In mid-2015, we were starting to feel pretty good about our financial situation. We had been practicing in our respective health professions for about 4 years, our incomes had risen significantly, and we were beginning to see progress in our student loans being paid off. Still, we didn’t have a real plan for what we were doing; we paid more as we got it, but there was no real rhyme or reason to the choices we were making. We thought that needed to change.
It’s often said that goals that are written down are more likely to be followed through with, so that’s what we decided to do; we would put pen-to-paper and set a date for the loans to be gone.
The Big 3
When we started to brainstorm about our payoff goal, we had three specific criteria in mind that we felt like we needed to stay within to accomplish it:
- We wanted it to be realistic.
- We wanted it to be challenging.
- We wanted it to be possible without sacrificing other financial goals that we also felt were important.
Those points are pretty open to interpretation, but we were able to flesh-out what they meant to us with some honest discussion. Honesty, by the way, is something that we’ve found has been a huge key to getting on the same-page with each other in terms of our financial goals. When you’re taking on something as life-changing as getting out of debt, especially when you’re doing it with a significant other, there’s no room to fudge the details. There will probably be another post on that subject down the road, but for now back to the task at hand: Let’s examine the criteria we settled on to put our payoff goal in place.
1. We wanted the goal to be realistic.
We felt that our best chance of sticking with it was to set a goal that we knew was possible. We started the process by simultaneously thinking about how much we thought we could pay towards the loans per month and also having a date (or age) in mind that we wanted to be debt-free by. For us, it was also very important not to set our sights too high from the start.
Picking a high number (to us, at least) like $10,000 and saying we would pay that amount towards the loans every month sounded great and shortened our time horizon, but how realistic was it? There had actually been a couple months up to that point where we had approached (and maybe even exceeded) a $10,000 monthly payment, but that wasn’t the norm, and we felt reaching too high would set us up for premature failure.
Similarly, we thought about our lives and where we wanted to be in the coming years. We imagined different birthdays coming and going. It was a dream to imagine ourselves being debt-free in a year or two, but it wasn’t realistic. On the flip-side, thinking about still paying on the student loans in our 40’s was a nightmare! To us, mid-30’s sounded reasonable.
Everybody is going to have their own idea of what is “realistic” in their life. Maybe it’s making monthly payments of $3,000, $10,000, or even $20,000. Maybe it’s having the loans gone a year after graduation, or 5 years, or 10 years. Examine the numbers and decide for yourself, but as you’re doing so remember one very important point: “Realistic” doesn’t mean “easy”.
2. We wanted the goal to be challenging.
Nothing worth doing is easy. Okay, that might not be entirely true in all aspects of life, but when it comes to paying down debt it absolutely is! This is not an easy process. It takes sacrifice.
When we were deciding our payoff goal, we knew we were going to have to cut some things out of our lives. If we wanted to direct more money at the loans, we had to find that money somewhere. Maybe it meant staying in to eat even when we were tired and lazy and didn’t want to cook. Maybe it meant not going on some trips we had been invited to with friends. Maybe it meant not buying those new shoes that we wanted but didn’t really need.
The truth is, it meant (and still means) all those things and more. Don’t take that to say that we’ve totally deprived ourselves of spending for entertainment and fun, because we haven’t. We have limited our spending on non-necessities, though, and there are times when it sucks. We’ve just accepted that as part of life when trying to pay down the loans as fast and possible, and we try to remind each other to keep our eyes on that light at the end of the tunnel.
What sacrifices can you make in your own life to free up some more of your hard-earned money to throw at the loans?
3. We wanted the goal to be possible without sacrificing other financial goals that we also felt were important.
Perhaps contrary to how we’ve presented things on the blog so far, paying down our student loan debt is not our only financial goal. When we were setting our payoff goal, in our early 30’s with a child on the way and other obligations, there were financial aspects of our lives that we felt we couldn’t ignore.
We weren’t comfortable with only a small emergency fund, as Dave Ramsey would encourage us to have until the loans were paid off. We didn’t want to skimp on retirement. We weren’t enthused about renting for the foreseeable future, and already owned a house (with a mortgage) we didn’t want to sell.
In other words, although the paying off the student loans is the most important financial goal we have, it’s not the only financial goal we have. For that reason, when we were deciding what our payoff goal would be, we thought about the other financial aspects of our lives that were also important to us.
Setting a Date
So what did we decide? Well, after much deliberation and back-and-forth, we finally settled on a date and time-horizon that both of us were comfortable with: We would have the student loans paid off by August 1st, 2020.
There were several reasons that we decided on that date. At the time (we are still talking mid-2015 here), we had just shy of $400,000 remaining on the student loans. Our set date was a little over 5 years away, and it would require us to make payments of $7435/month to get them paid off by then.
In general, we had been making payments right around that amount (oftentimes just barely), so we felt like we could do it, but we also knew if we were able to go a little above and beyond every month that we would have the loans paid off even before our goal date. So that became a little goal in and of itself; pay off more than $7435/month so that our time-horizon shortens.
Incidentally, when the time-horizon shortens there is also a second effect; the amount of money it takes per month to get the loans paid off by our original date lowers. We knew this would potentially be beneficial when children and the increasing expenses that go along with them were eventually in the picture, and so that made the urgency to pay as much as we could as fast as we could even greater. If you work out our total payments from 2015 and 2016, you can see we were able to exceed our goal.
Today, our required payment per month to get the loans gone by August 2020 is $7055. As we anticipated, our expenses have increased with a kid in the house, so we’ve been hovering right around that number for most of the year. Hopefully we’ll be able to make some overpayments throughout the year so when we assess our progress in January 2018 we are able to see the horizon get closer and/or that number get lower.
Do you have a Student Loan payoff goal? What is it? How did you decide? Let us know in the comments!