You all know I was $28,000 in student loan debt when I graduated. I consolidated my loans with Sallie Mae so I could pay them back over the next twenty years. My monthly minimum obligation was $200. After about three payments, I got sick of making them. I was annoyed by the fact that I owed someone money and had to give them a portion of my hard earned income.
As much as I didn’t like the idea of payments, the thing that really drove me to punch Sallie Mae in the face was the interest rate on my loans. Had I graduated just a few years earlier, the interest on these federal loans would have been about 2%. Unfortunately, I graduated college at the worst possible time, right when the economy was peaking, meaning the epic crash took place just a few months later. Instead of being able to consolidate my loans at 2% like my sister had, Sallie Mae offered me a whopping 7% interest rate. SEVEN FREAKIN PERCENT!!!!!!
So when my minimum payment was $200 a month, $163 of that was going to interest and only $37/month to lowering the balance. How dumb is that?! Had my interest rate been 2%, $46 would have gone to interest and the rest to lowering my balance. Seven percent interest was absolutely unacceptable to me (and it should be for you as well).
Heck, even when we bought our car last week I entertained the idea of financing part of the cost. I figured with a good credit score I’d be able to get a used car loan around 3% and keep a decent chunk of liquidity on hand. But then I thought, why the heck would I pay any interest when I don’t have to? It’s not like I was planning on investing that money in the stock market and earning greater than 3%. It’s not like it would have depleted my emergency fund and left me cash poor. I just couldn’t bring myself to take on a loan. It would have been stupid.
So we hear people say all the time “you shouldn’t cary high interest debt.” Well friends, today I pose the question, What does high interest mean to you? For me it definitely meant 7% on my student loans, and even 3% on a car loan. I guess the only interest I don’t consider high is a REASONABLE mortgage on a 15 or 30 year loan. Hows about you?