PocketCoinage

After my most recent posting about Bad v. Good Debt, I got all fired up about paying off my student loans as quickly as possible.  I mean, I only wasted $1,520.48 in interest alone!  Before this posting, I really did not run the numbers to realize how much money I was losing.  I told myself there had to be a way I can reduce the payoff time to less than two years.  Currently, I am on target to pay off the loan in about four years.  However, four years is not going to cut it with my vision for the future.  I needed to put the numbers down on paper and see the results.

So last night I sat down to work on an updated budget spreadsheet that worked with my varying paycheck.  I found out that by slightly modifying where each dollar goes (house fund, emergency fund, etc.), I am able to boost my school payment from $440 to $700 every month.

How did I increase my monthly payment by $260?  I was able to:

• Judge my base take home pay and budget based on that
• Slightly cut back on how much money each item receives
• Cut back on a few unnecessary items (wants)
• Use the extra money in my pay exclusively for debt reduction

This alone should bring it down to around 24 months.  However, I’m going to take this a step further in an attempt to knock it out sooner.  Since I save bi-weekly, this creates an extra “payment” every year.  For example, I put away money for the mortgage every pay period.  By the end of the year, I will have an extra payment to use for pure principal.  For a short period of time, I’m going to be using this extra mortgage payment to knock out my student loan debt.  I’m also going to allocate some money from my tax return to reduce this debt.  By going this route, I am on target to pay off my student loans by December 2012 (15 months).  Who knows, if I come across some money, it may be less than 15 months!  Unfortunately, once all is said and done, I will end up losing another $800 in interest.

If you have read my previous post, Life After an Auto Loan, you’ll notice that I was undecided on what I wanted to do after my auto loan was paid off.  Over the past month I made a decision to split it up.  I am allocating 75% of the $400 to my student loans and the remainder to my Roth IRA.

By making this move, my student loans repayment schedule fell to 4 years from their original 10 years!  This is a huge drop in time and interest.  Based on my calculations, I should be keeping about $3,000 in my pocket that would otherwise go to the loan company.  If I allocated 100% to the loan, that would cut the time down to about 3.5 years.

Depending on your income level, you may be able to claim student loan interest paid on your taxes.  Unfortunately for me, I am unable to claim this.  So, for me, it makes no financial sense to carry this “good” debt.  Depending on how you look at things, some say that no debt is “good” debt.

What exactly is “good” debt?  “Good” debt is any debt that’s taken out for the prospect of growth, such as a student or home loan; it may also be tax-deductible.  When you take out a student loan, you are investing in education that will, hopefully, increase the earning potential over your lifetime.

As much as I want to pay down my student loan quickly, I still need to save for retirement.  I currently match my employer’s 403b at 1% and contribute to my Roth IRA.  Before I bought the house, my Roth IRA was maxed out every year at $5,000.  This past year, I only contributed a $1,000 to it – after my tax return!  This year I am trying to set aside for my Roth IRA every month, while still saving a portion from my tax return.  If my calculations are correct, this will place me at roughly $2,000 saved for the 2010 year.

Once you finished with a debt, what did you do with the extra money?

This is the second in a series of weekly posts titled “How I Did It”.  Throughout this series I will be describing my methods of personal finance, frugality, and what it took to get where I am today.

Education can and will open up new doors in this adventure of life.  I found it helped me grow to where I am today.

While in high school (vocational school), I specialized in Commercial Art – Advertising and Design.  I really enjoyed photography, product and web design.  However, I also found another passion while there: technology.  This came almost as naturally as graphic design, but was less competitive.

Because of my high grade point average (GPA) during high school, I could have gone to a two year community college followed by a four year state college at no cost.  However, I opted to attend a one year technical school instead.  This was not the most frugal choice, however, there were many reasons for it:

• It was the most direct route to a career in technology.
• To enjoy learning what I wanted to learn.
• To meet others with similar passions.
• The ability to hold job(s) while attending class full-time

Education Tip: Technical schools usually get right to the meat allowing you to learn and experience the career head-on and reap rewards sooner.  You can always pursue your degree afterward.

Attending a technical school to specialize was, in my opinion, the quickest way to kick start a high-paying career (and it showed).  Even though class was full time, I was still able to work a part-time job at a local electronics store while being a technology consultant.  During slow periods at work, I would bring a book to study and create flashcards.

Even though I was in a technical school, college credits still accumulated for me.  At the time, they offered 6 months of online (core) classes after graduating to complete my Associates Degree.  The technical school approach allowed me to obtain a full-time career in technology while working towards my degree.

Job Tip: While in school full-time, see if you can find a job that’s flexible to accommodate school and studying.  If you ask your current employer to adjust your schedule, they may work with you.

I obtained my first full-time technology job at a VoIP start-up after technical school.  The best part about this job was that they had me on 2nd shift.  This allowed me to focus on my school before going to work.  However, a few months later, I obtained a technology job at a local hospital working four, 10 hour shifts over the weekend.  This allowed me to have three days off during the week to focus on my studies.  The job could be slow at times, so I was able to squeeze in some extra studying.  While I was there, I obtained various technology certifications and continued my education online for a Bachelor’s Degree in Technology Management.

While working full-time in my career, I was able to pay for most of my schooling without the burden of high-interest private student loans.  Why pay money in interest unless you have to?  Sure, I still took out the government loans at $5,500 per year as these low-interest loans helped ease the large monthly payments.  At one point in time I was making payments of $1,000 per month to the school.  I’m not going to lie, it was a lot of money!  It bummed me out to see more than 60% of my check go over to school.  However, it was for the better as it helped me focus on things that were important to me.  I paid pure principle and accrued no interest.  For me, this was the beginning of budgeting.

All-in-all, I walked away with numerous technical certifications, two degrees, and roughly $18,000 in student loan debt — not too bad!  As of today, that debt is down to $16,400 and accrued roughly $1,900 in interest this year alone.  This debt needs to go; That could have been $1,900 more in my pocket!  The worst part is, I am unable to claim this interest on my taxes.  Since my auto is paid off, I’m looking to redirect some of the funds to go towards paying down school.

Looking back, I wouldn’t change much.  The only thing I would have done is increase the amount I was paying on my student loans.

Job Tip: See if your current job pays for education.  My current employer pays $4,000 a year to further educate myself.

Tax Tip: Consult your tax advisor to see if you are eligible for education credits.

Because I was humble, hungry, and had the drive to go forward with my education, I applied for a position within the hospital and moved up!  If it was not for my education and drive, I truly believe I would not be where I am today.

How did you obtain your education?  Have any tips?