Just Paid Off Over $60k in Student Loans/Car Debt and I'm Finally Debt FREE!!!

[khotte]

Today is the day! I finally clicked submit on my last student loan payment and I’m now 100% debt FREE!!! What a great feeling to have that off of my shoulders.

As you can see from the graph below, it took me ~30 months to do so, and in that time, I sold my $20k car to buy a used car for cash. My twin brother and I ended up sharing that car for over a year.

I actually hit a positive net worth on my 25th birthday in February, but now I’m finally out of the red!

I have no plans of stopping here either! I just changed my 401k contribution percentage to max me out this year and I’ll be getting into a taxable account as well.

This site has helped me out tremendously and I just thought I’d share!

[nereo]

Congratulations and well done!
Now the biggest trap you need to avoid is thinking you can suddenly "afford" another $20k car or other fancy luxury.  Keep expenses low and savings-rate high and in a few years you'll start reaping the benefits of financial independence.

[Bob W]

Congratulations Kyle!   And very well done.   You did great!

I wonder if anyone has any thoughts about whether it is numerically or more financially wise to max out 401Ks and IRAs in the early years vs. throwing all the money at debt?   It would seem that with the tax advantages that may be a dollar wise scenario?     I fully understand the psychological imperative to kill the debt. 

The reason I ask this is I have a daughter who is in the situation you were in with about 70K in SLs.   

Would it be wiser for her to max out the tax sheltered stuff first and with whatever is left over do the loans?  The interest rates are low as I understand.  She could probably reduce her taxes by 3K per year.   

My theory is she can only take the tax benefits in the current year and loses that chance to shelter that money each year. 

[nereo]

I wonder if anyone has any thoughts about whether it is numerically or more financially wise to max out 401Ks and IRAs in the early years vs. throwing all the money at debt?   It would seem that with the tax advantages that may be a dollar wise scenario?     I fully understand the psychological imperative to kill the debt. 

The reason I ask this is I have a daughter who is in the situation you were in with about 70K in SLs.   

Would it be wiser for her to max out the tax sheltered stuff first and with whatever is left over do the loans?  The interest rates are low as I understand.  She could probably reduce her taxes by 3K per year.   

I'll speak to that.  The big "unknown" is how well a given investment will do over the next several years/decades.  However, when I ran my own analysis with SO's student loans (at 6.55%) the results came out very favorably towards maxing out her 403(b) before paying anything additional towards the SL.  Three things seemed to affect the equation
1) by taking advantage of tax-deferment, she was able to invest about $1,100 more/year than she otherwise could by paying down the SL (we could afford an extra $600/month towards either SL repayment or 403(b) contributions. The 403(b) contributions reduced the tax bill by $1100)
2) paying the minimum on her SL maximized the interest deduction she could take.  However, this plus her other deductions only exceeded her standard deduction in years 1-3 of repayment.
3) the expected real-return on her 403(b), which was an SP500 index fund with a 0.2% fee.

I ran different scenarios and discovered that even at 5% real-adjusted returns investing in the 403(b) had slightly better results. 
Note: I did not try to factor in taxes upon withdraw for two reasons; 1) guessing the tax code 20+ years from now is a fools' errand, and 2) we expect to utilize a back-door ROTH.  Actually, since she is now back in school with no earned income, we are using that strategy now :-)
Also, I did not factor in the effects of tax-free growth, which can be substantial once the 403(b) account becomes large enough.  For this reason alone I suspect an annualized return of ~4% might still beat paying off a SL of 6.55% early when you consider the tax consequences over 20+ years.  Such a calculation starts to be towards the limit of what I can do - I'll let others try to figure that out for their own situation if they like.

[Sibley]

For that matter, if you have high interest SLs, look into refinancing them to a lower rate.

[nereo]

For that matter, if you have high interest SLs, look into refinancing them to a lower rate.

True.  We did both, refinancing under 4% and then piling all available cash towards the 403(b).
I've never understood the sentiment that it just "feels-good" to pay off a loan, but I understand it's a legitimate feeling for some.  Mathematically, the returns over the next two decades would have to be pretty lousy for it to be better to pay off loans faster.  Choose whichever strategy makes the most sense to you.

[MooseOutFront]

Nice chart!  Your excel-fu is strong.

Our student loans are 2.75% so I prioritized investing over them these past several years, but the more I stare at that $364 monthly payment to them in our budget the more I hate it.  One of these days some lump sum event will happen and I'll just pay the damn things off.

[No-stache]

Nice work! :)

[Bob W]

For that matter, if you have high interest SLs, look into refinancing them to a lower rate.

True.  We did both, refinancing under 4% and then piling all available cash towards the 403(b).
I've never understood the sentiment that it just "feels-good" to pay off a loan, but I understand it's a legitimate feeling for some.  Mathematically, the returns over the next two decades would have to be pretty lousy for it to be better to pay off loans faster.  Choose whichever strategy makes the most sense to you.

Thanks for the input on the math folks.   I didn't mean to take away from OP's awesome achievement.

I think it is more than just a "feel good"  deal.   It would appear that for most people who choose to do IRAs and 401Ks over student loans would end up dragging their feet to the point there would be a lot of leakage.  Staying focused on the debt ball assures you kill the beast and then you have the mind set to invest like crazy afterwards.  I can see OP is fantastically organized and I bet he is FI within 5 years.

For my Starbucks swilling daughter I think I will encourage her to go the route of the OP and completely focus on the Student Loans.  She can be a raging focused achiever when given a simple goal.   I think it may not make psychic sense to her to have a goal of fund your tax deferred accounts and then throw the rest at SLs.   

So she might give up several thousand in potential money but end up ahead by actually achieving her goal..

(some people just aren't as fascinated by numerical justifications as I am)


So I still say  "3 cheers for khotte!"

[nereo]

So I still say  "3 cheers for khotte!"

Here here!  well done!

[khotte]

Thanks everyone! And for the record, most of my loans were at 7.8% and some were at 6.9%. Obvioulsy you saw I choose to pay off my student loans first, but I could have looked into refinancing. Either way they're done now and I"m on to bigger and better things, like my 401K, IRA, and taxable account!

[OddOne]

Impressive khotte! Yup, BADASS!!

[Dicey]

Hear, hear khotte! Congratulations on paying off the debt.

I concur with nereo for those who are interested in that portion of the discussion. Not to take anything away from khotte's success, but the earlier you save for retirement, the fewer actual dollars you will have to save. It seems counterintuitive, but you could come out ahead by not neglecting the retirement savings in favor of accelerating SL payoff.

[EAL]

Bob W-- I feel like people always ask the question to pay off student loans or to save for retirement. Like you said, you don't want to miss out on the compound interest from beginning to invest at a young age.  My husband has a large amount of student loans so I understand where you are coming from trying to find what's best for your daughter. Some of his student loans do have high rates (up to 6.8%) but we do both.  I pay extra on student loans but I save more for retirement than I pay extra on them each month.  Even if its just a little bit going to retirement, try to encourage your daughter to do that as well, even if she is principally focusing on paying those loans.

[EricL]

Brilliant! Well done!