by Ashley
My last post stirred the pot a bit! That was not my intention, but I am so grateful to the BAD community for your support and comments alllll throughout my many years of being in debt.
Today, I want to talk about my current debt status and I’d love to crowd-source comments/input about what my plans should look like moving forward. But let’s start with my current debts.
Sept 2023 Debt Update
| Debt | Amount | Original Balance | APR | Minimum Payment | Sept Payment |
|---|---|---|---|---|---|
| Carmax | $4521 | $20,539 (10/2021) | 3.45% | $374 | $374 (+ Extra $871 planned) |
| Mohela | $26561 | $96,020 (2014) | 0% | $0 | $0 ($250 saved) |
Carmax
I’ve got a fire under my butt to get this paid off ASAP! October is my target deadline and I’m still fully planning to do that. I’ve made this month’s normal payment and plan to put another $871 toward the car this month. That will bring the amount owed to about $3651 (give or take a few bucks in interest). Next month I already have a car payment planned of $925. That brings the total owed to approximately $2726. And I have $3,000 in a CapitalOne360 savings account that is earmarked for “car repairs.” I plan to raid that fund to pay off the remaining balance in full.
After raiding my “car repair” savings account, I can slowly start to rebuild it a little bit each month. I like to have some money stashed away strictly for repairs so I don’t have to shoulder it out of my normal budget if something big comes up. Knock on wood – I haven’t had any major repairs since I bought this vehicle in October 2021. But with my previous vehicle, I was very grateful to have the repair fund since I had a series of unexpected repairs in the $2,000ish range during the last couple of years I owned the vehicle.
Mohela
That brings us to my student loan debt. Here’s where I’ve got to be honest. I have very little motivation to pay this thing off. Like, almost none. I was accepted into the Publish Service Loan Forgiveness program earlier this year. I will be eligible for loan forgiveness in 2026. Three years. I’m leaning toward just riding it out until then, making minimum payments (which resume next month), and calling it a day.
Including all the interest I’ve paid, I’ve more than paid back my original student loan debt. I’ve also written before about how I used to be laser-focused on paying back my student loans and why that has since changed. I know I could pay the loans off before they are forgiven. It took 2 years to pay off $20,000 for my car. I can totally pay $26,000 in 3 years to eliminate my student loans. But why? For what?
My thoughts…
Instead, I’m more inclined to save some money in a high-yield account that I can use to pay the tax burden when my loans are forgiven (forgiven loans are considered taxable income, so if $26,000 is forgiven, I will need to pay what we would owe in taxes on $26,000).
But what do you think? What’s the “right” move? I say “right” in quotations since there is no single right or wrong answer. I used to feel it was my moral, ethical obligation to pay back my student loans in full. At this point…..I just don’t (read here why). In my opinion, I’ve more than paid back my debt. And then some. But what would you do, if you were in my situation?
I’d certainly like to be debt-free sooner than 2026. But I think it would likely take right about 3 years to pay off that amount of money anyway. Why scrimp and save and everything just to pay off the loans by the exact time they’d be forgiven anyway? Wouldn’t that money be better spent in a high-yield savings account? Then I could take the savings and pay our taxes (when the loans are forgiven) and maybe put any remaining balance toward our mortgage? Or heck, take a vacation? Maybe do that debt-free scream in Nashville like I’ve always wanted? 😉
I realize this is likely a taboo topic for a “get out of debt” blog. At this point, I’m okay with that. If I need to step away from blogging because my focus shifts (after paying off my car), then I’m okay with that too. I’d love your honest input here.
I welcome your thoughts, opinions, personal stories, etc.
Thanks, again, for always being so supportive! The BAD community is the best!
Hi, I’m Ashley! Arizonan on paper, Texan at heart. Lover of running, blogging, and all things cheeeeese. Freshly 40, married mother of two, working in academia. Trying to finally (finally!) pay off that ridiculous 6-digit student loan debt!
I don’t believe that loans forgiven through PSLF are taxable.
Oh wow, that’s good to know. I feel like I’ve heard otherwise, but I never actually fact-checked for myself!
I confirmed–it’s right there on the PLSF site: “According to the Internal Revenue Service (IRS), student loan amounts forgiven under PSLF or TEPSLF aren’t considered income for tax purposes.” https://studentaid.gov/pslf/
This is amazing! Thank you – you did all the legwork for me! 🙂
YAY to being so close to paying off the car! I’m sure it’ll feel good to not have to worry about the payments for it anymore.
As for the student loans, I would save whatever money you will need for taxes the year they are forgiven. It must feel so good to be so close to debt free! And I think waiting for forgiveness is fine, especially considering that you have paid off more than the original balance and some. The program is there for a reason, and it’s fine to use it, considering trying to rush to pay them in 3 years may not be that helpful finically.
I hope you would consider blogging still after debt, at least occasionally, as I really love and resonate with your money views and like to see you talk about money things outside of a debt perspective. And anyways, you always have your mortgage!
Thanks for the kind words, Eli! True – there’s always the mortgage and I do want to pay it off early as well!
I think it’s totally reasonable to only pay minimums on the student loan that will be forgiven soon. I’m curious if you’d consider putting the extra money that’s not going towards that loan in a low fee index fund instead of a high yield savings account? The returns on the index fund may be more volatile, but likely larger over time. Obviously, you’d want an emergency fund in something “safer” like a savings account, but why not invest some of your extra funds?
Hi Megan! I’m not necessarily opposed to it. I guess I’m just thinking it’d be a short term (approx 3-years) savings, so might be better to keep it somewhere safer. But maybe this is a position I need to reconsider. I have several savings accounts, for that matter. Maybe I could think about keeping less in savings, overall, and putting some into an index fund. I think this would be a good topic for a future blog post 😉
Absolutely you should make the minimum payment and put any extra money in a high yield savings account. PILF is there for people like you – I wish it had existed before I privatized my $100K of grad school debt and spent 25 years paying it back (total repaid was $250K at 7-8%). They never should have been able to capitalize the interest and charge such high interest rates, and you should have no ethical qualms whatsoever. Corporations and rich people take advantage of tax shelters/rebates/loopholes/bankruptcy laws all the time, and there is nothing wrong with regular folks taking advantage of the few programs designed to grant them a little relief from crippling debt for just getting an education. Paying this debt off early is leaving money on the table – no financial advisor would recommend that to anyone!
Thanks Mary! Wow, I cringe reading you paid back a total of $250k when your original loan amounts were $100k. That’s crazy! Feels like robbery!
Hi Ashley! I can chime in and confirm that you won’t have to pay federal taxes on loans forgiven through PSLF, but they may be subject to state taxes.
Thank you, Leah! Very helpful to know!
PSLF did seem to affect my credit score, but that’s it. And it was such a relief to have it gone! I definitely would just pay your minimum IBR and wait until it’s forgiven–that’s why the program exists!
I know I’ve heard from some older folks who paid off their loans that their credit scores dropped after paying off loans since it was the oldest line of credit they had