The Downside Of Paying Down Debt

Last month, we were able to pay down a very big chunk of student loan debt as a result of using a portion of our tax refund and a small inheritance that I received.

These were two decent size chunks of money, that when it added together, allowed us to eliminate about 25% of the student loan debt in one fell swoop!

That was awesome but as it turns out, there’s a (tiny) downside.

What could that be?

Well, it’s that it created such a ‘high’, that the return to normal debt payments is sort of a letdown.

This month, we paid off the normal amounts as is typical for a standard month. Because we paid off so much, we paid less interest and more towards principal, but overall, it just doesn’t generate the same rush.

So, the moral of the story is that while ordinary is good (and I’m not complaining), the rush generated by the bigger chunk payments is exhilarating.

All the more motivation to search for ways to find extra bucks.  For a drug addict, this would be bad because it would be ‘chasing the high’, but since we’re talking about debt payment, this is one rush that I don’t mind chasing!  Especially if it leads to us knocking chunks off our debt outside of the standard monthly payments.

Paying Down A Chunk Of Student Loans

Last December, I reported that my grandmother had passed away.  She was 95 and lived a great life.

I miss her dearly.

She was kind enough to have left me an inheritance.  She and my grandfather (who passed away in the mid-1990’s) lived modestly, but were able to save a little bit.

My grandmother had told me of the fact that I was to receive some money at a couple of different points over the past few years.  Even so, I never ‘counted on’ this money, because I knew that expenses she might have for medical or housing issues might necessitate dipping into her savings.  If that would have happened, I would have been perfectly OK with that because her happiness and comfort was more important to me than any amount of money could have provided.

Things played out, though, where I did receive some money after her passing.  I’m holding onto some, and not including it our net worth, because I haven’t decided what to do with it.  I have often heard that the best thing to when coming into money is…..nothing.

We did make a decision to take some of it and apply it towards paying down the student loan balances that exist as debt.  Our goal is to pay these off by the end of 2012, so we applied a portion of the monies towards that.

I sent off the payment this morning!

I know that my grandmother would approve of this choice.  She and my grandfather were among the first people to instill in me, at an early age, the belief that carrying little or no debt was the best way to go.  From as long as I remember, my grandparents owned what was theirs.

The payment we made will take out a big chunk, around 40%, of the first of two student loans.  In addition to applying 25% of our expected tax refunds when those come in, we should be on track to be near a zero balance by the end of 2010.  Once that’s paid off, we’ll ‘debt snowball‘ the amount we’re paying on the first loan into the second loan payment.

I would much rather have my grandmother back, but I’m thankful that I do have thirty five years worth of memories of her, and a lot of good values and things that provided me happiness. Paying down our debts will make us very happy, so even though she’s not here in spirit, part of her is along the journey with us now, and I’m very happy to have her on our side!

Other great reads

Here are some additional posts I’ve read recently by other great, hard working bloggers.  Give them a read if you have a few minutes:

Our Rule Of Twenty Five (Percent)

One of our biggest financial goals is to get out of all non-mortgage debt.

Thankfully, we don’t carry any credit card debt and our cars are both paid for, so the only thing we have at the moment is student loan balances.

When my wife was working, we were able to dedicate big chunks on a pretty regular basis, and the balances dropped quite a bit. My wife left the work force last year to take care of Baby Beagle, and coincidentally, her paychecks stopped.  Sadly, this reduced our ability to pay extra in most months.

(In all seriousness, we realized this going in and were fine with the trade-off)

Even so, we still want paying down debt to be a priority, so we now have a rule of twenty five percent.  That simply means that any ‘extra’ income we come across, twenty five percent will automatically go towards paying down debt.

At the moment, our extra cash inflows are pretty much limited to tax refunds.  We haven’t gotten our return yet, but we did ‘hold back’ some money from each of my paychecks last year that we knew would be refunded to us if we’d let the government withhold more.  We have that amount available to us now.

We’re also anticipating an actual refund.

As a one time thing, you may remember last year when I announced that my grandmother had passed away.  She left us some money, and we will be applying the same rule towards the money we receive from her.

With these three items, we’ll be able to reduce our student loan debt about 20% from it’s current level.  Our goal is to have these loans completely paid off by the end of 2012, and this will keep us on track.

I like the rule of twenty five percent, because it makes the application of the money towards the loans almost automatic.  We know we’re coming into a little bit of cash, and we automatically take that twenty five percent out of any discussion of what we want to do with it, as my wife and I know that it will be going directly toward paying down debt.

Student Loan Status

Here’s the status of one of the two student loans we have.  This one started off with the bigger balance and had the higher interest rate.  Notice I use the past tense!!!!

Account Summary

Serviced by……

Key Alternative Loan

Status: Paid In Full

  • Account Balance: $0.00
Woo hoo!

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