Are Your Student Loans Keeping You From Living Life on Your Terms?

Americans collectively owe nearly $1.6 trillion dollars just in student loan debt. Although the average student loan balance is a little over $30,000, lawyers tend to carry six-figure loan burdens.

Because of that burden, student loans are often a major factor in many lawyers’ decisions and hold many of us back from living life on our terms.

Lightly edited transcript appears after the show notes.

Topics we explore

• my husband’s and my debt story

• your mindset and your debt

• how your debt is holding you back from what you really want in life and

• the best way to tackle your debt.

Resources mentioned

Lifestyle Freedom Starter Guide: https://www.rhothomas.com/start

Student loan debt statistics: https://www.forbes.com/sites/zackfriedman/2020/02/03/student-loan-debt-statistics/

Debt tracker and other resources: https://www.rhothomas.com/financebasics

Connect with me

The Wealthyesque Community: https://www.rhothomas.com/community

Social media: @iamrhothomas on Instagram, Facebook, and Twitter

Email: hello@rhothomas.com

Lightly Edited Transcript

Hey friends! Welcome back to another episode of Wealthyesque.

I’m so grateful to have you here. I know that you probably have so much going on in your life and so I appreciate that you’re taking a little time out of your day to spend with me.

So today I want to talk about student loans.

Earlier this year, the latest student loan debt statistics were released, and the situation is really ridiculous. Almost 45 million people in America collectively owe nearly $1.6 trillion dollars just in student loans. The only debt category that is larger than student loans is mortgages.

The statistics also put the average student loan balance at a little under $33,000, but of course, lawyers tend to have much more than that. Usually in the six-figure range, right?

The thing is there’s no cap on how much you can borrow, and the higher education system has taken full advantage of that by ridiculously inflating the cost of tuition. And don’t even get me started on my thoughts with that because the system is so broken.

But anyway my whole focus is on helping you take back control of your time and live life on your terms, and student loans and other debt are really holding many lawyers back from that, so I want to talk about it. I’m going to talk about

• my husband’s and my debt story
• your mindset and your debt
• how your debt is holding you back from what you really want in life and
• the best way to tackle your debt.

So let’s get into it.

My husband’s and my debt story

If you’ve been here for a while, you know that about four years ago my husband and I sat down to look at our finances because we just had our first son, and we were thinking about the parents we want to be and the life we want to live.

We realized that the way that we were working was not conducive to being the types of parents that we wanted to be, and so we sat down and looked at our whole financial picture: how much we had in our savings and our 401(k)s, all of that kind of stuff.

And then we also looked at how much we had in debt, and we found that we had over $670,000 of debt. The exact amount was $674,780.02.

We were shocked. We knew that we had debt of course, and we knew about how much we owed on each account individually, but we had kind of separated it.

So we would think about my student loans, and I had a little over $100,000. And then my husband had almost $350,000. And then we knew we had the mortgage, which was a little over $200,000, and we also had a small car loan, which was about $10,000.

We knew that we had each of those debts, but we didn’t think about them cumulatively until we sat down to look at it all, and that debt amount felt like a huge weight.

Here we are with this new baby. I’m about to head back to work from maternity leave. My husband was a resident at the time so he didn’t get a lot of time off. He had already been back at work. I want to say he had like a week off, something like that.

But I was headed back to work after having spent 14 weeks taking care of my baby, and I just could not imagine going back to the work hours that I had been doing before having him.

The debt represented this block, this impediment to us living the life that we truly wanted to live, and the majority of it was student loans.

And so we got on our plan of how to pay it off. Well first we started researching “how to pay off debt” and came across people who were paying their debts off in way less time than the loan term, and we had just never thought about paying our debt off aggressively like that.

I had 14 different loans that totaled to over $100,000. My minimum payment was a little under $1000, but the smallest loan was around $1500. Let’s see. It was $1,653.42. So we were able to knock that one and some of the other smaller ones out pretty quickly. At one point, we were paying off a loan a month.

Once we paid my loans off, that was $1000 less going out each month. However, shortly after that, my husband’s full loan payment kicked in.

As I mentioned, my husband was a resident when we first started this journey, so because his salary was so low compared to his loan balance, we did one of the income-based repayment plans for him and filed our taxes separately so that his payment would be based only on his income.

And I know filing separately works with one of the income-based repayment plans but doesn’t work with the other, so you have to look into which one you can actually do that with.

But anyway we filed our taxes separately, so his payment would be really low so that we could focus on my loans. When we started he was at $346,512.23. It ballooned to $371,040.92 while we were paying that lower income-based payment on his loans. It was something like $20, so it wasn’t even touching the interest.

We did that strategically so we could pay my loans off before he became an attending and his payment increased because the current monthly payment on his loans is over $3,000, and so we didn’t want to also have that $1,000 a month payment for my loans still hanging over our heads.

Although we accrued an additional $25,000 in interest, we paid off my total $100,000+ balance in a little over a year and a half, and we felt that was a good trade-off as opposed to trying to pay both our loans off at the same time.

And the psychological effect of paying those loans off—oh my gosh it felt like a weight was lifted from our shoulders, even though we still had a long way to go because even after we paid my loans off we still had over half a million dollars left to pay. But it still gave this sense of freedom even if only a little bit.

Let me tell you: paying loans off aggressively is not the most fun thing I’ve ever done, but seeing the balance decrease over time has been so amazing

For many people, debt is just a part of life. You have debt, and you pay the amount that you’re supposed to pay, and that’s that. If you’re paying your debts on time and you’re saving and you’re not carrying credit card debt and whatever else then you’re managing your money well by society’s standards.

But that “I can afford the payments” mindset is what keeps a lot of people stuck. The more payments you have the more money you need to cover your monthly expenses. With our over $670,000 of debt, we were in no position to change the way that we were working because we literally needed our jobs.

And that brings me to the mindset around debt.

Your mindset and your debt

We’ve talked about the part your mindset plays in taking control of your time—things like setting boundaries and learning to say “no”—but it also goes to your money mindset.

Some people struggle with paying off debt or sticking to a budget or saving or whatever because they don’t really believe it’s possible for them.

Some people will never reach financial independence because they don’t truly believe they can reach a point where they’re not dependent on their job for money.

“I see this person was able to do it, but I don’t know if it’s really possible for me, so I’m just going to kind of half do it, just dip my toe in it, but I’m not going to fully commit.”

If you don’t believe something’s possible then you’re not really going to take steps to do it. If you truly believed that I would hand you $1 million after you did steps A, B, and C, you would do everything in your power to do steps A, B, and C, right?

I think that when we’re talking about concepts like financial independence and lifestyle freedom or even debt freedom, a lot of people don’t truly believe that these things are possible for them and so they don’t stick to their plan because they don’t see the benefit in making short-term sacrifices for long-term gain.

And you know I’m not about that deprivation life. I don’t believe in eating ramen noodles and living in a shack just to say that you’re financially independent. I think there needs to be balance.

But I do believe in not spending everything you could spend so that you can set money aside for this greater ultimate goal of freedom and financial independence and living life on your own terms. So that’s my take on that.

Now let’s turn to how student loans are holding you back.

How student loans are holding you back

I talk about this concept of lifestyle freedom because I want to live life on my own terms, and I want to help you do the same. It breaks my heart when I talk to lawyers who are miserable in their jobs but feel stuck because they can’t afford to make a change.

I don’t want you to be constrained by what anyone else wants you to do or by your financial considerations.

The issue with your student loans and any other debt is it becomes this driving factor or at least a major factor in the way you live your life.

Some people are afraid to get into romantic relationships because they’re afraid to have that conversation about their debt.

If you’re already in a relationship or marriage, there may be more tension or more fights because of money. The number one cause of divorce in America is money problems.

Some people are afraid to start families because they feel like they can’t afford kids. All of these things, these major life events being impacted by debt.

Having a huge debt burden will cause you to stay in a job you don’t like. Or not take a part-time or flex or reduced schedule, whatever they call it where you work. Or not take a lower paying job that you might enjoy more because you can’t afford to give up the money that you’re making now.

That was the case for my husband and me. We wanted to make some changes to our work schedules after our son was born, but we couldn’t afford to do that. We needed all of the money coming in because we were paying so much out in our loan payments. It’s a really bad feeling to want to make a change in your life but feel stuck.

Your debt also limits your ability to use your money the way that you want. When a portion of your income is always earmarked for debt, then the amount you have available for other things is lower.

My student loan payment was a little under $1,000, and that was $1,000 every month that had to go out to Sallie Mae. Once we paid those loans off, that was an extra $1,000 in our pockets every month.

Along the same lines, your student loans or your debt may be holding you back from being as generous as you’d like. I’ve got a story for that, too.

Before we started our debt free journey, we felt like we couldn’t afford to tithe. The Lord convicted us on that, and we kind of dipped our toe into tithing, and we had all kinds of calculations that we were trying to do to figure out how we could afford to do it. We calculated the 10% based on our net income, our take-home pay, and then we subtracted out the amount that we were already giving to various charitable organizations, and then we gave the balance to the church. Look, don’t judge us.

But anyway, as we’ve been on this debt freedom journey, we eventually got to the point where we are now where we give 10% of our gross income off top to the church on top of any other charitable giving we do, even though when we first made that change it still felt like we couldn’t afford it, but we’ve been tithing for real the whole time we’ve been paying off this debt, and I plan to get into that in another episode, but I strongly believe that our faithfulness in our tithing has contributed to our progress so far.

Like I said, I won’t get too much into that now, but I will say that when you have a large portion of your income going to student loan payments, then you may be less generous than you would like to be.

The best way to pay off your debt: the debt snowball method

Okay so the final thing that I want to talk about is the best way to pay off your debt. That’s the debt snowball method. My husband and I have been using that method, and it’s super effective.

With the debt snowball method, you list your debts from smallest to largest and pay the minimums on everything except the smallest one.

Then put any extra money you can onto that smallest debt until it’s paid. Then you take the minimum payment from that smallest debt plus all the extra money you had been paying on it and pay that on the next debt, in addition to the minimum payment you were already paying.

Then once that one’s paid off you take the minimum payment and all the extra money that you were putting on it and pay that on the next one and so forth and so on until you tackle these larger and larger debts.

So my husband and I started with that $1500 loan, and we’re down to our last two debts. It’s his student loan, which started at a little over $340,000, ballooned to over $370,000 and is now down to $166,000, and our mortgage, which was a little over $200,000 and is now at about $190,000.

The psychological benefits of the debt snowball method cannot be overstated. You get these wins very early on.

We got this momentum from paying off our lower balances so then when we get up to the $300-something thousand debt, it doesn’t feel so overwhelming, first of all because we’ve already paid off 14 different loans, and we’ve seen the progress that we’ve made.

We freed up a lot of money because we no longer owe those minimum payments on the smaller loans that we’ve already paid off so all of that money goes to these larger ones.

So I’m a huge advocate of the debt snowball because I’ve seen the way that it’s worked in our lives. At one point, we were knocking off a debt a month because the amounts of the debts were amounts that we could pay quickly and so that was hugely satisfying to see debts falling off every month.

One tip if you do decide to pay off your debt is to track how much you pay.

We use an Excel spreadsheet to track our progress on our debt repayment. We listed our debts from smallest to largest, and as we pay them off we highlight them in green.

Seeing the tracker become more and more green as time has gone on has been really motivating. You can actually download the exact debt tracker we use, along with some other things like our budget template, at rhothomas.com/financebasics.

I know some of you are not trying to hear me when I’m talking about paying off these student loans quickly, and that’s definitely your choice.

But I just encourage you to think about the trade-offs you’re making. Remember, we’re talking about short-term sacrifice for long-term gain. We’re talking about this ultimate goal of living life on our own terms.

I also know that some of you may be going for one of the loan forgiveness programs, and that’s cool.

Just make sure that you look at if the numbers really work out for your situation. Make sure that you are following all of the rules about documenting your payments.

Make sure that your loans are eligible for the program, which was the big issue with 99% of Public Service Loan Forgiveness applications being denied in the last few years. Many of the people who were denied didn’t have loans that were eligible for the program. So make sure that you know whether your loans qualify.

Make sure that you are still taking steps to build wealth, that you are saving and investing on the side, because you still don’t want to be trapped in a situation that doesn’t work for you anymore.

Being stuck in a job you don’t like because of the prospect of loan forgiveness for me is just as bad as being stuck in a job because you can’t afford to leave.

The main takeaway is to make sure you have a plan for your student loans or other debt. Don’t just ignore them and pay the minimums.

Let’s recap:

1. If you’ve got student loans, you’re not alone.

2. Paying off student loans, even when you still have more to pay, feels like a weight lifted. You feel that much closer to freedom.

3. Many people struggle with paying off debt, saving, budgeting, managing money because they don’t really believe it’s possible for them. If you don’t believe something is possible, you won’t really take steps to do it.

4. Student loans and other debt are often a major driving factor in the decisions we make for our lives. For some, it affects decisions in their personal lives, like starting a family. For others, it affects decisions in their professional lives. For others, it simply hinders your ability to do things you want with your money, such as giving.

5. The debt snowball method is a great way to pay off debt. You get quick wins which motivates you to keep going.

6. Whatever you do, have a plan for your debt. Don’t just ignore it.

Okay that’s it for this episode. Join me over in our private Facebook community, The Wealthyesque Community, and let’s continue this student loan conversation. Do you have loans? How do you feel about them? Come on over to the group and let’s discuss. Head to rhothomas.com/community.

If you got value from today’s episode, please share with a friend or two you think would also benefit from this message. Don’t forget to tag me if you share on social media, @iamrhothomas on Instagram, Facebook, and Twitter.

Go ahead and subscribe to the show on whatever platform you’re listening on so you’ll be notified when new episodes are released, and if you’re so inclined, please leave me a written review because reviews signal to others that this show is worth listening to.

As we close out, friend, I pray that you will identify the ways that your student loans or other debts are holding you back.

I pray that you will make a plan to tackle your debts and believe that debt freedom is truly possible for you.

And as always, I pray that you continue to take steps to take back control of your time, build wealth, and live the life of freedom and choice you deserve.

Talk to you later.