Episode 1 Materials
Greetings from Austin!
It’s been exactly one year to the day since I paid off my $90k of student loans in seven months. While I’ve stopped making regular updates to this blog, I do plan on providing annual updates for the loyal readers and new visitors who might be interested in a more long-term view of all the goings-ons.
(If you’re brand new to this blog, you can get a quick summary of what it’s all about here as well as two key posts to check out.)
When I paid off my debt and found myself with an extra $1,057 in my pocket every month, I wasn’t completely confident that I’d be able to fight consumerism due to my new-found purchasing power. However, I’m happy to report that I’ve continued to live well below my means and have grown my savings by several thousand percent over the past year. (Edit: To put that in perspective, I started with about $500 in savings after I paid off my student loans, so going from $500 to $10,000 (for example) is a 1900% increase.) Instead of investing these and future savings in securities or buying stuff I don’t need, I’ve decided to enter a personal challenge to pay off my mortgage in three years and capture the guaranteed 5.25% return. But more important than the guaranteed return–which could very well be eclipsed by the bull run we’ve been on recently–this three-year journey will result in guaranteed freedom. (And unlike the time I paid off $90k in seven months, I’ll maintain a 15% contribution to my 401k during this time.)
Most people who stop by this blog are typically on debt pay-down missions of their own, so my aim here is to inspire motivation to stay the course. To that end, let me take a brief moment to talk about the past 12 months of living without the student loan burden.
Life is not about finding happiness; it’s about experiencing richness. How do I define richness? Ever since I started living below my means and paid off my student loans, my life has been approaching the kind of richness that I’m thinking about.
Within the past year, I changed employers when I found a more interesting opportunity at a company that I truly believe in. The role I landed at this company was at a similar pay level to the one I had left (i.e., not a promotion), but the actual content of the job was something I had never done before, so failure was a definite possibility. However, I was living below my means and had paid off my student debt, so I was in a solid financial position to take a risk to try to improve my life. Fortunately, the change turned out to be a very positive one. If I hadn’t dedicated myself to cutting back and paying off my student loans, I’d probably still be at the old job with my blinders on, working for a paycheck to support my then-inflated lifestyle.
Within the past year, I’ve joined a competitive rowing team and enjoy exhausting pre-dawn rows three to five days a week. I’ve met a lot of great people in the rowing community and hope to make many long-lasting friendships. It feels unbelievably good to be back in boat and competing again like I did in college.
The eight-person boats I rowed in at the Heart of Texas Regatta won two gold medals and a silver, and we’re headed to California in April to race at the San Diego Crew Classic. We’re considering racing at the Head of the Charles in Boston later this year. If I were still maniacally focused on my career to fuel my inflated lifestyle and pay my student loans at the regular rate, I don’t think I’d have the energy to wake up at 4 AM to go rowing around the lake or the time to take a couple days off of work to go paddle around the Pacific. These days, however, a 50-hour work week is a bad week and the norm is closer to 45. (I still eat home-packed lunches at my desk to maximize frugality and productivity.)
Within the past year, I met a beautiful woman whose values align almost completely with my own. (If only she didn’t like country music so much…) She’s kind to a fault and enthusiastically committed to the Daymaker Movement. She places a great deal of value on her health like I do and works out every day to stay in shape. In college, she worked two and sometimes three jobs at a time in addition to playing softball on a scholarship to keep her student loans at an expensive private college to a minimum. She has a great job here in Austin, but she still shops at goodwill, has a roommate, and drives a car that’s even older than my own 13-year-old Honda. We do challenge each other on occasion, but we have the best of times together because we’re often on the same page. I don’t think she would have given me the time of day if I had been embracing a free-spending lifestyle when we met, and that would have been my sad loss.
Within the past year, I’ve been able to contribute to society by keeping this highly personal blog online while also self-publishing an inexpensive book about dealing with debt. Just last week, a commanding officer in the US Navy bought the book for all 350 sailors aboard his ship in an effort to educate them about money management. We need more leaders like him–people who care about their team’s well-being not only on the job, but in their personal lives, too. If I hadn’t paid off my student loans, that book wouldn’t exist right now.
There are those who might believe that once they pay off their debt, they’ll have extra money to burn and blow on all kinds of things that will make them happy. My experience was markedly different. We’re not here for happiness, we’re here for richness, and in my mind, a rich life is achieved by having purpose (my career), having passion (rowing), having someone to care for (my girlfriend), and giving back (my blog and book). It’s not about the money. In fact, it was only once I stopped spending money like a complete jackass and paid off my loans that doors started to open up for me. I have no doubt that paying off my house will open even more doors, and I’m excited about what the future holds. I hope you’re excited about what your future holds once you pay off your loans, too.
Other People’s Work
While I have your attention, here are a few of my favorite reads from the past year. They’re all all completely applicable to anybody who’s currently engaging their debt in a battle or considering taking on debt.The list is book-ended by a couple of solid, existential articles while the middle articles deal with the usual suspects: student loans, retirement, and the cost of living.
6 Harsh Truths That Will Make You a Better Person
#6 The world only cares about what it can get from you
#5 The hippies were wrong
#4 What you produce does not have to make money, but it does have to benefit people
#3 You hate yourself because you don’t do anything
#2 What you are inside only matters because of what it makes you do
#1 Everything inside you will fight improvement
NMHD: If you read only one article from this stack, let it be this one. Strong.
Colleges Lose Pricing Power
“We have a more informed class of college consumers,” said Bonnie Snyder, founder of Kerrigan College Planning in Lancaster, Pa. “Everyone today knows someone who went to college and ended up with a career that didn’t justify the cost. They see college as a more risky investment.”
NMHD: Helllllllllllllllllllllll yeah!!!!!!!!!!! Go high schoolers!!!
Millennials Are Paying Off Debt — but That’s Not Necessarily Good News
Last week, Pew Research released a new study showing adults younger than 35 reducing their debt levels faster than older generations. Millennials cut their overall levels of debt by 29% from 2007 to 2010 (from $21,912 to $15,473) while Americans 35 and older only cut theirs by 8% ($32,543 to $30,070). In fact, according to Pew, the share of younger households with debt of any kind fell to 78%, the lowest level since the federal government started collecting that data in 1983.
NMHD: If you read it, this turns out to be a real fear-mongering article, but let’s focus on the positive: Millenials are seeking FREEDOM!
Workers Saving Too Little to Retire
[Joe LaCascia, a 75-year-old retired insurance broker in Polk City, Fla,] estimates he only has enough to last until [his wife and he] are 85. He said he is more concerned about what the future holds for his children, a 51-year-old art director-turned-roadie and a 49-year-old third-grade teacher. “They’re never going to be able to create wealth, other than what our generation leaves them and what they do with it,” he said. “They have more uncertainty than we have.”
Your Credentials Are Holding You Back
We make career moves based on ever-increasing sunk costs. As any microeconomist will tell you, there is no surer path to bad outcomes than incorporating retrospective expenses that cannot be recovered into your decision making. But as the cost of accreditation rises, the temptation to “use” our degrees and certificates to land high-paying (but ultimately dissatisfying) jobs has never been greater.
NMHD: At the end of the day, this is probably a better articulated reason for why I chose to get rid of my debt so quickly. The author is simply using a lot of big words to eloquently describe the pursuit of one thing: freedom.
A Minimum Wage Job in Austin Gets You a Two-Bedroom Apt. – And a 111-Hour Work Week
Austin has the highest average rent in the state of Texas. And Austinites trying to afford housing on minimum wage need to work close to three full-time jobs.
NMHD: If you still have student loans, find roommates!
Roughly six months have passed since I paid off $90k of student debt in seven months and almost 13 months have passed since I launched No More Harvard Debt. I think we can all agree that it’s been one hell of a ride! (I literally had a grin on my face as I typed that last sentence.)
I sat down at my computer on August 29th, 2011 to introduce a story to friends and family about how I was going to try to pay off my $90k of student debt in ten months with a 12-month after-tax salary of around $74k. I picked up quite a few readers along the way, and the audience became far greater than I ever anticipated it would. What started as a simple story to my friends and family turned into a personal growth-and-development adventure for myself and an inspiration for strangers. My blogroll includes a few examples of those who have been inspired, and I encourage you to check them out.
Using the written word to inspire complete strangers to take steps to improve their lives is incredibly special, and I’m so glad that this odyssey evolved into the opportunity to help others. When I take stock of my life 50+ years from now and try to measure it, this experience will definitely be a significant part of the highlight reel. I’m forever indebted to the readers and media who helped spread the word and inspiration.
This will be my last post for the foreseeable future. It’s taken me several hours to write this short article as I search for the right words because this is not a decision I make lightly. I love to write and I’m more passionate about personal finance than I ever thought I could be. Unfortunately, once I paid off my student debt, this blog lost direction. That’s tough for me to openly admit because I’ve been in denial mode for so long, but that denial has become harder and harder to sustain during the past few weeks. If I were to write about trying to pay off my mortgage in two years, selling everything and sailing around the world, or signing up for Peace Corps and trading in my corporate badge ID for a shovel, then I think that this blog would deserve a new lease on life. However, the truth is that my current financial rule is to to save 50% of my income as I continue to develop my career. While this 50% rule isn’t widely followed by most, it’s not especially inspirational, either, and it certainly isn’t blog-worthy.
I’ll continue to carefully monitor my spending, live below my means, and build up my savings because it feels good. I’m going to take the next year to focus on my career and live my life. After that, all bets are off, and we might even meet again.
If you’re new to this blog and want to be inspired, don’t despair! The silver lining in all of this is that I’ll keep the blog online to serve as a beacon of hope for those who are buried in student debt or are considering taking on loans to fund their education. The About page is a good place for new readers to start.
I’ll close by saying thank you. Thank you for following my story and thank you for adding your positive commentary and encouragement along the way. I want to give a special thanks to Sweta, iowenomore, ryanfield1, rosiedancer, MJ, and JaneMD for their meaningful contributions.
I truly value what we’ve built here together. I’ll miss you all.
I’m pumped! I just saved 70 bucks on a pair of running shoes by “settling” for a slightly older generation and an odd color combo.
I ran my first (and so far, only) marathon back in February 2011. The day before the race, I decided I needed a new pair of shoes, so I hit up the nearest RunTex, a running store that’s known for their knowledgeable staff. I used to have fairly bad knee pain due to my flat arches until I told my doctor about it several years ago, and he told me to start using a high-cushion running shoe. Ever since then, the knee pain has stayed away. I told the salesman at RunTex about my condition and he equipped me with a pair of Asics Gel Nimbus shoes. Trusting his expertise, I bought them on the spot. I can’t recall how much I paid for them, but I think it was around $130 or $140.
The next day, with only three or four training runs under my belt (but lots of cycling), I ran the marathon in 3:38. The shoes were awesome! I didn’t experience any blistering or knee pain, and that’s held true for the past year and a half. Recently, however, it’s become clear that the my (sometimes-overly) frugal self has used the shoes well past their useful lives (well over the recommended 300-500-mile maximum), and my left knee is beginning to give me some pain as the cushioning in the shoes starts to break down, a red alert that it’s time to replace them.
Today, without really giving it a lot of thought, I drove to RunTex and told the salesman, Jonny, that I wanted to trade in my Asics for another pair of Gel Nimbus. I know that $130 is a lot for a pair of running shoes, but I’m not going to be cheap and settle for a pair of shoes that won’t support me as well as the Asics and will only lead to increased knee pain and potential long-term damage. (Remember the difference between being frugal and being cheap!) Jonny told me that he was sorry, but he didn’t have the Asics in stock and was expecting a delivery in a couple of weeks.
I was frustrated because I wouldn’t be able to run until I replaced the shoes, but on my drive home, it dawned on me that I could just buy the shoes online and they’d definitely arrive sooner than two weeks. I called Run Tex and asked for the price: $152 after tax. I hit up Google Shopping with this ceiling price in mind and searched for Asics Gel Nimbus Men’s. The search results brought up Asics Gel Nimbus 14, Asics Gel Nimbus 13, and Asics Gel Nimbus 12 and 11. I assumed the suffixes stood for shoe sizes, but after clicking around, I realized that each suffix came in various shoe sizes. I was confused, so I decided to actually read up on the shoe and found out that the 11, 12, 13, and 14 indicated the generation of the shoe. I looked at my shoe and saw Gel Nimbus 12 embossed on the side. RunTex was selling the Gel Nimbus 14, a shoe that was two generations newer than mine and boasted better technology, according to the marketing material.
The 14 was going for $140 before tax, and the 12 and 13 were going for much less. I thought about it for a minute and decided that since the 12 had been a solid pair of shoes for a year and half, then a new 12 would be a solid pair of shoes, too, so I decided to buy the cheapest pair of Gel Nimbus that I could find, regardless of generation. After about 30 minutes of clicking around, I found a 13–only one generation older–for $80. Shipping was free and the store didn’t charge tax, so I saved $72!
They might not be as awesome as the neon green/yellow 14 that I could have bought online for $140+tax/shipping, but the black/neon green combo isn’t terrible, either.
Looking back, I’m thanking my lucky stars RunTex didn’t have the Gel Nimbus in stock. Today, I received yet another lesson in frugality, but thankfully, I didn’t have to learn this one the hard way. The 14 supposedly has better technology, but if the 12 kept the knee pain away for a year and a half, which is above and beyond the call of duty for any shoe, then isn’t that good enough? By “settling” for a shoe that had served me well in the past instead of getting the latest and greatest, I saved over $70.
Sometimes, or oftentimes, it doesn’t make sense to buy the latest and greatest. I need to start thinking about that concept a little more now that I have the discretionary budget to buy things beyond just the bare essentials.
I hope you had a great Labor Day Weekend!
The roommates are gone and I spent the better part of Saturday and today deep-cleaning the entire house. It turns out that one roommate had 3.5-foot fridge in his room, which explains why the energy bill was so high. The rent terms were $400/month and all bills (internet and utilities) paid by me, so he never had to pay for the cost to run his fridge. Note to self: if I ever choose to get roommates again, I should include a no-fridge clause or change the utility payment terms. The other roommate apparently didn’t use a coaster for his drinks or a place mat for his hot plates of food and consequently destroyed the finish of the dresser (my dresser) in his room. Besides those two issues, everything ended well. It felt weird to sleep with my bedroom door open for the first time in a year on Saturday night.
I took a break on Sunday to float down the Guadalupe with an old friend and new friends. Few things are better than tipping back a couple cold ones as you float down a lazy river for six hours and soak up the sun with pals. For the cost of fuel, the drinks, and tube rental, it was $30 well-spent.
Something comical just went down and I wanted to quickly blog about it before I head to the gym. I was sweeping out my garage when a guy walked up the driveway and asked, “Hey there, do you have a minute?” I replied in the affirmative, and he went into his pitch: “I’m with so-and-so and we make extremely high-efficiency windows that’ll reduce your heating and cooling costs significantly. I’m in your neighborhood today looking for model homes for our windows. I noticed you take really good care of your beautiful house, your landscaping looks great, and we’d really like to showcase our windows on your house. We can offer the windows and installation at 75% of our regular price.”
My paranoia shield went up double-time and my BS-detector started beeping so loudly I thought the salesman might hear it. However, everybody knows that flattery is a freshly paved drag strip roughly a quarter-mile long straight into a man’s heart, so I thanked him and asked, “How much would you charge to do my house?”
“Well, now, it’s tough to say.” Pointing towards my front window, he said, “That’s custom, and I haven’t seen how many windows you have on the sides and in the back, so I really can’t give you a price right now, but I can send somebody out to give you a formal quote this week if you like.”
“Well,” I replied, “I don’t think I can afford new windows right now, but can you give me a range?” I definitely don’t need new windows, but I was curious about how much it would cost if I were to have them replaced.
“Let’s put it this way.” The guy paused and looked off into the distance. Then he looked back at me and said, “I can probably get you down to $150 a month.”
I waited for him to say more. One beat passed. Then another. The silence was getting uncomfortable, so I asked, “Ok, $150 a month. For about how many months, would you say?”
The dude looked down at the ground then back up at me and replied somewhat sheepishly, “Uh, a lot, actually.” Wow, now there’s some refreshingly brutal honesty for ya.
And there you have it, folks! I give you Exhibit A: The reason so many people struggle to get out of debt! Monthly payments. One of my favorite quotes of all time is from a Mad Magazine cartoon: The only reason a great many American families don’t own an elephant is that they have never been offered an elephant for a dollar down and easy weekly payments.
I told the guy no thanks and wished him luck as he went on his way.
Are monthly payments the only thing that people take into consideration when they’re faced with a big purchase decision? How many customers has this guy been able to hoodwink into buying his glass? Do most people not take the entire cost of the investment into consideration?
Of course, I used to be just as guilty of this as the next guy. “Okay, I’m making X dollars per month…hmm, monthly payment on an auto loan for this car comes to Y dollars which…” Quick mental math… “Mmhmm, okay, uh-huh, carry the one…yes, yes I do believe my monthly income does indeed allow me to afford this second car! Who needs to save? Saving is for losers. Okay, LET’S DO THIS! YEAH!”
Alternatively, maybe we do like to save money but think that the energy savings will pay for the new windows. Well, that’s just a simple math exercise. Yahoo! Answers says it costs roughly $500 to replace a window. Using that logic, it would cost me $7k to replace all 14 windows in my house. (Using the guy’s approach, that’s 46 monthly payments of $150 to get to $7k.) How long is it going to take me to save $7k on my heating and cooling bill which hardly ever gets above $100 in the first place? Let’s be aggressive and say my bill is $100 each month and these windows will reduce my costs by 25% for a $75 new monthly energy bill. $25 per month into the $7k investment = 280 months or 23 years. Even if the guy can get me the windows for 75% of the regular price, I’d be looking at a 17-year break-even period. Ouch.
(And that’s a double-ouch if you consider inflation. $7k today is worth well over the $25 savings per month (or whatever it inflation-adjusts to) 17 years from now. If I take the $7k today and invest it in something earning a 5% return each year, I get back $350 every year which more than covers the $25/month or $300/year I would have saved by buying new windows, and that’s before I compound the 5% interest each year.)
Lose-lose all around. I’m going to pass on the new windows and keep the $150/month.
I’m extremely excited to bring you Destroy Student Debt: A Combat Guide to Freedom, a book I wrote to help people pay off their student debt early. After receiving hundreds of emails asking for tips and advice for dealing with student debt, I finally took the time to put pen to paper and offer a concise battle plan to defeat student loans. I regard this book as the capstone of my NMHD journey and I hope that it helps others find freedom like I did.
In the spirit of frugality and goodwill, I’ve decided to give the book away for free on Amazon until Friday. If you get a free copy, please leave a review on Amazon.com. I’ll be rolling DSD out to other devices after my exclusivity period with Amazon expires in three months.
Subtle tips and advice can be gleaned from my other ebook, a 440-page direct conversion of my self-reflective blog that I maintained while I was paying off my student loans, but I wrote this current book from the ground up to explicitly help others get out of debt. The themes are more universal, the tone is far more prescriptive, and the content includes only the essentials of what you really need to know to wage all-out war on your student debt and walk away victorious.
When CNN and WSJ and others wrote about my mission to pay off $90k of debt in seven months, I received countless emails from people asking me how I did it. I didn’t really know how to respond because I figured people could either get the details in my blog or read about the main points in the articles. During the past couple of months, however, it dawned on me that folks probably want something shorter than my blog, but longer than the articles and interviews, and they want something that’s more universally applicable and instructive, too. At 440 pages, the blog is too personal and long-winded, but at roughly 400 to 500 words, the articles are too short to be of much help.
Using my debt pay-off experience as a baseline, I’ve spent quite a few hours during the past couple of months drilling into what I believe leads most people to consume and the solutions and mindsets that individuals can employ to avoid these causes of consumption. This 110-page book is 100% fresh and written to target “the gainfully-employed-but-highly-indebted reckless spenders who recognize they have a spending problem and want to fight debt, but don’t know where to start.”
(This ebook is self-edited just like my blog-to-ebook, so please email me about any flagrant grammatical errors and I’ll be sure to fix them.)
Here’s the same preview that Amazon is currently providing on their site:
Destroy Student Debt
A Combat Guide to Freedom
By Joe Mihalic
Table of Contents
In the end, it is not the extraordinariness of the teacher which perplexes, intrigues, and deepens the student; it is the teacher’s utter ordinariness. Because he is just himself, he is a mirror for his students. When we are with him we feel our own strengths and shortcomings without any sense of praise or criticism for him. When we learn to let our own nature free, the boundaries between master and student disappear in a deep flow of being and joy in the unfolding of Buddha mind.
-Shunryu Suzuki, Zen Mind, Beginner’s Mind
I wrote this book to help you destroy your student debt. When CNN, WSJ, Yahoo!, Huffington Post and others covered my blog about my mission to destroy $90k of student debt in seven months, many of the message boards were filled out with outraged commenters asking why the media made a story out of a guy who paid his loans off early with a salary “in the low six figures.” To take that one step further, you might ask why you should read a personal finance book by somebody with such a salary. Do I really think that I can help people drowning in student debt?
In reality, the low six-figure salary was not something like $300k or even $200k—it was $103k, which is $74k after tax. In seven months—the amount of time it took me to pay down my $90k of debt—that’s $43k, and after my mortgage, that’s $33k. So I had $33k at my disposal for not only the $90k of debt, but for any living expenses outside of my mortgage, too. In other words, I wasn’t in a situation where I stopped taking my personal helicopter to work every day and had my chauffeur drive me in my Maybach so I could save money on jet fuel. I had to get aggressive with my spending habits, and the low six-figure salary wasn’t the key to my success.
A comment posted in response to the summary video I made at the end of my mission read,
LOL too funny, but i have to say, i am in a very similar situation except add +$30K & a different school but i have a kid and a wife too. I can’t do it in 7 months, but i am shooting for 24 months! good on him! I think its safe to say that this is many ppl problems.
Another comment read, “My income isn’t even close to this guy’s, but neither is my debt. This is an inspiration!” Similarly, a 23-year-old who has no savings, an enormous bank overdraft fee, and credit card and student debt referenced my story on his own blog and said, “If this guy can pay off $90k in 7 months, then I can pay off £4k in 12, no problem.” These are just three of the thousands of comments I received from inspired readers who didn’t allow my salary to excuse them from losing their own personal fight against debt.
Maybe it won’t be possible for most people to pay off $90k of debt in seven months, but just as these three individuals implied, it doesn’t have to take forever, either. I’m confident that this book will provide you with a battle plan that will enable you to destroy your student debt at an aggressively accelerated rate, regardless of what your salary is.
Chapter 1 | The Enemy: Student Debt
As long as we have some definite idea about or some hope in the future, we cannot really be serious with the moment that exists right now. Some might say, “I can do it tomorrow, or next year,” believing that something that exists today will exist tomorrow. Even though you are not trying so hard, you expect that some promising thing will come, as long as you follow a certain way. But there is no certain way that exists permanently. There is no way set up for us. Moment after moment we have to find our own way. Some idea of perfection, or some perfect way which is set up by someone else, is not the true way for us.
-Shunryu Suzuki, Zen Mind, Beginner’s Mind
Make no mistake about it: student debt has trapped many recent grads and it’s limiting their freedom. This conflict isn’t a minor inconvenience, a big problem, or even a full-blown national crisis—it’s straight-up war. As is often the case with war, the blame lies with several parties. In this case, we can point the finger at the schools that keep raising the price of tuition, the students who keep asking the banks for money for tuition, and the banks that keep funding the tuition.
The private student loan market has grown from less than $5 billion in 2001 to over $20 billion in 2008, and in 2012, combined student debt stands at $1 trillion. Similarly, from 2010 to 2011, in-state tuition and fees plus room and board charges exceeded $17k at four-year public institutions, a tremendous 6% increase from only one year earlier. These days, the average student graduates with $25k of student loans.
Student loan debt now exceeds credit card debt, and many experts believe that as students take on more and more debt to fund their educations, we’re creating a student loan bubble that will pop when students default on their loans and will devalue creditors’ portfolios everywhere and create a recession as bad, if not worse, than the one created by the subprime mortgage crisis in 2008.
This book won’t offer solutions for the banks that are giving away money too freely, and it won’t attempt to fix the colleges that have dramatically increased their costs over the years. It will instead start with you, the reader of this book and the debtor of these student loans, and it will establish a battle plan to free yourself from the death grip of student debt.
With an average debt of $25k, many recent grads are diving into a life of consumerism without understanding the long-term implications of their actions. They don’t appreciate just how little control and freedom they have when a significant portion of their income is going towards their student loans, and instead, they buy things they want and pay down their student loans at the minimum rate for years and years rather than buying only what they need and paying down their student loans as quickly as possible. Student debt is like a schoolyard bully forcing them to give up their lunch money every day, but it’s so subtle that recent grads aren’t even aware that they’re being extorted by it.
Student loans have become the credit card of the 21st century. They’ve enabled recent high school graduates, uncertain about their futures, to borrow tens of thousands of dollars at a high interest rate for an education that leads to a career in a field that they might not really be interested in when they graduate four years later, let alone fifteen years later when they finally make their last loan payment on the standard repayment plan. The career they landed with their debt-funded college degree has allowed them to be active consumers and buy things they want, but they still have a huge amount student debt that they owe to the banks and the government over the course of 10, 15, sometimes even 25 years.
The last thing creditors want is for you to pay your student debt off immediately. The longer you let your student debt live, the more money it sucks out your pocket, in the form of interest, and puts into the pocket of the bankers who gave you the loans in the first place. For example, you might take out $50k at 5% interest for a ten-year term to pay for tuition. You’ll pay $16,639 in interest over the life of the loan, and some of that will offset inflation, some of it will pay for the processing of paperwork that’s required to transact the loan, but most of it will go to the bankers’ pockets.
If you inherit $50k from a long-lost relative the day after you take out the loan and you really want to show debt that you’re not to be trifled with, you should immediately take that money to the bank and repay your loan. Not enough interest has collected on the loan to profit the bank or even pay for the people who processed your loan. When you beat the debt into submission that badly, you win and save $16k in interest charges. The bank hates it when you beat debt that badly, just like they hated it when I destroyed my $90k of debt in seven months and deprived them of $30k in interest.
Make no mistake about it: student loans are public enemy #1 and they’ll trap you into a life without options until you beat them down. Unlike credit card debt, student loans can’t be easily discharged through bankruptcy proceedings. Let’s say you’re working away at your job as a lawyer. You graduated from law school a year ago and walked away with $120k in debt. You’ve been making really good money as an attorney, so you bought a fancy new car and new clothes and you’re living in the best area of town. You feel good that you’re able to keep up with the standard payments on your student debt and still afford such a luxurious life.
For whatever reason, however, you don’t really feel fulfilled. You weren’t sure what kind of a career you wanted to have when you graduated from college, so you took the LSAT and made it into law school. All the lawyers you knew at the time seem to have really plush lives, and you wanted to join their ranks.
In an attempt to improve its public image, the partners at your office recently took on a pro-bono engagement at Teach for America, the non-profit organization that puts teachers in low-income communities throughout the country in an attempt to reduce educational inequality. The partners chose you to head the project, and one day, while you’re meeting with a teacher and learning more about what they do, you have an epiphany and realize that you want to be teacher. In your newly opened eyes, nothing seems more fulfilling than giving underprivileged children a solid education and being a role model for them. You already have a relationship with TFA and they think you have great leadership skills, so they offer you a job. You quit your job as a lawyer and you start teaching at a school in an impoverished neighborhood. You love your new job and realize that this is what you were born to do.
The only problem is that teachers don’t make the kind of money that you made as a lawyer, and you still have a mountain of student debt to pay off.
If you can no longer afford to drive your Ferrari and you think a Honda Civic would be the way to go, you can always sell the Ferrari and get rid of your auto loan at no cost, assuming the Ferrari hasn’t depreciated to a value below what you owe on the auto loan. Likewise, if you can no longer afford to live in a mansion and you think a one-bedroom apartment would be cozier, you can always sell the mansion assuming you don’t owe more on the mortgage than the contract price net of realtor fees.
Unfortunately, if you’re no longer benefiting from the education you borrowed so much money to fund, you can’t sell the piece of paper that serves as your college diploma; you owe the money for that education no matter what. Due to the nature of student loans and bankruptcy laws, you still won’t be able to erase your student debt even if you sell off all of your assets and claim bankruptcy. The creditors of student loans have been known to be ruthless. I remember when I got personal calls—not automated calls, but personal calls—from the bank on the same day every single month asking me why I hadn’t yet made my monthly payment on my student loan. They didn’t realize that it took my bank a day or two to clear the transaction and transfer the funds to them, so they’d call always call and hassle me about my “overdue” payment.
So how do today’s lawyers who want to be tomorrow’s high school teachers (or skydiving instructors or musicians or artists, etc.) avoid getting into serious trouble with the banks for not paying for the degree they no longer value? The answer is to never treat student loans like a credit card in the first place.
When I graduated from grad school with $101k of debt, I bought things like my TV and furniture with my credit card. I paid that credit card off every month, though, and I thought that I was being a fiscally responsible consumer. As long as I didn’t have credit card debt, I reasoned, I was doing just fine.
In reality, I did have credit card debt, albeit indirectly in the form of my student loans. It’s no coincidence that student debt now exceeds credit card debt in the US. My student debt had funded my education which allowed me to land a job with a $103k salary which allowed me to buy things I didn’t need on credit and pay off the balance of my credit card every month. I wrongly assumed that since I wasn’t racking up the 20% interest rate on my credit card, I was being a responsible consumer. In reality, I was just being a less irresponsible consumer. I still had student loans, the initial debt that landed me a high-paying job and facilitated the lifestyle I was living at the time. By having indirect consumer debt in the form of student loans, I was incurring interest of up to 7.9%, the interest rate on my student loans. That’s not 20% like my credit card interest rate, but it’s still significant. If I had taken my student loans—my 21st century credit card debt—to full term, I would have paid $42k in interest. That’s not fiscal responsibility; that’s a trap that prevented me from switching careers if I ever found something more fulfilling to do.
As people continue to consume things they don’t need and pay down their student loans at the minimum rate, they remain trapped by their debt and their options in life remain severely limited. Not only are career changes a non-starter for people burdened by student loans, but The Washington Times recently reported that student debt is forcing recent grads to postpone standard life events like getting married, buying a house, and starting a family. (And for those who have already married, student debt can even lead to failed marriages; the number one reason for divorce is money problems.) Indeed, career changes and life events that Americans take for granted will forever remain elusive to those who don’t stop consuming things they don’t need and start paying down their student loans aggressively.
By becoming debt-free as quickly as possible, you can get onto a path that leads to freedom and a brighter future that you can fully control. In this book, I’ll teach you the hand-to-hand combat techniques that I learned in my own personal fight with the $90k of student debt that I paid off in seven months. I’ve met the enemy, studied it, learned its ways, and I’ll help you defeat the enemy.
Part 1 | Mission Briefing
Chapter 2 | Ground Zero
In order not to leave any traces when you do something, you should do it with your whole body and mind; you should be concentrated on what you do. You should do it completely, like a good bonfire. You should not be a smoky fire. You should burn yourself completely. If you do not burn yourself completely, a trace of yourself will be left in what you do. You will have something remaining which is not completely burned out. Zen activity is activity which is completely burned out, with nothing remaining but ashes. This is the goal of our practice. This is what Dogen meant when he said, ‘Ashes do not come back to firewood.’
-Shunryu Suzuki, Zen Mind, Beginner’s Mind
They say that hindsight is 20/20 and I have to agree. Our thoughts and actions are not always clear when we’re going through a challenging time and the heat of the moment is scalding hot. We often lack self-awareness during these times and we don’t always know why or how we came to think or do certain things. And since practice makes perfect, we usually find that there’s a better way to do something after trying it even just one time.
Rapidly paying off debt was a foreign practice to me when I challenged myself in August 2011 to pay off $90k of student debt in ten months. Sometimes, it felt like I was fighting debt with a blindfold over my eyes and one hand tied behind my back. It was difficult for me to lay out a coherent battle plan when I was fighting in the thick fog of war.
For reasons I’ll go into later, I used to be very materialistic and extremely money-hungry. As a high school student, my singular life-goal was to make an annual salary of $100k as soon as possible. In 2009, at the age of 26, I graduated from Harvard with my MBA, $101k of student loans, and a tech job with a base salary of $97k and a signing bonus of $17k. I had achieved my life’s dream and I immediately started spending money, beginning with the purchase of a BMW M3 before I even graduated from Harvard. In the first two years after graduation, I bought a three-bedroom house, furniture, entertainment system, a second car, a motorcycle, and a carbon fiber road bike. I spent $800 to $1,300 per month on entertainment—going out with friends, dinner dates, and traveling. I spent the money on things and experiences to feel better, to make life easier and more fun, to make sure I experienced all the “right” things, to fit in, and to impress friends and strangers. In a way, I was trying to make up for all the times I ate my lunch alone in the library during high school instead of with friends in the cafeteria. (I’ll talk more on that last point later in the book.)
I was living at the very edge of my means. Every dollar I made was completely allocated to paying off my student loans at the regular rate, zeroing out my monthly credit card balance, and putting 10% of my salary towards my 401k.
One day in August 2011, I checked my student loan balance. In the past 22 months, I had spent over $22k on my loans ($1,057 per month) and had chipped away only $10K of the $101k principal, putting the loan balance at $91k. It would take 15 more years to clear the debt if I continued to make only the minimum monthly payments.
That night, while struggling to fall asleep, I came to the realization that unless I made some extreme lifestyle changes and paid off my debt, I would remain trapped in my current life. I was living at my means and I couldn’t afford to start a family, change careers, start a business, buy a business and turn it around, or even take a year off from work and backpack around the world. I wasn’t sure that the 50+ hours per week I spent at the office in my current job was something I wanted to keep doing, and I wanted the freedom to try other options. At a bare minimum, I wanted to stop feeling like student debt had me pinned down to the mat with the referee standing over me and counting to ten…
Click here to get the book and keep reading.
Stop drafting hate email to me. That title’s mean to be provocative because it’s in response to the general conclusion that this bankrate.com article draws:
One hundred thousand dollars. Since the 1980s, the magical “six-figure” salary has been a benchmark for financial success. Not too long ago, that income often meant two nice cars in the garage of a large house, fun family vacations and plenty of money left over to save for retirement and college tuition.
But times have changed. Not only has standard inflation steadily eroded the real value of a $100,000 income, but the costs of housing, health insurance and college tuition have risen dramatically in recent years. Consider the rising costs of food, energy and the necessities of a middle class life, and that six-figure luxury quickly turns to six-figure mediocrity.
I came across this article awhile ago, but I didn’t have the right opportunity to talk about it until today when I was at happy hour with my buddies and the topic of salaries came up. There I was, sitting at the bar, tipping back a cold one after a run at Gold’s Gym, looking pretty classy in my running shoes and sweaty shirt and shorts, when my buddy, Navneet, remarked how he feels like it’s going to take forever to save up for retirement. I put my beer down and replied that I was envious that his wife and he, who are both making about $125k each and have no kids (classic DINKs) were able to share a lot of their living expenses, like a mortgage, whereas I was not, and that they’d be there in no time if they lived frugally. And then I said something he took exception to: “After all, you’re upper-middle class.”
His reply: “Are you sure? I really I don’t feel like it! I feel like I’m just barely making ends meet. And then when kids come, it’s game over–there goes all my money for retirement. We’re going to need a bigger house and we’re going to have to save for college–it’s going to be expensive for those guys!”
I think my jaw dropped. After the momentary shock, I blurted out, “Dude, you drive a BMW 335i! What are you talking about, ‘barely making ends meet?'” And not only that, Navneet also has a good-sized three-bedroom house in Round Rock, dresses well, and travels on the regular. Barely making ends meet? My buddy Sunil and I exchange glances, and Sunil brought up the fact that a household income of $250k is the 3% of household incomes. 3%! “If that’s not upper-middle class,” Sunil said, “then I don’t know what is.” Navneet didn’t believe it, so I had to Google it and present him with the entire table for his edification.
Amen, Sunil. Amen. A household earning $250k is a prosperous household indeed. And Navneet has even less to complain about given that he’s living in Austin where the cost of living index is a low 90.6 out of 100. If he feels like money’s tight here in Austin, homeboy would never survive on the coasts where the cost of living index is greatly inflated.
The Bankrate article says that the effective value of $100k today is $381k in 1976, and that’s just looking at inflation–it doesn’t take into account expenses that have grown at a greater rate than many things found in the Consumer Price Index such as student loans, housing, healthcare. Fair enough. Peace. A $100k salary doesn’t make you a baller. But barely making ends meet? I mean, if that’s the case, then what about the 50% of households that are making $50k per year? If a $250k household feels like they’re not making ends meet, then how on Earth do the guys making $50k survive, to say nothing of the people at the lower end of the spectrum?
It comes down to how we spend the money. Travel and BMWs are expensive. If Navneet traveled less and had a cheaper car, he wouldn’t feel so stretched, and he might be a little more excited about welcoming some little ones into this world. And how is a 3-bedroom house not sufficient for a small family?
I’m not saying anything brilliant here–I’m basically echoing what the article says much more eloquently than I:
[B]uying too much house, spending too much on automobiles and having too much debt is commonplace with families in the $100,000 income level and largely responsible for the six-figure pinch. [A typical $100k household] owns a $375,000 home, leases 2 vehicles for $450 each per month and pays $250 per month on credit cards. After that household pays the mortgage, car notes, debt and takes out Social Security and federal income taxes, it has spent 75 percent of its income.
Here’s where the real concern lies: The table depicting household income percentile above hasn’t changed much over the years, but the purchasing power of a $100k salary has definitely eroded since 1976. This is cause for concern because as inflation and expenses like housing, education, and healthcare continue to rise, but the percentage of people earning above a certain dollar amount doesn’t, then we’re all effectively getting poorer. And that’s a problem.
Saving for Corvettes over College
I participated in a filmed segment for the Huffington Post this morning regarding student loans that you can watch here. The discussion was rich. 12:27-12:30 is BEGGING to be auto-tuned–absolutely begging for it. Also, I let my dogs off the leash at 13:30 when one of the guests doesn’t let me get a word in edge-wise. I guess I get a little cranky with only four or five hours of sleep under my belt.
Anyway, the parents of one of the guests, Lauren, decided to buy a lake house instead of paying for her undergrad degree. I ask her what she did to tick them off so badly. I mean, seriously, her parents are definitely selfish if not downright irresponsible. It’s one thing if her parents couldn’t afford to pay for college, but to buy a lake house instead of setting their daughter up for success in such a brutal economy is just cruel. During the interview, you can actually sense the trepidation she has about paying off her loans. And it only gets worse: Lauren remarks that she’s lucky her parents co-signed for her–they have so many loans out right now that they can’t even co-sign for her two siblings. Outrageous!
I want to take a moment to more fully flesh out my Pre-Signing Considerations post.
Who typically makes the decision on where to go to school and what program to study? A 17-year-old. That’s the standard the age at which teenagers start applying to schools.
To all the 17-year-olds who read this blog…wait, are there any? If a tree falls in the forest…
17-year-olds need to start reading this blog ’cause it’s about to get real. Anyway, I digress.
How many 17-year-olds know anything about personal finance? How many of them have invested their money, even if it’s just $100? How many have more than three digits in their savings account? How many of them even have a savings account? How many of them know the definition of simple financial terms like:
Parents, if you’re not talking to your kids about these terms before they become teens, you’re doing them an incredible disservice. When I was five years old, my parents gave me a long list of weekly chores and a $5 weekly allowance for completing them. They forced me to save my money so I could buy my things on my own–besides my bicycle, they didn’t buy me any toys if it wasn’t my birthday or Christmas. I got a savings account when I was seven; they told me to invest in CDs when I was 12 so I could experience a positive ROI; I got a checking account when I went off to college; I wasn’t allowed to have a credit card until I graduated from college and got a job.
How can we expect the 17-year-olds of this nation to make a smart choice on student loans if they don’t even know the basics of money management?
I’ve read some of the 5,400+ comments on the NMHD Yahoo! article, and a lot of the snarky ones say something to the effect of, “Oh, sure, if I got an MBA from Harvard, I could pay my student loans off in seven months!” Or, “If I made six figures, I’d easily pay off my loans!”
Exactly. You’re right. You got me there, buddy–I really can’t argue with that! A Harvard MBA will connect the grad with jobs that will enable them to pay off their debts very quickly if they maintain a low cost of living.
I got my MBA at Harvard and I took out $100k in student loans because I saw–before taking out loans and making the investment–that the median salary for grads was in the neighborhood of $120k. It doesn’t take a financial guru to see that the ROI is incredible. However, it does require at least understanding the expected return and the investment required to calculate a return on investment. And that understanding begins at a very young age, like five.
When a 17-year-old from a middle-class family decides to takes out loans to finance his entire social work degree at Columbia University, the most expensive private college in the US at $45k/year (before room and board in super-expensive New York City!), I have to wonder what the heck is going on inside his head and what his parents taught him about personal finance. Am I knocking social workers? No. Am I knocking Columbia? No. Am I knocking student loans? No. I’m knocking the combined trio.
There’s nothing wrong with studying social work, and in fact, I’d argue it’s one of the more noble professions out there. I’d just implore students to not pay $200k to study it. Why not? Because the average salary for social workers is $41k. So after-tax, you’re looking at, what, $30k/year in take-home pay? And if you need an apartment for $500/mo or $6k/year, you’re down to $24k/year. So that’s $2k/month for all of their other expenses, which will include student loans. If my $100k of student loans required a monthly payment of $1,057, and this person took out almost $200k just for tuition, then we can safely assume they’re going to be paying about $2k/month on their student loans for 10-15 years.
Wait, isn’t $2k/month that what they had left over for food and clothing and transportation after paying for their $500 apartment? And by the way, where exactly does one find a $500 apartment?
And I’m not knocking Columbia, either. I’m sure there are a lot of great programs at that school that can put students on the fast track to earning a solid salary that will enable them to pay down their student loans quickly–as long as they maintain a low cost of living. It’s just that social work isn’t one of them.
And I’m not knocking student loans. For students who are strapped for cash and already working a job just to survive, student loans put an otherwise unattainable education within reach.
While this post was targeted mostly at teens, college grads who are eyeing a grad program aren’t going to get off so easy, either. Do any 22-year-olds read this blog? If a tree falls in the forest…
But check it out. Here are five graduate degrees that aren’t worth the paper they’re printed on:
The same premise applies to both high schoolers and pre-graduate students: consider the ROI.
After receiving yet another email request to make my blog available as an ebook, I’ve finally taken the time to self-publish it on Amazon.com for the Kindle platform.
It’s available here.
This is a direct blog-to-ebook conversion of the popular No More Harvard Debt blog found at nomoreharvarddebt.com and featured on CNN Money, The Wall Street Journal, The Chicago Tribune, The Huffington Post, Yahoo! Finance, The Dave Ramsey Show, and countless other media outlets. This book chronicles a Harvard graduate’s self-imposed mission to seek financial freedom by paying down his oppressive $90k of student debt in ten months instead of 15 years. With a mortgage, two cars, a motorcycle, and monthly entertainment expenses of $1,300, he doesn’t have the slightest clue how he’ll maintain his standard of living and pay off his student loans early with an after-tax salary of $74k, but he’s willing to give it a shot and share the adventure with readers along the way.
I’ve edited, revised, and reformatted all 440 pages to flow as a book. There’s no new content per se, so purchase the book only if you value the Kindle reading experience versus the internet at or above the $3 list price.
I’ve made the book available as part of Kindle Direct Publishing Select program which makes it free to Amazon Prime members. Alternatively, if the $3 cost represents a hardship for you, then please email me at firstname.lastname@example.org and we can work something out. I extend the same offer to dedicated followers/commentors/encouragers–you know who you are!
Please leave feedback on Amazon if you purchase the book. I hope you enjoy it!
Check it out! What do you think of my new ride?? Ahhhhhh, I’m so excited right now!!! This is the DREAM!
I had an extra $1,057 burning a hole in my pocket after I paid off my loans and I had no idea what to do with it, so I went out and got myself a Ferrari. The last three months have been absolutely unbearable with this money not already allocated to something…I had taken my savings down very close to $0 when I paid off my loans, so when I had an extra $1k coming in over the past few months, I obviously had to find a home for it.
This beautiful red Ferrari Modena was a Buy It Now for $73k on EbayMotors, so I snatched it up super-quick. Only 33k miles!! I put $0 down (naturally) and the monthly payment is $1,363 per month for five years. Interest will come to $7,800. Pennies, really, when you compare that to the $40k on my student loans. The way I see it, I avoided $30k of interest on my student loans, so this decision was pretty much a no-brainer. I mean, I basically deserve the car, right? Isn’t she just downright SEXY?? Mamma mia!! Che bellissima!
Psyyyyyyyyyyyyyyyyyyyyyyych. I’m kidding. I’m three months out from paying off my student loans, and in a few more weeks, I’ll have seven months of living expenses saved up. I’ve attacked the build-up of my emergency savings almost as ruthlessly as I attacked my student loans. Now that I have a solid emergency fund, I can finally breathe a sigh of relief. In the video where I paid off my student loans, I wasn’t as excited as one might expect when I paid off my loans because I had damn near zero dollars. If I had been terminated the following day, I would have needed to ask my parents for financial aid, and that’s a non-starter on principle alone.
So here I am, seven months of living expenses under my belt, and it feels FREAKING AWESOME. I really cannot overemphasize the awesomeness of this feeling. If I lose my job tomorrow, I can survive for seven months without asking for a hand-out. If I get unemployement checks, I can stretch the Screw You fund out even further. I still work just as hard as ever at the office, but an element of stress has been removed, and I actually feel a lot more effective.
The gun is no longer up against my head, I’m out of debt prison, and I can start thinking about what the next level is going to look like. This feeling I have right now is completely worth everything I gave up in order to get it.
In order to save up the emergency fund so quickly, I continued to be frugal. While I did landscape my yard for $1.8k and bought a couple of shirts and sheets for my bed, I haven’t really spent very much money outside the standard bills, and my monthly expenses have not increased dramatically. I’ll take the Fifth on the flask. Suffice it to say that I’m leveraging Kasbah, which is BYOB, a lot more these days.
I thought I was done with skipping out on bachelor parties and weddings, but not quite. My buddy is getting married in December, and he’s having his bachelor party in September. He lives here in Austin and he’s chosen to have it in Bangkok because he has some very close friends in Europe and Asia. I was on the Facebook thread for the invitation, and people were opting in and out, and most people were initially onboard. I replied, “In. Assuming it’s $$$ and not $$$$$$$$$$$.” Well, I don’t think there’s a way to do Bangkok for sub-$$$$$$$$$$$. Maybe $$$$$$$$$, but not $$$–not with my friends, anyway. Sadly, I had to opt out. At the end of the day, out of the long list of all the people were originally in, it’s looking like six will be going, and most of them either already work in Asia or have family nearby that they can visit while they’re there. I’m wondering if my plea for fiscal sanity had anything to do with it (nevermind the 30 hours of one-way flying for only four days of partying).
I’m pushing hard for an American version, and it’s looking like it’s going to be the F1 here in Austin in November. I had actually avoided buying F1 tickets initially, even though I love cars and racing–and I’ve even held off on buying Austin City Limits tickets even though I love music. That’s about $500 I saved right there. I really, really want to regain a feeling of financial stability and keep the doors for future opportunities, and I’ve been able to continue to deny myself certain pleasures for the sake of the bigger picture. In this case, however, I’ll probably compromise and buy an F1 ticket since it will double up as a (killer) bachelor party.
Anyways, gotta run–gotta take my 12-year-old Honda (that I genuinely love so much) to the grocery store for some quick errands.