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50/50

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Back in December 2015 we hit a big milestone. We had officially paid $50,000 toward debt!!!

What a huge thing! Just thinking about paying $50,000 toward debt in two years (a rate of $25,000/year – nearly half our annual income when we first started blogging!) is mind-blowing.

And just last month we hit another big milestone. One that I have mixed feelings about.

We have now decreased our debt by $50,000.

Say what?

When we hit the first $50,000 milestone, that was money that we’d paid toward debt. But, obviously, most of our debts have interest attached to them. So just because we paid $50,000 toward debt didn’t mean we’d actually decreased our debt by that amount because a good chunk of our money was going toward interest on the debt.

It took another FOUR MONTHS to finally decrease our debt by the same $50,000 that we’d celebrated back in December.

Nutso.

It makes me sick to look at the size of our student loan debt and realize how much we’ve paid that has only gone toward interest. Nothing toward any principal reduction at all. And to see the calculations that say “if you pay the minimum payment, by X time you’ll have paid X amount.” You all know what I’m talking about. Credit card statements have the same statement on them. So you’re looking at your current debt number, but then you see that if you only pay the minimum that in the end you’ll end up paying MUCH more than the original debt amount. After all the interest is included, it can be close to paying 2X! Two times as much as the initial debt!

Ick!

I had a couple people comment on nearing the $50,000 debt reduction mark and ask whether I was excited.

Yes, of course I am! That’s a huge reduction in debt!

But I have mixed feelings. It’s also a little kick to the gut. Knowing we’d paid $50,000 back in December, but our debt numbers didn’t actually reflect a $50,000 decrease until 4 months later. Four long, grueling months of making major debt payments. All of which was consumed by interest. Boo!

It’s a valuable lesson, though. The debtor is a slave to the lender. Another reason to never, ever go into debt again (*ahem* except for a mortgage).

When you think about debt payoff, do you tend to think in terms of dollars toward it (including paying interest), or in actual amount of debt reduction? I report both in my monthly debt updates, but I tend to think more in terms of dollars spent toward debt (including interest). It sucks that there’s such a lag behind dollars spent & dollars in debt reduction.

Ashley

Texan at heart; Arizonan on paper. Lover of running, cheese, camping, and family (fur-family included!). Blogger, motivated to get out of debt YESTERDAY! Follow along with my journey!

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16 Comments

  • Reply Brooke |

    For me, I tend to think in terms of principal reduction. I do this because it encourages me to make the biggest impact with my dollars (i.e. pay down the highest interest loan rather than the lowest balance). The best way to increase the amount of principal reduction each month is to hammer away at the highest amount. So by watching that number, I’m saving myself the most amount of money in the long run.

  • Reply Angie |

    I highly suggest you only look at principal reduction! Occasionally I’ll go back and calculate the total amount we’ve paid on our debt including interest. All it does is just reconjure all the negative feelings of hopelessness and regret. Then I’ll go farther and look at how much of our salary was spent on debt and it gets worse from there.

    For our numbers, In 10 years of repayment we started with 242k in debt. My fairly accurate estimate (yes I lost my 8+ year old detailed spreadsheets) is that we will pay ~306k to pay it off. Really its almost 80k in interest being paid because of the interest accumulated in school. The kicker is…. if we had invested the money in a sp500 index fund instead (say for those lucky people who had parents pay for school) we’d have 425k-450k in investments right now. Likely we’d be just a couple years short of retiring early in our 30’s! If that’s not the most depressing thing ever…

    So for me focusing on remaining balance is the more positive way to go. Otherwise you are constantly reminded of the money you are throwing away every month.

    • Reply Ashley |

      Yeah, I guess for my own sanity I should really focus on the principal reduction only. It’s hard, though, since I blog here and focus on the actual amount of $$ spent on various categories every month in my budget. So I definitely see, as an example, “we spent $2500 on debt this month” instead of “we only decreased our principal balance by $2000 this month”. Boo to interest!

  • Reply Stephanie |

    I had an idea: have you looked at refinancing your student loans at a variable rate? I’ve seen rates around 2.5% right now. I know variable rates aren’t ideal, but since you’re paying off debt aggressively, you might benefit from it.

    • Reply Ashley |

      I’m definitely considering refinancing my loans, but I want to wait until after we’ve purchased a house so it doesn’t affect our loan rates, etc. Likely I’ll wait until late Fall/around the turn of the New Year to actually make any changes there.

  • Reply Marzey doats |

    Why don’t you calculate how much interest you have saved over the last two years by aggressively paying debt? Instead of paying minimums, you have been paying things off, and have saved thousands. Start with the 0% mattress that you paid off with accruing interest!

    • Reply Ashley |

      That’s a great way to flip the scenario a bit! Certainly quite heartening to see the numbers finally DECREASING after so many years of remaining stagnant or increasing! Ick!

  • Reply Leah |

    I definitely focus on the principal reduction because it’s a more accurate indicator of the progress I’ve made. It does hurt though that about half of my student loan payment goes to interest 🙁 but hey, I’m slowly chipping away at the principal!

    • Reply Ashley |

      Boo!!! I totally relate! If I just pay the minimum payments then its literally not even enough to cover interest. That seems just plain wrong to me, because it means someone not paying attention could be faithfully paying on their loans every single month year after year and actually see a huge INCREASE in loan balance across time. The minimums should really be high enough to cause some downward movement in the principal!

  • Reply debtor |

    Yea, i only look/track principal.
    Every once in a while I calculate how much I have spent on interest just so I know if maybe i should be reallocating payments…but really all it does it make me feel mad – so i don’t do it too often!
    Maybe it’s time for another zero percent card. Discover is running one now that has NO BALANCE TRANSFER FEES! and zero percent for about 15 months… since you are paying so aggressively.. might be nice to take advantage of that and transfer whatever u think will be paid of by then to the card and reduce your interest burden.
    50k gone is amazing progress!! Great job!

    • Reply Ashley |

      Wow, good to know! I don’t think I’ve ever seen a promotion with no balance transfer fees! I’ll have to check it out!

  • Reply scarr |

    My tally was about $64,000. We took 2 years to pay off the loans, with interest the tally was over $70,000 which is gross. I cannot believe it is over. I am so glad we did not spend 25 years paying them off – as hard as it was to do it was completely worth it. If we would have taken the full amount of time to pay off the loans the interest would have been almost as much as the principal.

    Our milestones would be our debt numbers decreasing not how much we put toward debt. So when we reached $50,000, $20,000 or $5,000 were big deals for us.

    • Reply Ashley |

      YAY to being done!!! I feel like we’ve tackled a good portion of it together, right? : )

      • Reply scarr |

        🙂 Totally! Reading your posts inspired me to keep going even when the going sucked and I wanted to quit.

So, what do you think ?