Take a leak on debt.

August 11, 2011 · 18 comments

If my blogs url doesn’t give it away, let me spell it out for you

I – H-A-T-E- D-E-B-T.

It hasn’t always been this way. Four years ago, I was impartial. I knew debt was bad news, but didn’t really know why. It wasn’t until I used this nifty little student loan calculator, that I realized the ramifications debt could have on my financial situation.

I finished college in 2007 and deferred my student loans for the six months I was able to upon graduation. I then consolidated my $28,000 balance with Sallie Mae to delay the payments for an additional month. This debt thing was pretty sweet at first. I got a four year education and only had to make $178 monthly payments afterwards. It didn’t really bother me that I was on a 20 year payment plan. I thought “My student loan payment stays the same, but my income is sure to go up. Sweet!” Basically I was a big fat stupid head.

I didn’t realize the implications of interest. I knew that I would have to pay off a larger amount than the original $28,000 balance, but didn’t really realize just how much it would be. When I crunched the numbers, I saw my total repayment was over $52,000. I just about crapped my pants. My first thought was “Is this legal? Surely they can’t charge nearly double my loan amount… can they?” Turns out, the devil Sallie Mae can do whatever she wants.

To further fuel the fire, I continued on my number crunching extravaganza and realized the $178 payment plan Sallie Mae put me on was also evil. Running the numbers revealed this tasty little morsel… $28,000 at 7% means I will be paying $1,960 in interest each year. If I made minimum payments each month I would pay a total of $2,136 each year. Do you know what this means? After two years of payments, my balance would have gone from $28,000 to $27,648. Yeah that’s right, after forking out about $4,200 in cash I would have only lowered my balance a whopping $352…bull$h!t.

I hate debt because it’s deceptively expensive. Borrowing money costs too much for me to want to flirt with it ever again (except for a reasonable mortgage). We all know debt sucks, we all know high interest rates suck, but do we all take the time to realize that only $350 of our $4,000 in payments actually went to lowering our balance? At first, I sure as heck didn’t, but you better believe once I saw the light, I was gonna do everything in my power to punch debt in it’s ugly little face.

1 Ms. S

I hate it as well. My estimated SL pay off date is Aug 2027!!! Putting total repayment WELL into the 6 figures!!! I graduated grad school in 2005 and still have quite a bit of SL debt left. I plan on annihilating it by Dec 2014 or sooner if I can really get intense. I’ve already paid $12,580.38 in interest since 2005 and that makes me SICK! So, I am constantly trying to keep myself focused on paying it off asap. Just chucked 3k at it yesterday. Stupid student loans that I naively signed up for. hmph.

2 Ryan

I hate interest too, but I am glad that student loans let you extend the repayment term for so long. I’ll probably go with the 20 year payment plan, but make payments that are way bigger. At least if my income lets me. Having a long payment term is sort of an insurance policy against job loss or emergencies. You just never know when things are gonna be tight.

3 Jenna, Adaptu Community Manager

The crazy thing is that most college graduates don’t understand that they are forking that much money over in interest. I’d say Ninja you are definitely the cream of the crop when it comes to actually digging into the meaning of financial decisions. But chances are the average American student has no idea.

4 StackingCash

Reasonable mortgage? I hope you are talking about a 15 year fixed. Lately, I’m thinking being a cash buyer is better since you don’t have to pay closing costs either. I do envy the rich that don’t have to borrow, hence do not have to pay interest charges.

5 krantcents

Yes, debt is deceptively expensive. Not only are you accumulating interest, but the payment could be better used elsewhere.

6 This Guy

0% interest financing is one hell of an option though when it comes to cars or store accounts/credit cards. Read the details, but many places just want your money and will put charging interest aside if you pay within the terms.

7 cashflowmantra

You are wise to have learned this lesson early in life.

8 Happy Homeowner

I’m on a mission to eradicate my student loans as well. It kills me to think about the money I’m losing to interest, but I also feel OK knowing I’m throwing at least $1000 per month at them. I’m on track to pay off everything in the next 5 years or less. This includes a Bachelor’s and two Master’s degrees, but I HATE DEBT, too! Love the calculator, though–running my numbers has given me even more motivation to kick this debt to the curb; thanks for sharing!

9 Matt

ninja.. i think this is important. Thanks for breaking down the numbers and helping people realize just how dangerous and stupid debt is. Debt is horrible…and I hate the weight of it on me.

10 Financial Success for Young Adults

Unfortunately I am about to have to start paying back my student loans also. I want to get to the point where I can pay them all off at once but until then I will be working my behind off to pay at least twice the minimum payment.

11 tracey

Yeah I hate debt too. The thing is most people don’t even realise how much their spending is contributing to their debt. You walk into a store and you think “I want that, I deserve it” not “This will cost me $100 plus interest and I’ll be paying it off for months”. And then you get to the end of the month and it’s like “waaah! why is my credit card bill so high!”. It’s because you used it chump!

Tracey :)

12 Kiera

Thanks for the wake-up call!

13 harry

I think wealthy people know how to make use of debt, while poor people only be the slave of debt

14 Erica

The first thing I did when I finished my post education was figure out how much interest I would be paying. I cant wait to be done paying it off.

15 B Kelly @ MoneyMasteryAcademy.com

Love the way you write – definitely no BS from you! ;p Student loans, personal loans or whatever loans for that matter – keep the repayment period as short as possible and pay as much as posible. Just keep this in mind – early settlement can sometimes attract penalties/charges! I got slapped with that once and that’s the first thing I check for now…

16 Claire

People often talk about good debt and bad debt, but the way I see it at the end of the day there is just debt. Some of it is necessary – mortgage for instance, but it is still just debt and a weight around your neck limiting your choices.

17 Oskar

We should not be talking about good and bad debt we should be talking about really bad (credit cards), bad (student loans) and sort of accepable debt…like a morgage:-) i.e. there is no such thing as good debt…!

18 South County Girl

I had a similar experience with my auto loan. It was the first debt i’d taken on and I got so sick with the interest payments and everything that i started making larger and larger payments. I’d turn in recycle and send $4 to them.. even if it was just a day after I made my last payment. I’d toss $1,000.00 on it when it was an extra paycheck month… The interest was just bugging the crud out of me.

but I paid it off in a little over a year.

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