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Money Management

Should I Invest While Paying Off Debt?

Should I Invest While Paying Off Debt_This post may contain affiliate links. Check out my Disclosure Policy for more information.

Whether or not you should invest while paying off debt is a hot topic in personal finance. There are many different ideas surrounding this topic.

The short answer is that it depends on your long term goals and if your employer offers a match.

I have always stood by the idea that if your employer offers a match, contribute up to the match. Most companies this means a small percentage of your check, it’s usually not much.

If your company has some amazing match, then it’s up to you to decide how much to contribute. I wouldn’t leave all the free money on the table though.

This is especially true if you’re a twenty something. Time is absolutely on your side and you have compound interest working wonders for you right now. Take advantage of it!

Once you are contributing up to the match, I would sit tight while you pay off your debt. Once you have made a dent there are some things to consider before upping your retirement contributions.

1. Are you contributing at least up to the match, if your company offers this?

When you’re first starting to budget and getting your finances together, it is very possible that you are living paycheck to paycheck. This happens when we don’t keep track of our finances and we don’t know where our money is going.

If this is you, don’t contribute to your retirement when you can’t get through a month with some wiggle room. It doesn’t make sense.

If you are contributing to retirement, I would recommend stopping your contributions and using this money to build an emergency fund and then pay down your debt.

Once you have a handle on your monthly budget and have some leftover cash, with an emergency fund of one month of expenses, then start contributing up to the match again.

2. Are the interest rates on your debts higher than 5%?

If your interest rates are above 5%, I would sit tight on contributing anything over the match. When you have interest rates higher than 5% on your debt, you’re playing a losing game by contributing to any investments.

You need to keep in mind your net worth. A good rule of thumb I use is asking myself, will this increase my net worth? Yes, investing will increase your net worth usually, but if you’re losing out on high debt interest rates, you’re not making any positive movement.

Once your high interest rate debts are paid off, then you can start to consider some investment options. Mathematically, it doesn’t make sense to do so before your high rate debt is paid off.

3. Do you have a fully funded emergency fund of at least 3 months of expenses?

If you still have debt with rates lower than 5%, then you can consider investing more, if you want. But, do you have an emergency fund with at least 3 months of expenses?

I would suggest first working on beefing up your emergency fund before contributing more to investments.

The reason being that in the event of job loss or other emergency, you’re going to need some money to fall back on. Your investments are not something you want to use in these situations.

Get your emergency fund up to 3 months of expenses and then consider other investment options.

4. What are your long term goals?

Once you have contributed up to your employer’s match, paid down your high interest debt, and have 3 months of expenses set aside in an emergency fund, it’s completely up to you what you want to do!

That’s the great part of personal finance, it’s totally up to you to design your finances to get you the life you want.

Some people hate the idea of debt and will pay off all of their debt ASAP and not even consider investing until it’s gone. Others aren’t as bothered by it and think more mathematically about the returns that they can get in their investments.

The important thing is to consider your long term goals and what feels right for you, your family, and your life. Personal finance is meant to be personal, so make it all about you!

If you hate your debt and would rather pay it off than invest, do it! You’re still making positive moves in regards to your net worth, so it’s a good idea!

Consider the big picture of your finances rather than the small details, will it increase your net worth? Moves that will increase your net worth are good moves!

Ask yourself: If I invest, will this increase my net worth?

This is the question I am constantly asking myself when considering new money moves. Your finances are meant to be personal and you need to consider that when deciding to pay off debt or invest.

I’m a numbers gal through and through. It’s why I used the avalanche method to pay off my debt. So, that’s why I consider my net worth when I make any decisions regarding my finances.

Right now, I am still chipping away at some higher interest debt (6% student loans), I have an emergency fund with 1 month of expenses, and am contributing up to the match with my company.

This is where I will stay until my debts are under 5% interest. Once I cross into paying off my debts with lower rates, I’ll probably consider upping my emergency fund and then upping my investments.

Of course, I will have to see where I am in my life and if my long term goals are the same at that time. Do you invest while paying off debt?

Debt

The One Thing You Need to Do to Pay off Your Debt

The One Thing You Need to Do to Pay off Your Debt

This post may contain affiliate links. Check out my Disclosure Policy for more information.

Paying off debt isn’t hard to do on paper. You increase your income and decrease your spending. Simple, right?

On paper, yeah, it is easy.

The problem is that it takes a ton of changes in behavior to actually get the job done. You can create the best plan in the world on paper, but executing that plan is what actually matters.

And that’s what is so hard. The actual execution of the plan is the hardest part. It takes a lot of diligence and desire to make the behavioral changes that are needed to get it done.

Trust me, I’ve been there and still find myself struggling with this at times. I started with $201k in student loans and a monthly payment of $2,000 while only making about $3,000. I had no choice but to change my behaviors to see results.

So here’s the one thing you absolutely need to do to pay off your debt.

Stick to your budget.

It’s not just about creating the budget. A planned budget is great. Having a plan for your money is absolutely important.

But, if you just let that plan sit around all month and don’t check in with it, it makes zero sense to even make it. A budget does nothing for you, if you don’t actually track your spending.

Depending on what method you use, you should be tracking the money coming in and going out. When we don’t do this step, the budget is just an idea, not a plan.

If you truly want to get out of debt, you absolutely need to stick to a budget.

Now, will you need to stick to one forever? Maybe not. I know for myself, I don’t check in as much as I once did. My spending habits have become pretty consistent, so I have money dates about once a week now.

If you’re just starting, get in the habit of tracking your spending as soon as it is done. This will make you realize where exactly your money is going and how much more money you have in a certain category.

Creating an accurate budget to pay off your debt.

The key to sticking to a budget is to create a realistic budget. You want to set yourself up for success when you first start budgeting. That’s why a realistic budget is so important.

If you fail to create a realistic budget and you aren’t tracking your spending, you won’t be as effective in your debt payoff.

Sure, we all want to have the picture perfect budget and only spend minimally. But, that’s just not realistic. Create a budget that actually reflects your spending.

This is especially true when you’re first getting started. If you’re annoyed by how much you spend in certain areas, make an effort to change that spending.

If you’re able to lower your spending by the end of the month, do something with that leftover money.

This is where zero based budgeting comes in.

Zero based budgeting is an amazing method of budgeting to reach your goals faster. When used correctly, it allows you to send more money to your big money goals every month.

How it works is by giving every single dollar that comes into your budget a job. This means that at the beginning of the month, you budget for every dollar that you have.

As the month progresses you update your actual spending in your budget and keep track of what you have left.

At the end of the month, you zero out your budget. If you have money leftover, you apply that amount to whatever money goal you are working on.

This is how zero based budgeting is so effective. It doesn’t leave any money hanging out in your checking account.

There’s nothing bad about letting money hang out in your checking account. It just isn’t helping you in any kind of way.

Especially if you have debt. Your debt is increasing every day with interest, why not pay it off with that money that’s sitting around.

Even if you don’t have debt, you shouldn’t be leaving this money sitting around. Apply that money to some serious goals, invest it, move it to a high yield savings account, do something with it that helps you increase your wealth!

So, what’s stopping you from doing the one thing to pay off your debt?

Hearing you need to stick to a budget can be scary. It has such a negative rep when it really shouldn’t. Maybe calling it a money plan is better?

I don’t know. What I do know is that you need to get yourself a plan for your money and stick to the plan to pay off your debt.

Without this important tool, you’re going to be wondering where all your money has gone by the months end.

So, what’s stopping you from sticking to a budget? For me, it was hard to make the big changes I needed to make to really see a difference on my teaching salary. It took time, but I did it. Sometimes, all it takes is some accountability.

I’m here for ya! Let’s get you a money plan and see some major changes get made. I wanna know, what’s stopping you from sticking to a budget?

Debt

Paying Off 6 Figure Debt and Still Living Your Life

Paying Off 6 Figure Debt and Still Living Your Life

This post may contain affiliate links. Check out my Disclosure Policy for more information.

The thing that I don’t like about some of the personal finance gurus out there is that they tell you to basically stop living your life to pay off your debt.

And I do get the reasoning, if you can get it done in a couple of months. If you can buckle down and be debt free in 2 months, absolutely do it!

But, what about if you have 6 figure debt and it’s going to take you years to get out debt? Do they seriously expect you to not live your life for years?

That would be crazy! And I can speak from experience (approaching the 4 year mark of my debt free journey and still have $66k to pay off) that you will burn out and be miserable if you do this.

I’m not saying spend all your money on fun things and have no money to go towards your debt. But, you should be doing things that are important to you on your longer journey.

Here’s how I have made it possible to still live my life while paying off $201k in student loans.

1. I am constantly trying to find ways to increase my income compared to my 6 figure debt.

As a teacher, my income isn’t exactly high. It’s just how it is in the US, teachers don’t make much money, even with a master’s degree. So, I found other streams of income to supplement my salary.

By increasing my income, it allowed me to still apply extra money to my debt, while doing the things I wanted to do.

When you have 6 figure debt, it helps a lot to increase your income. Whether you use the extra cash to pay off debt, or afford some of the things you want to keep in your budget.

2. I find ways to lower my expenses I don’t care about.

When I first started my debt free journey, I had to move home with my parents. The reality was that my minimum payments were $2,000 and my salary was roughly $3,000, 10 months of the year.

My salary was only this high because my parents live in New Jersey, where cost of living is high. In a lot of places in the US, my teacher salary wouldn’t have even covered my minimum payments.

This allowed me to slowly pay off my student loans. Eventually I could afford to move out, but I continued to live at home and put more money towards my student loans.

Find ways to lower the expenses that aren’t as important to you. For me, living at my parent’s house made sense because it allowed me to have a higher income and lower cost of living.

3. I have sinking funds.

Sinking funds are wonderful. They have helped me so much throughout my journey. I have sinking funds for expenses that I know will come up, like car maintenance or medical.

But, I also have used them to afford things I want to do in the future. For example, I created a moving out fund when I did decide it was time to move out of my parent’s house.

This allowed me to slowly save up money to afford a move. I was able to decorate and afford other moving expenses without it impacting my monthly budget when I did move.

Sinking funds also allowed me to go on trips and other experiences. I slowly saved for it in the months before and got to enjoy my time guilt free because the money was in my sinking fund.

4. I stick to a strict zero based budget.

Zero based budgets are a game changer when managing your finances. Basically what a zero based budget does is allow you to tell every single dollar where to go. If you need help creating your own zero based budget, you can get my template here that I use every month.

It gives you the control of where you spend your money. So, you can give yourself the money you need to do the things you love.

This is where lowering your expenses you don’t care about comes into play. You need to lower your expenses in those categories so that you can spend money in the places you want to.

Do these things at once to live your life and pay off 6 figure debt.

By doing these 4 things, I have been able to pay off $134k of debt in just under 4 years. I still have gone on vacations, experienced new things, and got a puppy.

You just need to decide where you want your money to go and make sure it goes there. Spend some time really figuring out what things make you happiest in your life.

Start saying no to the things that don’t bring you joy and start saying yes to more of the things that do. How have you still enjoyed life while paying off a lot of debt?

 

Debt

How a 6 Figure Debt Free Journey Is Different

How a 6 Figure Debt Free Journey Is Different

This post may contain affiliate links. Check out my Disclosure Policy for more information.

I say it a lot, 6 figure debt is no joke. And I’m not including a mortgage when I say this. I’m talking about 6 figures of non-mortgage debt.

This would be debt like credit cards, personal loans, car loans, student loans, etc. Basically I’m referring to anything that is debt, that isn’t a mortgage.

There are a lot of people in this boat. Don’t think that you’re alone.

I was there with $201k in student loans to become a teacher, which wasn’t the brightest idea. But, after just under 4 years, I have paid off $134k. I still have more to pay off, but the ridiculous burden is much less now.

Because I have experienced 6 figure debt, I know that it is much different than other debt free journeys.

From the start, you have to accept the fact that your journey will be different than most people because a lot of people don’t have 6 figure debt.

It also is going to be very different if this is your own debt, or if it is you and your partner’s debt. That makes a huge difference. For me, it was just myself that had all this debt and it was just me to pay it all off.

This is how a 6 figure debt free journey is different than others and what to consider if you are paying off 6 figures of debt.

1. The amount of time you will be on your debt free journey.

Let’s be realistic. We all would love to pay off our debt in 12 months. But, with 6 figures of debt, especially if you’re single, is going to take a longer time to pay off.

Don’t let this get you down. Never compare your journey to someone else’s, only use it for new ideas, motivation, or suggestions.

Paying off 6 figures of debt is going to take some serious time, but don’t let that get you down. Use it to motivate yourself to get creative and find ways to shorten your journey.

When I first started, my projected journey was going to be 8 years. I’ve paid off $134k in under 4 years. You can bet that this journey will not take me 8 years anymore.

I used undebt.it to figure out and track my debt free date. This is a great way to keep your motivation up throughout your journey.

2. The amount you send to debt each month will be much higher.

When you have 6 figures of debt, your minimums are naturally going to be high. That’s just how the math works. All over the #debtfreecommunity on Instagram is people sharing their monthly debt payoff. Myself included.

When I first started my journey, my minimums were roughly $2,000 every month. If I posted my monthly payment of $2,015 it looked like I sent a ton to debt, but I wasn’t making much progress.

My shovel was so small in the beginning because my minimums were so large. I was making these massive payments, but only a very small amount was higher than my minimum.

This meant that my journey didn’t get much shorter in the beginning.

Don’t get discouraged by this part in the beginning. Have faith in the process and keep working the plan.

3. You’re going to need to find more streams of income.

When you have 6 figures of debt, you’re going to need to increase your income to see progress. You can only cut so many expenses from your budget, but your income is infinite.

That’s how I made such large progress in my debt free journey. I moved to a high cost of living area, which gave me a higher teaching salary.

This also allowed me to make a lot more in my side jobs, I have 5 consistent streams of income. You can get a copy of my multiple income stream tracker here.

And I’m not saying you’re going to need to work your life away. But, find other sources of income and put it towards your debt.

This can be as easy as negotiating a raise at your current job, or working OT, if it’s offered.

4. To see a major payoff, you’re going to need to make major changes.

Like I said in number 3, with 6 figure debt you just need to do some things differently. In order to see major payoff, you’re going to need to make some major life style changes.

I mentioned moving to a higher cost of living area to have a higher salary. You probably thought, higher cost of living means higher everything else too, right?

You’re totally right, but not when you get creative about housing.

For me, I was making $3,000 a month with a minimum payment of $2,000. I moved to the area because it guaranteed me a salary that could at least support my minimum payments.

Most parts of the US, I wouldn’t have made enough as a teacher to even cover my minimums. So, I moved to a higher cost of living area and moved back into my parent’s house.

I told them my plan and explained to them that I would be putting every single extra penny I had to my debt. They allowed me to live rent free for almost 4 years and this is by far one of the biggest ways I was able to pay down my debt quickly.

This isn’t an option for everyone, but think of ways to hack your housing costs. Find a cheaper apartment, get a roommate, or use AirBNB to rent your space.

The key is to not compare your journey to someone else’s journey.

It can be really hard not to compare your journey to another’s. But, when you have 6 figures of debt, your journey will most likely look a lot different than most.

You’re not going to be super intense for 5 years. That would be absolutely insane. Maybe you can do months like that, but it’s not realistic to do multiple years.

Keep working on your plan and your goals. You’re going to get there, it’s just going to take a bit longer. Do you have 6 figures of debt, how has your journey been different than a typical debt free journey?

Debt

Here’s Why Your Student Loans Are Getting Bigger

 

Here's Why Your Student Loans Are Getting Bigger

This post may contain affiliate links. Check out my Disclosure Policy for more information.

Student loans are a rare kind of debt. Most people take them out because they figure they’re “good debt,” and they can get a higher income with it post grad.

This usually is true and for some careers, you absolutely need a degree. But, you should be very aware of how much debt you are taking on while in school.

Of course, this is dependent on the degree you are going after. If you’re studying to be a doctor, chances are you will have a high income post grad. If you’re like me, studying to be a teacher, chances are your income is going to be lower.

Don’t make the same mistake I did and take out $201k to become a teacher. It will be nearly impossible to survive post grad, trust me.

And you just might find yourself in a situation of having your student loans get larger post grad, even if you’re making your payments.

How do student loans increase, if I’m making my payments?

I know it sounds crazy, but it’s very true. It happens to so many people. They make their minimum payments, but they realize their total is increasing, not decreasing.

This is the sad reality of student loans. Student loans are the craziest debt, in my opinion, especially federal loans, when you don’t understand them. They can’t be wiped away with bankruptcy and they can increase, even when making minimum payments. Also, they have a ton of different options for repayment and forgiveness.

But, that’s exactly why they are a problem and why they increase. People see they have a minimum payment of $0 and think it’s awesome.

The reality is that your loans are still accruing interest every single day. Once a year the interest capitalizes and now it’s part of your principal balance. Now, that total will be accruing interest and suddenly your loan has ballooned in size.

This happens to so many people and the fact that it even is possible is so terrible, in my opinion.

How can I prevent them from getting bigger?

The very first thing you need to do is become aware of your student loans and where your payment goes every month.

If your loans are private, you’re most likely fine. Usually, private loans don’t have the crazy repayment plans and require you pay off the interest and some principal in your minimum payment each month. To be sure, check your statement and see where your payments are going.

If your loans are federal, you need to very carefully check your payments. If you are on any kind of payment plan, you need to make sure your interest is being paid off every single month. If you see that your interest isn’t being paid off each month, this is when you get your loans increasing.

I’m not saying don’t use a payment plan option on your federal loans, I’m personally on one to lower my payment while I focus on other student loans. But, I’m sure to pay off at least my interest every month no matter what.

And this is how I prevent my student loans from getting bigger.

If you have student loans and are making minimum payments, I absolutely think you should check out how your payment is being made. Make sure you’re paying off the interest every month.

If you’re not paying off the interest every month and you see that it is growing. Make a change right now. Increase your payments to at least cover the interest. Make sure this happens by putting it in your budget and treating it like the minimum payment.

You might think it doesn’t matter, but once the interest capitalizes into your principal and it’s accruing even more interest, it will matter. It will make it much more difficult to pay off in the future.

Basically, just pay your interest in full every month.

That’s how I go about my student loans. No matter what, I pay off my interest in full. And I know that these loans qualify for forgiveness in 10 years of on time payments. But, that’s a super long time to be paying a minimum payment on these things.

Personally, I would much prefer to pay them off faster and just get to do whatever I want with my hard earned money.

Also, I assume that these programs won’t last. I don’t want to count on something that may not work out for me. Plus, I took out the loans and I absolutely should have to pay them back, so that’s what I’m doing. Do you have student loans? Have they increased in size while you pay the minimums?

Debt

Debt Free Update: $133,718 Student Loans Paid Off!

Debt Free Update_ $133,718 student loans Paid Off!This post may contain affiliate links. Check out my Disclosure Policy for more information.

I’m super proud of this number. Honestly, it still surprises me when I see it and think about only having $67k in student loans now. And yes, I use the word only before that because this feels like pennies in comparison to where I was.

It truly amazes me how much more in control I am of my life now that I have paid off a significant amount of my debt.

My student loans defined me when I first graduated. They dictated my life. They decided my fate, not me. I had no choice but to do the things I did after college.

When your minimum payments are $2,000/month and you’re a first year teacher, you have no choice but to do what gets that paid every month and still allows you to eat.

It’s why I moved back to my parent’s house. I needed the low cost of living expenses in a high cost of living area. My salary was way higher than it would have been in other parts of the country as a teacher. I took advantage of it.

Between the higher salary and working so many side hustles, it’s the only way I got to where I am now. Well, that and really intentional spending and money management, of course.

What I’m doing now to pay off my student loans

Right now, I’m focusing on paying off my private student loans. I refinanced them in September 2018 from a 7% interest rate down to 4.97%. This has saved me so much money in interest and I highly recommend refinancing with Earnest, if it’s right for you! Read my post all about deciding to refinance here.

Refinancing isn’t for everyone, but when used to lower your interest rate, it can really help you pay off your debt fast. I personally refinanced $45k and am now down to just under $15k. If you’re interested in refinancing, you can use my referral link to get $200 when you refinance!

With having so much debt, you really need to do what works for you on this journey. It’s hard, but you can do it and you can change your life for the better. I’ve experienced major life changes for the better and I still have $67k left!

What I plan to do

I often imagine how much more my life will improve once I have no debt. The opportunities that I will open up to myself are endless at that point.

It can be done and it will be done. Even during the summer, when I don’t get my salary from my old school.

I’m teaching summer school and VIPKID during the summer to bring in some income. I also have my summer sinking fund to pull from and my leftover money from June.

Yes, my debt payments will decrease this summer. I don’t plan to make any extra debt payments in July. Whatever I have left at the end of August will be sent to debt.

I am a planner by nature, I can’t help it. I’d rather be over prepared than under. So, that’s why I’m not risking it and waiting until I am paid from my new school to send any extra money to my student loans.

This is definitely hard for me. I stay motivated by seeing my debt total go down. It will still decrease because my minimum payment on my private loans is $865 and it doesn’t accrue anywhere close to that amount every month.

But, I won’t be making any crazy progress this summer. Again, it’s okay because I know I will get back on track in the fall. I just need to weather this storm.

Handling six figure non mortgage debt on a single income is a different kind of journey. If that’s you, send me an email! I want to connect with more people who have been or want to be on a similar journey to mine.

How much debt did you start with?

Debt

Paying Off My Student Loans Is Saving Me $12k A Year

How I'm Saving $12k a Year by Paying off My Student Loans

This post may contain affiliate links. Check out my Disclosure Policy for more information.

Everyone considers student loans to be a good debt. And for some people, it absolutely is a great way to get the career you love. But, for others, it may not be the best move.

I know for myself, I didn’t even know what student loans were when I was signing the checks for 5 figures of student loans. Naively, I didn’t even know how they worked and I definitely didn’t know what interest was.

Personally, I was in the fortunate position of never having any other debt than student loans. Unfortunately, this meant that I truly had no idea how debt worked.

I signed myself up for $201k in student loan debt and had absolutely no idea that it meant I’d pay SO much more in interest. And I had no idea that it would completely dictate my life post grad. But, that’s a whole other topic.

Student loans are crazy because they allow young adults to take out mortgage sized debt with high interest rates and little to no education. I was taking out loans for 5 figures, totaling $201k, some with 8% interest, and no education on financial literacy.

This was my fault completely, I take ownership of it. But, I think this is a serious issue. One that needs to be changed ASAP for the future young people in our country.

And now that we’re in this situation, what can we do for all of us drowning in debt. I’m not saying loan forgiveness is the answer, like it has been thrown around lately in the news. It absolutely is not the answer.

We took out the debt, we should absolutely be required to pay it back. But, we can do something to change our situations right now.

I graduated grad school in August 2015 with $201k in student loans, mostly from undergrad. Never once did I expect some program to bail me out. I’ve absolutely worked my butt off to pay off $133k in student loans since graduation.

Once I finish paying these off, I will be saving myself $12k every year, just in interest. I would have originally been paying $12k every year for 20 years, if I didn’t commit myself to paying off my debt.

Do you know how much that is over 20 years? $240k. Of course, some of them would drop off at the end and maybe I’d have refinanced my loans to get a better rate. But, that’s a TON of extra money just getting thrown away, on top of the principle of $201k.

I’m not even including my principle payments in this number. That number would be much bigger. I’m most concerned about the money I’m just throwing away to interest every year. It’s doing nothing for me.

So, how much money are you throwing away to interest every year? I encourage you to find out by looking at your statements and seeing how much goes to interest every payment you make. Or, you can use your tax statement you get every year.

Another way to see your students loans and how much money you’ll put to them is by using undebt.it. It will allow you to see how much money you’ll put to your debt on a normal payment plan, and then what more payments will do to it.

Our society preaches that student loans are good debt. Yes, they can be valuable to better your career, if done correctly, but you need to be careful about student loans.

My question to you is, are you planning to pay off your student loans early? If not, what’s stopping you?

I’ve been in your exact shoes and I’m happy to say that my life is so much better already and I haven’t even finished paying off my student loans.

I still have $67k to pay back, but I can finally breathe now and not feel like I’m totally drowning in debt. You can feel relief, you just need to do the work like I did.

I want to know what’s stopping you from paying off your student loans, send me an email or comment below.