Paying off Debt
The talking heads make a big deal about good debt and bad debt. They don’t agree as to what is good and bad, but they agree not all debt is created equally. Student loan debt is a big one. It is good debt IF/WHEN it provides you a career that justifies the cost. CRNA school is one of the few graduate programs that produces a solid return on investment (sorry social work). Student loans are also not bankrupt-able meaning you can’t get rid of them. I acknowledge that extreme wealth is created with debt and leverage, but we are starting at the ground floor with this plan. Debt and leverage bring stress, pressure, and consequences. Much like the maintenance phase of anesthesia, debt is good until it isn’t. Let’s focus on becoming debt free and address leverage later.
Payments just suck your paycheck away. See that money come in and know you have $2,000 going towards loans, $1500 going towards vehicles, $3000 going towards the house, and at the end of it all, there isn’t much left. It doesn’t need to be like this. There is a reason money problems are the primary cause of divorce. Major stressor. Life is, dare I say, easy without payments. Clear up your debt and feel free. If you were raised in a debt filled household and still hold onto undergraduate loans, you don’t know the feeling. I can tell you first hand, there is no better feeling than financial freedom. Pay everything off. If you don’t like the feeling of freedom, you can always go back into debt. If paying off debt is your goal, the following is a good template.
Here are some tips before we start. Be intentional. Focus. Make sacrifices. Motivation is easier to hold if you see more progress quickly. Think fewer debts remaining or a shrinking balance. This motivation stays strong for a while, don’t stretch this out 10 years. Find a debt-busting buddy. Stick to the plan. You can do it. Drop me an email under “Contact Us” if I can help you through this. You got this!
So many of my peers ask, “where do I even start?” Well, here we go.
Order all debts by interest rate from high to low.
Make the minimum payment on everything to avoid fees.
Pay IRS related debts after the minimums.
Pay extra on debt by interest rate starting with the highest interest rate.
After the first debt is paid off, use that money to pay off the next debt on the list.
Do not add any further debt if you are serious about becoming debt free. No new loans, vehicles, houses, etc…High interest debt such as credit cards typically get paid off first. This type of loan usually carries 25% interest, so it needs to go ASAP. Student loans typically follow with 6-7% interest. Refinance, if possible, to get the lowest available rate. If your loans are deferred, feel free to come back to them when the interest resumes. Don’t blow the money, just pay off other debts. Vehicles usually fall around this area too. If you are leasing, stop it. A lease averages 14% interest. If you have a big not on vehicles such as owing $30,000 on a 2020 SUV, sell it. You don’t want to hear it, but it will make life easier. Drive something less exciting for a year to clean up debt quicker. This is a CRNA blog where everyone makes awesome money. That C-class Mercedes or Audi A-5 isn’t impressing anyone. There is a time to have those toys, but if you are reading a blog post about managing your mountain of debt, now isn’t the time. Up until recently, mortgages were almost always at the bottom of the list. If you don’t currently live in a house, keep renting. If you have a house that is appropriate for your goals, continue to live there. If you have too much house. Make it like the expensive car and get rid of it. Come back to the big CRNA house after you have things cleaned up.
We don’t regret living lean and mean for a few years to stockpile cash and pay for both of our graduate programs in cash. Now we enjoy keeping most of our checks each month. We were never big spenders, but it was more enjoyable to see accounts grow as opposed to buying material things and excessive vacations. Because we are debt free, our healthcare income primarily goes towards investments. Simply knowing I could walk onto a car lot and buy that Mercedes or Audi outright (even with the hugely inflated prices) is enough satisfaction for me.