Are You Investing with Borrowed Money?

One of the questions that usually comes up when talking about how fast to pay off student loans is “Well, shouldn’t I invest my money rather than pay extra on my debt? It will grow at a rate in excess of the interest I am paying on my loans”.

The wise answer to the question is NO. You should pay the debt off as fast as possible THEN start saving and investing. Getting out of debt is remarkably freeing. It creates financial strength. It demonstrates you have the discipline to make decisions in life that fit within your financial means.

Here is an article titled Should You Borrow Student Loan Money to Invest. Read it and see if you generally agree with his answer.

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Small Student Loan Payments Create a Surprising Risk

One of the big risks you take on with student loans starts when you decide to pay them off slowly. By slowly I mean taking 10 or more years to pay off your student loans.

Making the smallest monthly payment you can get away with means the debt will be hanging over your head for a long, long time. You have years and years of payments (including interest) to make on those loans and you have to be constantly mindful of that obligation every single month.

  • But what happens if you get laid off?
  • What if you have a lifelong dream of starting your own business but you can’t go even a couple months without a steady income because of your debt?
  • What if you meet the love of your life and decide to become a stay at home spouse or parent?

Your student loans will handcuff you and become a constant drag on your ability to make even the most basic family and life decisions if you keep them around too long.

Freedom and Peace of Mind

Paying your student loans off quickly gives you more freedom to make decisions in your life. It puts some cushion between you and the ups and downs of life. When you don’t owe anything on your student loans you are no longer a slave to that annoying monthly payment.

You don’t have the worry that wakes you up in the middle of the night stewing about what might happen to you or your family if you lose your job or some other financial surprise pops up.

You will notice a sense of calm and confidence as you reduce the financial risk inherent in having a large student loan hanging over your head. You have more flexibility to make decisions. And flexibility will help you survive and thrive in life. That’s a great way to live.

And it starts by making a commitment to pay down your student loans as quickly as possible.

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Winning the Fight with Student Loans

Yahoo Finance ran a great article recently that looked at how 7 people paid off their debt (not just student loans). The title of the article is 7 Real people Who Are Winning Their Fight With Debt.

They give you a look at who each person is, what their debt wake-up call was, and how they paid their debts off. It’s a fantastic and inspirational look at real people. It will give you hope as you go about your own fight to pay off your student loans as quickly as possible (and any other debt you might have).

But there is some bad news. Each person sacrificed in order to free up cash to pay off their debt. They felt some pain. They had to give up some things in order to accomplish their goal.

But there’s good news as well. Imagine the freedom and the sense of pride knowing that your student loans are fully paid and out of your life forever. Imagine the weight lifted from your shoulders.

It’s doable. The key is: what is going to be your debt wake-up call? And what are you willing to give up for a while to free up cash to pay aggressively on your student loans?

Read the article here real quick. It will motivate you and give you the strength to knock that student loan out for good.

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Peace of Mind is the Prize

Joan Otto, at Man Vs Debt, wrote a great post titled What Does Wealth Look Like To You?

She talked about her view on a book she just read titled The Millionaire Fastlane and some thoughts that the book brought up in her mind.

She ended the post with the question: “What does wealth look like to you? Is it a Lamborghini? A huge house? Awesome vacations? Or is it something else – the ability to donate $20,000 instead of $20 to a cause you’re passionate about? … So what does wealth look like to you?

She got a lot of interesting comments and answers to her question. Here is the answer I provided.

“Very helpful review and insight on the book Joan. Thank you.

Wealth to me is a sizeable net worth (assets minus debt) and peace of mind. And on the subject of debt, my view is that when a person focuses on building a strong net worth, together with peace of mind, they are naturally led toward paying their debt down.

There are two reasons. The first is the math of paying their debt off quickly increases their net worth. So it makes sense to bring debt down since it grows their net worth over time.

The second is paying off debt relieves them of one of the larger stresses in their life. As they taste the freedom that comes from becoming debt-free, they realize they are being wise with their money and reducing some of the financial risk in their life. It feels better. It feels lighter. It feels like, well, peace of mind.

Then they look at their ever growing net worth and they feel a sense of pride and accomplishment and (you guessed it) – peace of mind. That’s wealth to me!”

I hope you will give some serious thought to paying your student loans off quickly so you can grow yourself a nice, comfy net worth – and peace of mind. :-)

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Paying Your Student Loans Off Quickly Has Hidden Benefits

Here’s one of the secrets to achieving your goals in life. Before you list the steps you are going to take to achieve a goal, take a minute to get a crystal clear picture in your mind of the benefits you are going to enjoy as you achieve your goal.

Create a clear mental image of what success will look and feel like and what it will bring into your life as you experience that success.

This is a wonderful way to get excited and motivated about paying your student loans off quickly.

Your Future is Bright

In my last post, I asked you to imagine that I waved a magic wand and made your student loans disappear. And I asked you to imagine how you would feel inside knowing your student loans were gone forever?

Now I would like to share a sampling of the benefits you will taste as you choose a life free from your student loans.

  • Eliminate the embarrassment of hiding your student loan balance so your friends and colleagues don’t know find out how much you still owe
  • Experience the peace of mind that comes with financial independence
  • Strengthen your persistence and achievement muscles
  • Eliminate financial stress
  • Make it easier to have a nice emergency fund
  • Get one step closer to becoming a millionaire
  • Prove to your parents you’ve got your sh@! together
  • Demonstrate to yourself that you can win with money
  • Bust through the glass ceiling that’s holding you down financially
  • Rise above the mediocrity infecting so many graduates today
  • Put yourself in a position to help others financially
  • Create a legacy of financial wisdom and independence that lasts forever

You have a bright future ahead of you.

It gets even brighter as you make your student loans a part of your past rather than a part of your future.

Paying your student loans off quickly is not only wise – it’s a helluva lot of fun! :-)

How Would You Feel if Your Student Loan Balance was ZERO?

Imagine for a minute I waved a magic wand and made your student loans disappear. They are gone. They are fully paid off.

Picture your student loan statement saying “Paid in Full”.

Imagine how you would feel inside knowing your student loans are gone forever?

  • How are you going to use the extra money you have every month?
  • Are you going to save for a strong down payment on a house?
  • Are you going to invest the extra money to build a strong financial foundation in your life?
  • Are you going to use that money to start saving for your child’s college education?
  • Will you enjoy the freedom of choosing a job you enjoy rather than one whose primary purpose is to make your monthly payment?
  • Does becoming free from your student loans create a sense of pride and accomplishment that you can feel in your bones?

Knocking your student loans out is such a cool feeling. It sets the stage for so many good things in your life. It’s the beginning of a future that is bright and free from the stress and strain of dragging that monthly payment around year after year.

Your Freedom is Just Around the Corner

In this blog, I will share with you what I consider to be the wise approach to dealing with your student loans. I’ll show you how a little sacrifice now is the ticket to your financial freedom in life.

I speak from experience when I say freedom from student loans is an amazing feeling. In fact, becoming free from debt is one of the most liberating feelings you can imagine. I love it.

And I’d like for you to taste that freedom in your life too.

Your family legacy: Student loan debt or financial freedom?

One of the decisions you have to make when you have student loans is how to pay them off. Are you going to pay them off quickly after school? Or are you going to go for the lowest monthly payment you can get?

There are pluses and minuses to both approaches. But I would like you to take a big picture look at what the ramifications might be on the family legacy you pass down to your children.

The Future

Let’s play out an example where you are a parent. For this example, we’ll assume you were unable to save money for your child’s college because you were paying on your own student loans over the 20 years since you graduated from college.

Your 18 year old son is going to use student loans to attend school.

Everything works out good in school and he graduates, gets a good job, qualifies for the new Pay As You Earn plan and begins making his monthly payments on his student loans (meaning he is signing up to a 20+ year repayment plan with the possibility of debt forgiveness). Life rolls on and he falls in love, gets married to a wonderful woman, and has children. He continues making the monthly payments on his student loans as well as paying for all the other costs of raising a family.

At this point, he is in his early 30s and his children are between the ages of one and four. He has another fifteen or so years left on his student loans. That means he will still be making payments on his student loans even as your grandchildren reach their teenage years. (And that’s before considering how much student debt his family may be carrying now. It’s possible his wife brought student loans into their marriage as well. The majority of students come out of school with hefty student loans so most marriages include a combining of student loan debt.)

Monthly Payments Make Saving for College Difficult

With one or both of them still in debt on their student loans, together with the other costs of raising a family, having a couple cars, and buying a house, your son is unlikely to be in a position to save money for your grandchildren’s college education.

Chances are, when it’s time for your grandchildren to go to college, your son won’t have much money saved for his children’s college education. Which means your grandchildren will have to take out student loans so they can go to school – just like he did.

Your grandchildren will begin their young lives in student debt just about the time your son’s student debt is finally paid off.

Picture that in your mind for just a minute.

Your grandchildren are starting their young adult life out the very same way your son did – in debt.

Look What Just Happened

The student debt cycle has now been handed down to your son and to your grandkids. And they will probably hand it down to their kids as well. It’s very difficult to break the debt cycle once it becomes generational.

You don’t want to leave a legacy like that, do you?

Paying your student loans off quickly is the ticket to financial freedom – for you and your children.