advice. I’ve followed my own path to this point, and I’ve been pretty happy about it. I’m not continuing to save at this point – honestly I’m breaking even. I took a paycut with my new job knowing this would happen, and I’m still happy with my decision, largely because of my savings.

      What’s in my bank account is what I feel comfortable having in there. I did open a Roth IRA last month, so I have entered the world of investing. I’ve never been offered a 401k at any jobs I’ve held, otherwise I would have been contributing to retirement savings a while ago.

      Considering I’ll be jobless and we’ll be relying on my boyfriend’s income to get us through our move and getting settled, I wouldn’t be okay with having just three months of expenses saved up. I’m holding myself to being responsible for half the rent/utilities, and we’re expecting to have to pay rent+security. What we paid for our current apartment upfront would almost wipe out his account.

      His car is also on its last legs, and I’ve let it be known that I would help him out with that if need be. Realistically, I don’t know how long it will take for me to find a job, so I am planning for the worst. I’m not in a special field and only have office experience, so I’m at a slight disadvantage. I’m basically saving with both of our needs in mind, not just myself.

      If I had no student loan debt, I would likely be helping my boyfriend out. As I said, it is kind of holding us back in other regards, so a joint effort would make sense. It’s great that things worked out that way, though!

      Reply
  6. Alicia @ Financial Diffraction March 17, 2014 at 12:29 PM

    I am paying off my highest interest debt first and then moving backwards. At the same time I have a decent emergency fund so I am not actually saving in the meantime except for retirement saving through work.

    Sometimes it isn’t all about the numbers. Sometimes it is about getting a quick win to feel good for the next step. I like that idea, but then I feel like I’m “letting down” the PF community :)

    Reply
    1. E.M. March 17, 2014 at 9:37 PM

      It’s true. There are some phases during debt repayment where it’s just trudging along, and then there are phases like when we get some money in, and we enjoy seeing the numbers fall.

      Reply
  7. Jamie V March 17, 2014 at 1:36 PM

    I have 3 student loans that I am in the process of paying off. I’m working on my smallest balance one which also happens to have the highest interest rate, at 6.8%. I had $4,600 left, and then put all my tax returns and work bonus towards it, and have about $1,800 left. I have an emergency fund of about $2,000, and it’s sticking there until I get the remainder of this loan paid off. I’d like to throw everything at it that isn’t a bill until it’s gone because than I would get an extra $118/month. I then have two student loans left with balances (each) between $7-8K. But I don’t think I’m going to give those a second look because the rates are variable, and they each sunk to 2.5% and 1.95%, which means most of my money is going to principal anyway. I can get better returns in the market, so once loan 1 is paid off, I’m saving a chunk of cash to put into an ETF. Maybe I’ll increase their payments each month by $20/each, but I’m not too worried about them at the moment.

    Reply
    1. E.M. March 17, 2014 at 9:35 PM

      That’s great you were able to put so much toward that one loan! It’s almost gone =). My smaller balance also happens to have the higher interest rate. Unfortunately, my $10k loan still has around a 5% interest rate, so I can’t ignore it. I’d love to have those low rates, and I would probably start investing a bit, too.

      Reply
    1. E.M. March 17, 2014 at 9:29 PM

      Go us, we’re clearly awesome girlfriends!

      Reply
  8. Newlyweds on a Budget March 17, 2014 at 10:14 PM

    I have often wondered this, but I think it’s different for every person–whatever they feel most comfortable with. Last year, I started off the year with a little under 20k in student loans. By May, we had enough in our savings account to pay off the loans. It was a tough decision bc we were saving up for a house. But once we chose to pay off the loans, everything we earned was OURS. We are now saving at an incredibly fast rate and were happy with our decision to risk our savings for a few months in an attempt to be debt free

    Reply
    1. E.M. March 18, 2014 at 4:15 PM

      That’s awesome and I’m so glad it worked out for you! I have to admit, it is exciting to think that all my money will be my own after this is all said and done. I just feel like with a relocation in the works, the responsible thing right now is to keep my savings just in case. After that, I would like to devote a decent chunk to paying the loans down.

      Reply
  9. Brian @ Luke1428 March 18, 2014 at 5:51 AM

    The “sleep at night” factor is a big deal. And as great as it feels to have the buffer in the savings account, you’ll sleep even better when the loans are gone. How long would it take for you to rebuild your savings account if you took the money and paid off the loans? Would you still be able to keep an emergency fund level in savings? Incidentally, I wouldn’t worry too much about getting married with debt, as long as both of you are on the same page about how to pay it off. Combining forces (if your ready) may speed up the debt payoff process.

    Reply
    1. E.M. March 18, 2014 at 4:14 PM

      I really don’t spend a lot of time worrying about my loans as much as I spend worrying about our budget and spending. That said, because I took a pay cut with my new job, rebuilding my savings would take a decent amount of work. I’m still hoping to relocate by the end of the year, sooner if something comes through, and I’ll be jobless when we do so. Since R’s finances are separate from mine, we each have our own savings, and I wouldn’t ask him to help me out as we’ll be depending solely on his income. It just sounds like a recipe for disaster. However, after we move and I re-evaluate things, I do plan on making a decent sized payment.

      On the marriage front, R doesn’t feel like he could afford a wedding right now. I have no issue with having a two or three year engagement, but I agree that we’re just not ready from a financial stand point.

      Reply
  10. DC @ Young Adult Money March 18, 2014 at 6:28 AM

    My student loan repayment looks like this: minimum payment. Some will disagree, but I would much rather build up a very large emergency fund and/or put money into investments than pay down our student loans. While they are annoying, I have been able to offset them with blog income and I just don’t see the huge rush to pay them down. With that being said, I don’t think there is a right or wrong answer and it sure can’t hurt to pay them down.

    Reply
    1. E.M. March 18, 2014 at 4:06 PM

      “Annoying” is a great way to describe them! Sounds like we have a similar view here. I wish my interest rates were a little lower to take advantage of investing more, but I think anything over 5% probably warrants attention. I think the only reason why we’re in such a rush to pay them off is that this is the only debt we have, and neither of us are using our education in our jobs, so we’re a little regretful.

      Reply
  11. Amanda @ Passionately Simple Life March 18, 2014 at 7:21 AM

    It’s great that you guys have your own method for paying off student loans. It means that you are comfortable with it and will probably stick to it. Because the bf is older, he has no real debt to worry about, where I have a whole bunch of student loans. Because he considers me the knowledgeable one with money, he just says, whatever works for you. Most months it’s a tug of war between savings and debt repayment. And I think it will continue to be that way until I find a full time steady income job.

    Reply
    1. E.M. March 18, 2014 at 4:04 PM

      That’s good that your boyfriend is supportive! It can be quite a struggle to figure out where the balance is in regards to saving and paying off debt. I hope you find some steady income soon.

      Reply
  12. KK @ Student Debt Survivor March 18, 2014 at 12:18 PM

    I’m so thankful that I was in the process of paying off my student debt when Eric and I met. I’m equally thankful that he saw the benefit in being debt free and paid his student loans off shortly after I finished paying mine. We’re not married or engaged, but when that time comes I’ll feel so much better knowing that I didn’t bring “my” debt into the relationship. I’ve actually seen a lot of crazy relationship drama when it comes to student loans (and other debts). Some people have a “it’s yours you deal with it” mentality, while others find a way to plow through it together even if it was debt that came prior to the relationship. Either way it’s a tricky situation. As for your situation, I say do what works best for your. If having the e-fund and savings makes you feel more secure and you’re still paying off debt, I don’t see anything wrong with that. I personally plowed right into my debt and didn’t save until I was done, but that’s what works for me and that’s not the approach that everyone takes, which is why personal finance is personal :-)

    Reply
    1. E.M. March 18, 2014 at 4:01 PM

      Yes, I completely understand the relief that comes from being on an even keel when it comes to debt and marriage. I know there’s a part of me that would feel really bad about going into things still owing. We just want to put this behind us already!

      No two situations are ever going to be quite the same. I think watching my parents go through so many financial hardships has made me hyper-aware of the importance of having savings to rely on. I don’t want to end up in the situations that they did. If I hadn’t experienced that, I would probably have less of an issue putting more toward my debt.

      Reply
  13. Ryan @ Impersonal Finance March 18, 2014 at 5:15 PM

    To be honest, I don’t know if there is a right and wrong. If you or R has enough to cover an emergency, I would say throw it all at debt. Having a small buffer doesn’t worry me too much, because I know if I’m able to get rid of the debt, I’ll be able to build it up more quickly. I think the last payment I made on my student loan took my cash accounts down to something ridiculously small, like $3000. I’m lucky we didn’t have any emergency, but I seriously loved seeing the debt go away. On the flip side, I now love seeing the balance of my accounts grow. I think as long as you’re secure, you can do a combination of both. Save some, and pay off some. Either way, using your refund for debt reduction or savings is definitely smarter than buying new clothes or anything like that!

    Reply
    1. E.M. March 20, 2014 at 11:39 AM

      $3,000 isn’t that bad. That’s around where R’s is hovering, and he is comfortable with that. I’m not! The thing is, I don’t feel like we’ve reached a secure position in life, as we are planning on moving soon. There’s a whole bunch of unknowns there and I’d rather not take a chance. If we were in a more stable position, my thoughts would definitely be different.

      Reply
  14. Shannon @ Financially Blonde March 18, 2014 at 10:07 PM

    I advise clients all the time to go for the two prong approach. I see a number of clients get into credit card debt issues because they don’t have enough emergency funds to get them through various life events. Once you pay down student loans, you are never able to access that cash again as you would if you paid down your home or your credit card, so I like to see people “hedge” their bets and pay down debt as well as build up assets.

    Reply
    1. E.M. March 20, 2014 at 11:38 AM

      I think that’s a great approach. My parents had a lot of trouble with this. They went through cycles of saving, only to have one major expense wipe that entire fund out. It will be nice to at least have a positive net worth at the end of paying my loans off, though I don’t currently keep track of it.

      Reply
  15. Travis @debtchronicles March 19, 2014 at 5:47 AM

    You’d definitely want that buffer for emergencies, but I’d only save if I had a known expense coming up. Otherwise, kill that debt!

    Reply
    1. E.M. March 20, 2014 at 11:36 AM

      Well, my known expense is pretty much relocation right now. Considering my boyfriend doesn’t have as much saved, I’m going to be the one paying the upfront costs until we get reimbursed from his company.

      Reply
  16. Hayley @ A Disease Called Debt March 19, 2014 at 7:44 AM

    I think you’re right in that both ways are good because you’re both seeing results! For me personally, I’m following the snowball method, because it’s so motivating getting debt paid off. Saying that I’m starting to save a little now (only a very little amount!).

    Reply
    1. E.M. March 20, 2014 at 11:35 AM

      I can imagine the snowball method is really great if you have multiple balances you’re trying to pay off, which is R’s situation. A win is a win no matter how long it takes us to get there or what methods we use!

      Reply
    1. E.M. March 20, 2014 at 11:34 AM

      I don’t have anything like this offered at work, nor have I ever, which is why I decided to open an IRA last month.

      Reply
  17. DEBt DEBs March 20, 2014 at 5:56 AM

    Interesting contrast between the two approaches. But having an Emergency fund is very important to keep the anxiety level down. I’ve had to dip into mine a bit recently and even that is anxiety provoking!

    I like to play games (races) with my funds such as:
    – will my emergency fund get to $XX before debt Y gets to $xx?
    – count (forecast and track) the amortization period decline on my mortgage debt
    – two debts (one with fixed payments – car, and one with cash available payments above minimum) are getting close in amount – when will one surpass the other?

    Ya I’m weird like that. Anything to make the tracking fun and keep the motivation high!

    Reply
    1. E.M. March 20, 2014 at 11:25 AM

      Sorry to hear that you had to take a bit out of your emergency fund! I don’t like dipping into it, either, but it’s nice to know it’s there when needed.

      That’s not weird, I think it’s awesome you’ve created games to keep to motivated. Very unique, I’ll have to think about devising my own. Thanks for stopping by!

      Reply
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  19. L. A. March 31, 2014 at 2:47 PM

    My college students have already planned to do the same with their debts as i did with my own student debt many years ago. Ten percent of gross earnings to loans. Or more, when feasible. Ten percent to savings, or more, when feasible. That leaves eighty percent for living expenses. This often allows one to see areas where they actually can budget even further, which allows a higher percent payment toward loans and for savings. I surprised myself more than a few times with how much extra i actually was able to comfortably spread across savings and loans.

    Reply
    1. E.M. April 1, 2014 at 7:29 AM

      That’s awesome and really good to hear! That sounds like a very reasonable plan. Hopefully it encourages them to save more and put more toward their loans.

      Reply
  20. Shoeaholicnomore April 16, 2014 at 1:35 PM

    Great job! It sounds like you are both doing awesome :) I feel like I’m kind of in-between these two views. I do believe in saving while paying off debt, but I also am only planning on saving up to $1k. After I hit $1k I plan to stop saving and focus only on debt, unless an emergency hits and I have to use part of my savings in which case I will save again until its back up to $1k. After the debts are paid off, I plan on saving aggressively, but also allowing myself a bit more money for personal spending and fun. I am also going to quit my side jobs as soon as my budget allows so I can enjoy some more free time, I can feel myself getting burned out from working too much!

    Reply
    1. E.M. April 16, 2014 at 5:27 PM

      That sounds like a great plan to me! It’s important to do what you feel is right and most effective for you. I don’t blame you at all for planning to quit your side hustles after everything is paid off, either. Time for yourself is vital for sanity =).

      Reply

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