I Wish We Could Do This…

If you’re new to Money Life and More, in December 2012 we decided it was time to open up to you, my readers, and shared our very first debt update.

Student Loan Debt Update – May 2013

Another month has flown by and here we are updating you again on our student loan payoff! It isn’t awesome as it could be, but life happens. Tori, my fiancee, is getting paid through her short term disability insurance again. On top of that, our ex future tenant backed out of renting our townhouse. That means we’ll have to spend more to fix it up than originally intended.

Due to all of that fun stuff happening, we haven’t been making any huge payments on the student loans. Hopefully we can get back on track in another month or two!

Once we’re back on track, we’re considering getting one of the best 0% balance transfer credit cards to try to save some money on interest. I think we’d be able to save at least a few hundred dollars that way. It is a tricky move, but we would make sure we don’t transfer more than we can handle.

Private Student Loan 1 – 8.0% Variable

The current balance on this student loan is $4,682.32. This is a decrease of $144.98 since the last debt update. We are paying this loan off first because it has the highest interest rate and is also a variable rate. It originally was well over $20,000 when my fiancee began paying this down after college in 2011.

Federal Student Loan 1 – 6.55% Fixed

The current balance on this student loan is $7,723.11. This is a decrease of $58.11 since the last debt update. This will likely be the 4th student loan we pay off.

Federal Student Loan 2 – 6.55% Fixed

The current balance on this student loan is $7,197.02. This is a decrease of $60.28 since the last debt update. This will probably be the 3rd student loan we pay off.

Federal Student Loan 3 – 6.8% Fixed

The current balance on this student loan is $3,928.00. This is a decrease of $28.55 since the last debt update. This will be the second student loan we pay off because it has the second highest interest rate AND the lowest balance. On top of that, we hate the bank this loan is through so it gives us even more reason to pay it off.

Private Student Loan 2 – 5.75% Variable

The current balance on this student loan is $22,473.43… ouch! This is a decrease of $98.86 since the last debt update. This is the highest balance loan but it has a lower interest rate for now. Unless interest rates start rising we’ll wait to pay this loan off until the federal loans are paid off.

Private Student Loan 3 – 4.75% Variable

The current balance on this student loan is $8,237.26. This is a decrease of $26.70 since the last debt update. This is the lowest interest rate loan and, unless interest rates rise, this will likely be the last loan to be paid off.

Total Balance – $54,177.26 (-$423.25)

As I had mentioned in the past, I had saved a large chunk of money help my fiancee pay her student loans when we combine our finances after we get married! Then plans changed and we decided to use it for a down payment on a house.

We had hoped to have the student loans all paid of by the end of this year but with the changes of plans this has changed to the end of 2016. Hopefully we can beat this goal, but for now 2016 seems most realistic.

Do you have any debt you’re trying to pay off? Do you have a goal for when you want it paid off by?

I am the type of person who really loves having goals and something to look forward to. When I was in the process of paying off my credit card debt, I was so incredibly motivated. It was actually fun to throw money at it every month. I loved seeing the numbers dwindle and eventually go to zero. It was almost like a game, like the ultimate challenge to myself.

Right now, I am involved in the Yakezie Challenge, and I am keeping a spreadsheet of my ranking and the changes it has made over the past few weeks. (I am seriously obsessed with spreadsheets. It’s an illness!) Once again, I feel excited and motivated. I know the goal is in sight, and I am looking forward to reaching it. It’s not the same as becoming debt free, but it has the same feeling and the same momentum of getting inspired and excited about something and watching it come to fruition.

I can tell you that when I finally paid of that last credit card, I was euphoric! I remember feeling like I could do absolutely anything. I couldn’t believe that my budget spreadsheet said ZERO in the credit card category. I gained back $500 a month in my budget that I could do whatever I wanted with! Of course, I knew the right thing to do was to snowball it and start working on my student loans.

Yet, when I started to pay off my student loans, a funny thing happened. I thought I would have incredible momentum to conquer them. After all, I’m a super motivated person, especially when I put my mind to something. Yet, because my husband has six figures worth of student loans, it feels like I’m trying to climb a mountain without any gear. As many blog friends around me knock out their debt left and right, I feel like blogs wont even exist anymore (blasphemy!) by the time I pay off all of my husband’s medical school loans.

So, this time around, I am really lacking that drive and that motivation to get going, because it seems like the end goal is so very far away. I know that every little bit helps, but since my husband is still in school, the debt keeps growing.

Ultimately, I do remember what it felt like to be credit card debt free, but it seems like a distant memory now that I am focused on our student loans. Perhaps I can break it into smaller loans and work on my momentum that way instead of viewing it as one giant current I’m trying to swim against (lots of nature references today!) Either way, I’m hoping something will inspire me soon, so I can have that great debt-free feeling once again!

Are you debt free? Come on tell us: how does it feel? Is it everything you hoped it would be or do you feel kind of lost now that your goal has been reached?

**Lance’s Two Cents** We have a long way to go on Tori’s student loans so I definitely know how you feel with the huge student loan debt. We hope it feels pretty awesome, but more importantly it’ll free up cash flow to enjoy on other things!

I’m sure you’ve heard a lot about student loan debt lately. “Student loan debt is killing the economy” is the common phrase I’ve heard lately. Then they quote that the average college graduate has over $25,000 of student loan related debt according to some survey and that this debt puts off the normal spending cycle of someone with their first post college job. Today, I’m going to share how student loan debt has affected us and our spending.

How We Became Two Polar Opposites – No Debt vs $80,000 of Debt

When I graduated from college I hadn’t taken out a penny in loans. Part of this was due to me saving money when I worked, part was from applying for and winning a few scholarships and half of it was my parents helping me pay my way through college. I was lucky and graduated with zero debt, or $25,000 below the average.

My fiancee, on the other hand graduated with $80,000 of student loan debt which is over 3 times the national average. She went to college during the credit crunch and didn’t have the same resources available to her that I had.

Her major (nursing) was much more demanding on her time, so she couldn’t work outside of school as much as I did. She was also the typical American college student (white, female, and decent but not top 1% grades) which leads to very few scholarship opportunities and no financial aid other than unsubsidized loans.

She didn’t borrow $80,000 to get through college, she borrowed much less. However, when you can only secure very little in federal fixed rate loans, the rest of the money has to come from some other source of loans. Unfortunately, this meant turning to variable rate private student loans during one of the worst borrowing environments in recent history.

Her variable rate private student loans started accruing interest immediately, as all unsubsidized loans do. The interest rate was insane and at times it was more than 12% . Luckily, it has come down to 8% at the current time, but adding 12% to her balance every year while she was in college made her debt blow up bigger than a hot air balloon.

How Our Post Graduation Spending Was Different Because of Debt 

After I graduated from college, I didn’t have many worries financially. I had to find a place to lay my head, but other than that I didn’t have any major expenses. I owned a decade old used car that was paid off and I had a job lined up.

I ended up maxing out my Roth IRA during my first full year of work and started saving for big purchases, such as my new car I bought a year after graduating. I saved for a house down payment and spent some money on small luxuries that I couldn’t afford in college.

I wasn’t like my peers, though. I tried to keep a tight budget and save for the future. I knew this would be the easiest time in my life to save, since I hadn’t experienced any major lifestyle inflation yet and I didn’t have a ton of responsibilities. The money I saved in the first couple years after I graduated allowed me to take advantage of some great opportunities that I may have had to pass up on otherwise.

My fiancee, on the other hand  graduated from college with a ton of worries. Her student loan debt was more than double her expected annual gross income and she didn’t even have a job lined up yet! Talk about nerve wracking!

After three months of searching, she settled into her first job and immediately began to pay down her student loans. She only contributed up to the match in her retirement account and set a strict budget for herself. All extra money went to pay down the student loan debt.

Luckily, she had a reliable car that was paid off, so there was no need to spend money there. She lived with me, so she only had to worry about her part of the monthly rent or mortgage and didn’t have to worry about saving up for a down payment.  However, if she had to live on her own her budget would have been even tighter. She has done a great job of paying her loans off so far, but we still have a long way to go.

How Student Loan Debt Will Affect Our Future Spending

Since my fiancee still has over $50,000 of her original $80,000 of student loan debt, we still have a long way to go. We’re getting married in just a couple of months and we plan to combine our finances. That means I’ll be working just as hard as she is to get rid of that student loan debt.

With our focus on the student loan debt, that money won’t be going toward other goals. My fiancee would love to decorate our new house but there isn’t money for it in our budget. We wouldn’t mind going on a nice cruise on a fancier cruise line or cruise ship, but again, the student loans come first. Basically, rather than spending money or investing more money to secure future spending, we will be paying down debt.

So does student loan debt destroy the economy? I’d definitely say it changes it in a major way. Students spend the money up front and then they pay the original money, plus a ton of interest, back to banks. Assuming the banks loan the money out again, the money should be spent somewhere. But does that happen?

I’m interested to hear your opinion! Do you think student loan debt kills the economy? It definitely puts an interesting twist on the normal spending timeline!

Many people get excited when they get to the point in their life where they decide they want to buy a house! We were the exact same way on both houses! However, we weren’t smart enough to plan a year out in advance and, in retrospect, that could have really bitten us in the butt if a two specific things weren’t in the optimal ranges. What were those things and how can you make sure you have them in order? Follow along to find out!

How to Save Thousands of Dollars on Your House

There is an easy way to save thousands of dollars on your house and it doesn’t even involve negotiating with anyone! What is the simple trick? This first trick will help you lower your interest rate to the best possible rate. Did you know that as little as 0.5% difference in interest rate, for example 4.0% vs 4.5%, on a $200,000 mortgage can result in $21,000 difference in payments over the life of the loan.

Checking and Managing Your Credit

Having a credit score of above 720 will normally qualify you for the best interest rates available on mortgages. If your score is currently below 720 or is close to 720 then you have some major work to do over the next year. Even if you have a great credit score there are a few things you should make sure to manage to ensure you keep your score in the 720+ range to save thousands.

The first key is pulling your free annual credit report. If you don’t know how, check out my guide to pulling your free annual credit report. This report will not have your credit score but it will contain all of the information that your credit score is calculated from. Make sure everything is correct. If there is anything that isn’t accurate you should dispute it, especially if it is a negative item. After that you’re ready to start looking at your credit score.

Hopefully Your Credit Scores are Much Higher Than This Person’s…

If you don’t understand the components of your credit score, make sure to read my post to learn more. You can’t change the past, but you can change the future to have the best rate possible when you apply for your mortgage.

Make sure you don’t make a single late payment from now on to keep the largest portion of your credit score high. If you have incurred late payments in the past, make sure you set up a system so that they don’t occur any more. Be proactive as you can!

Next, try to lower credit utilization ratio (the amount of debt compared to your credit limit) to 10% or less if at all possible. Lower is better and 0% is best! In order to get the lowest possible balance on your credit cards make sure to pay down to a zero balance before your statement date, as that is when most credit card companies report your balance to the credit bureaus. Between these first 2 categories you’ve already accounted for 2/3rds of your credit score!

Don’t close any old accounts to keep your credit history length and average account age as long as possible. The only exception is if there is a card with a large annual fee that is prohibitively expensive.

Finally, don’t apply for any new credit or apply for anything that will result in a credit inquiry. This last tip is the easiest 10% of your credit score to keep high. No inquiries = more points!

Unfortunately, at this point you really can’t do much about your credit mix, the last category of your credit score. You don’t want to apply for any new loans to balance out the mix but you could potentially close some newer credit cards if you have too many. Remember, you don’t want to affect the length of your credit history or make the average age of credit shorter!

To get an idea on how you perform in these categories, and to get an approximation of your credit score (not your actual FICO score) make sure to check out my Credit Sesame review! Credit Sesame will give you a grade for each credit score category and give you ways to improve each category.

Credit Sesame will also give you an approximate credit score, but make sure you realize that the score they provide isn’t your FICO score which your lender may use to determine your mortgage interest rate. The credit scores do tend to use the same factors to determine scores, but they can come up with different results.

Now that you know some tips and tricks to get or keep your credit score above the magic 720 number you’re on your way to savings thousands on your next house purchase! Putting a little bit of effort into managing your credit can make a huge difference. It is amazing how much a 0.5% difference in your interest rate makes in your total payments on your mortgage.

Not checking our credit scores a year in advance of  applying for our mortgage almost messed us up. We did check them as soon as we figured out we were serious at looking into buying a house, but at that point my fiancee’s score was in the borderline 720 range and we only had 30 days to apply for a mortgage.

Unfortunately, credit scores don’t update immediately so we were sweating bullets to see if her score would be above 720! We made a couple of quick adjustments, such as paying off her credit card before her statement date, and luckily we squeaked her into 720+ just in time! Phew!

However, there is another key factor your should be planning at least a year in advance of your house purchase. To find out what the second key factor is, make sure you check back on Friday for the second tip!

Did you manage your credit score before you applied for your mortgage and bought a house or were you flying blind? Did if affect your interest rate? Let me know in the comments!