Hey everyone, it’s Finance Fridays again. Today is just a short post to plant a flag in the ground and say “It Begins”.

It Begins – My Attack on Student Loans

Yea.

My wife and I have been paying our loans on the normal repayment plan since we finished fellowships in 2013. Somehow it’s already been 6 years.

My original plan was to pay off our loans within 5 years of coming out of residency. However, “the best-laid plans of mice and men often go awry…“

Moving to Hawaii and buying a house certainly didn’t help our cause in trying to get our loans paid down. Neither did having to make some expeive upgrades to the house like the new roof and solar panels. Then you add in some other home improvements and also that child care is expensive… In other words, we just weren’t able to attack the loans quite like I wanted to.

It’s been 6 years of being “uncomfortable”. We didn’t worry about money persay, but we weren’t comfortable. However, things have kind of stabilized now in terms of our jobs and the money going into our accounts every month. My daughter Kylie is now in public school which helps decrease our child care costs a little. Our emergency fund is also pretty well built up now — perhaps too built up. I’ve kept talking about our wanting to attack the loans for awhile now, but sometimes you just need to plant a flag in the ground and say:

It begins.

So it’s 11/22/19 and we’re going to start attacking the loans.

I think what really called us to action is that one of my wife’s smaller loans (from college) got paid off recently and we didn’t even know it. This kind of signaled our “start”.

Currently, we’ve paid down about 40% of our student loans in the last 6 years. Now then, that isn’t horrible, but it’s nowhere near our original goal of paying them all off in the 5 years post fellowship.

That said, my hope is to get rid of the rest of our loans in the next 3 years. However, the loans that are around 2% or less in interest rate will be left aside and are outside our plan of attack. Those will just sit on autopay until their repayment plan runs its course. While there is a psychological benefit in saying all your loans are paid off, for loans this low (at or less than inflation), it’s not the optimal use of money.

So what’s the plan then?

The remainder of the loans, ranging between 2.5%-5%, we will begin attacking. My plan of attack is to completely pay down the 5% loans within the next year (2020). Then the 3-4% loans in the next 2 years (2021 and 2022), starting with the higher end 4% loans first.

Also, we are refinancing our house to a 3.25% interest rate. This lowers our monthly mortgage by about $500 and will save us a significant amount of money over the life off the loan. Previously I was going to keep the same mortgage payment and just pay an extra $500 a month. However, I think it’s better to just make a monthly extra $500 payment toward the higher interest loans. This would be in addition to whatever amount I decide to allocate. I plan to do this until the 5% and 4% loans are gone.

Once the student loans are all below 3.25% (the mortgage rate), I’ll probably end up paying more money toward the mortgage on a monthly basis. I anticipate this to happen sometime in 2022 or early 2023.

Anything else?

Long term, I’d like to be able to have the mortgage paid off early, somewhat in line with just after the kids finish college. I anticipate Kylie to graduate 15 years from now and Lucas 18 years from now. So, let’s just say I hope to pay off the mortgage in 20 years, in 2040, or about 10 years early. It may not be possible, but that’s the lofty goal I’ve set.

The reason for this is because if the kids do plan to stay on (or come back to) Oahu after college they will probably need help getting on their feet. Of course, they can stay with us for a few years, but they’ll want their own house eventually. I’d like to have the means to help at that time if at all possible. I’m sure it would be very important to my wife to keep the kids (and grand kids) as close to us as possible. Having a paid off house provides significant flexibility on that end.

Why post this?

Well, it’s mostly just to keep myself accountable.

I’d like to be able to look back on this post in late 2022 and early 2023 and see how I did. Did the plan work out like I wanted? Did it work out better? or was it worse? Did the plan deviate? If it did, why?

I think sitting down and stating your plan of “attack on student loans” at the end of your training is important. I do realize it is difficult because you don’t necessarily know where you’ll be or how much you’ll make. However, your goal should be written down somewhere in order to keep yourself accountable.

My plan to pay off our loans in 5 years failed miserably, but I was acutely aware of it every step of the way. My wife and I constantly talked about what we were doing all the time. Difficult decisions and compromises had to be made as I’ve discussed above. That said, we were constantly looking for the ability to “right the ship” back on course… and now it’s here, and so the plan resumes.

Failure to plan is planning to fail.

TL;DR

My plan of “Attack on Student Loans”.

We’ll see if I can stick to the plan this time.

Just me trying to keep myself accountable.

Failure to plan is planning to fail.

-Sensei

Agree? Disagree? Questions, Comments and Suggestions are welcome.

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