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Student loan

Student Loan #1 – Paid off! #Winning

April 6, 2011 by Eric Rosenberg

Yes, I included a Charlie Sheen Twitter reference in the post title. But when you are a personal finance #warlock with #tigersblood, it is only appropriate.

Why am I so egotistical on my financial savvy today? Why is today different from all other days? They say a picture is worth a thousand words, but in this case it is worth more like twenty thousand dollars.

Yes, loan number one is now paid off!

How and Why I Did It

Over the last six weeks, I have been doing well financially. I received a large reimbursement from a flex spending account for $3,400 from my eye surgery that I paid for out of pocket in advance, I had a few advertising sales come through, and I got my annual bonus at work.

I decided against buying a home right now, so I had extra funds to burn. Rather than actually burn them, I put the cash to good use and paid off the last $3,500 in my smaller student loan.

This saves me interest payments every month and opens up $65 in cash flow (minimum payment) if my financial situation were to change dramatically.

Loan Number #2

I have $7,735.81 left in total debt. That is all a 6.8% student loan with a monthly payment of $92.32. My goal was to pay off my student loans completely within two years of graduating. I am just over the one year mark and I am on track.

I might not pay this one quite as quickly as the original goal because my priorities have changed. I am trying to preserve capital and save up so I can make a good down payment on a home in the next year or two.

If you are looking to pay down your student loans, you can probably relate to one reader that wrote in to ask for help on a payment plan. (Lots of good tips in the comments on that post too!)

Have you conquered student loan debt? Are you in the process? Please share what you learned, and what you need help with, in the comments.

Filed Under: Budgeting, Debt Management Tagged With: Finance, Financial Services, Loan, Payment, Student loan

Good Debt and Bad Debt

March 21, 2011 by Eric Rosenberg


In the personal finance world, we have a little mantra you might have seen before. Debt is bad. But is that always the case? I would argue no. Of course, it is better to be debt free than have debt, but sometimes it is necessary to improve your life.

Really Bad Debt – Credit Cards

There is one type of debt that is always bad. That is credit card debt. If you use credit cards regularly, like I do, pay them off in full every month. If you follow that rule and keep your utilization ratio under about 20%, credit cards are not bad. If you carry a balance and make interest payments, that is bad.

Credit cards serve a purpose but can be dangerous when abused. If you can’t handle paying your card off in full every month, I would suggest avoiding credit cards. If you can handle it, use them for the rewards and credit score building.

P.S. Include overdraft lines of credit in this category. They usually have unreasonably high interest rates, just like most credit cards.

Bad Debt – Interest Only Loans

Interest only loans are self explanatory. They are loans, such as a mortgage or line of credit, with a minimum payment each month that only covers outstanding interest. This is bad.

Interest only loans are built for the banks to make a ton of money while providing virtually no benefit to the consumer. You are making no progress toward paying off the debt. These are designed to be long term debt traps for the average consumer and are incredibly profitable for banks.

If you have a loan like this, make sure to pay well over your interest only amount each month. The more you pay, the faster the loan goes away. If you can, it could be a good idea to re-structure the loan as a standard installment loan to give you a solid repayment schedule.

Not Good Debt – Second Mortgages and Home Equity Lines of Credit

Putting an extra lien on your house is probably not a good idea unless absolutely necessary. By adding a second loan, such as a second mortgage or home equity line of credit, backed by your primary residence, you are giving yourself two opportunities every month to screw up and end up in foreclosure.

For some people, these are truly short term loans to make a home improvement that will increase the value of their home in the long run. In that case, these are not bad as long as you are responsible and make full payments every month.

Neutral Debt – Student Debt

Student loans are not necessarily good or bad. It depends on how you treat them and how you got them. If you spent $80,000 at a private school to get a masters degree in social work that will return about $20,000 a year in salary, your big student loans will put you under pressure. If you need an extra $20,0000-$40,000 to pay for an undergraduate degree or masters degree that will lead to a job that pays well, you are using debt to your advantage.

Whatever your current situation is with student debt, always make the minimum payments. Commonly, student loans are your first interaction with installment loans with fixed monthly payments. It is an opportunity to start your credit on the right track. Make good decisions and build up your credit for long term success.

Maybe Good Debt – Auto Loan

Cars are depreciating assets. When I worked at a bank, I noticed that the hourly employees often had the nicest cars in the lot. The people making $10-$14 an hour had cars worth more than those making well over $50,000 per year.

This happened for the same reason the hourly people made less money, there were not as smart with their money for the long term, they focused on short term happiness. The managers had invested in education, which led to a higher paying job. They invested in homes (long term incentives) over flashy cars. At the same time the hourly workers had nicer cars, they also lived in small apartments rather than nice homes. (This is a generalization, not every employee on the management side or hourly side fit this description. Well over half did fit this description, so don’t yell at me in the comments for it.)

If you are buying a reasonable car that you need and you can’t afford a cash payment, auto loans are not necessarily bad. I had a car loan when I got my Toyota Corolla after my old hand-me-down car died. I could not purchase a reliable and safe vehicle without a loan, so it was worth it.

Good Debt – Principle Residence Mortgage Loan

Home ownership is a great way to build equity and stop paying rent to someone else, but only if handled responsibly. Missed payments, late payments, and payments that go beyond your means are all problems with mortgages.

However, if you have a loan on a home you can afford and you are responsible, mortgages are good debt. They build up your credit score and can lead to financial freedom. Always look at every angle in depth, but don’t shy away if the situation makes sense for you.

Bonus: Turing Bad Debt into Good Debt

If you own a home and are well on the way to paying it off, you might benefit from a debt rollup loan (I just made that term up). I have helped people structure loans like this in the past.

For example, a woman came in with $20,000 in credit card debt, $7,000 remaining on her auto loan, and $40,000 remaining on her home mortgage. That is $67,000 in total debt. It would have taken her about ten years and tens of thousands of dollars in interest to pay it all off.

Her home was worth about $250,000, which is well over her total debt load. She was able to pay off all other debt and have just one mortgage loan payment instead. This refinance and debt rollup saved her hundreds of dollars a month in payments and thousands of dollars in long term interest.

The math is not complex, so you can look at your own debt structure and find out if this is a good idea for you.

What do you think? Is all debt bad? Do you disagree with my categorizations? Please share your thoughts in the comments.

Filed Under: Credit, Debt Management, Real Estate Tagged With: Credit card, Debt, Loan, Mortgage, Student loan

I Paid Off My Car!

February 5, 2010 by Eric Rosenberg

Long before I had this blog, I had a car loan.  My old car, a hand-me-down 1990 Volvo Station-wagon with about 200,000 miles, decided to stop working while driving west on Belleview Avenue one summer morning.  Fixing it would have cost as much as the car was worth, so I decided to get a brand new one.

After all, I had a good job and was living at home with my parents.  It seemed like a good idea.  Now, two and a half years later, it still seems like it was a good idea.  I still love the car and I was able to pay off the loan two and a half years early.  That is half of the scheduled time for those of you who are math impaired.

Over the lift of the loan, I paid a total of $675.53 in interest to the credit union for my $10,995 loan.  That is not too bad.  I like to think of that $675 as my car rental fee for the roughly 30 months I have been using the car so far.  That is a savings of $573 from the total interest if I had only made minimum payments.

I took a screen shot to commemorate my last online payment.  Silly me, I didn't check the “payoff amount” and was left with four cents that I could not pay online.  A quick phone call took care of that though.

I plan to keep this car for many, many years and I am glad I have it.

What am I going to do with all of the money I had been putting into the loan?  I am sticking to my own advice.  My debt snowball leads me to student loans from here.  I have just about $21,900 left there.  I am still in school, so most of the loans are not accruing interest for another 7 months.  I have paid about $20,000 into my student loans while I have been in school, so paying down the rest shouldn't take more than another two or three years.

Do you have any good loan payoff stories?  Please share in the comments.

Filed Under: Debt Management Tagged With: Car finance, Credit union, Debt, Financial Services, Islamic banking, Loan, Station wagon, Student loan

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I started a little side hustle blog in 2008, and left my full-time day job as a Senior Financial Analyst to turn my side hustle into a full-time gig. Learn how I did it so you can build your side hustle. It all starts with the first dollar.

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