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The Mission

August 27, 2013

Background

I will be graduating from Georgetown University’s McDonough School of Business evening MBA program in December. The program is the same as their full-time one (same professors, same requirements, same course offerings, same career services), just spread out over 3 years to accommodate working professionals and ranked better (#1 in the DMV and #11 in the country!).  It also has roughly the same cost, and as a result, I will be graduating with 93,000+ of student loan debt (even though I will finish the program in just over 2 years instead of the typical 3).

Seeing that number freaked me out. I’ve always had a healthy fear of debt and because of that, I’ve never really had to deal with it. I’ve never had to pay down student loans before because my parents paid for undergrad (thanks mom and dad!). I’ve never had to overcome credit card debt because I always pay my balance in full each month.  So when I saw that number on my student loan account balance I panicked.

I will admit, that before I met my husband I was a huge spender. I didn’t live above my means necessarily, but I certainly wasn’t living below them. I graduated undergrad with a degree in economics and I’m getting my MBA – I understand finances and how budgets work, but until I met my husband, I couldn’t make them work for me.  Now that we finally got into a grove, I feel like those student loan payments are a black cloud hanging over us, one that will suffocate us and prevent us from experiencing life to fullest.

The Challenge

Being the type-A businesswoman I am, I went on a quest to gather as much information as I could to combat the impending doom I was sure would arrive in June 2014 when my grace period ends and I have to make my first student loan payment. I scoured the internet, read every relevant article in Money, analyzed all of our actual expenses for the past year (surprise, surprise I have crazy spreadsheets to track all of this;) then stumbled onto an incredible blog: No More Harvard Debt.  I read the entire blog over the course of 5 days and it truly made me believe that we could also dig ourselves out from this mountain of debt. I highly recommend you check it out.

This leads me to the challenge I presented to myself and my husband: Pay off all of our debt by the time our son starts Kindergarten. Our son is 28 months old (that’s about 2.25 years old for you non-parents out there), so that gives us just over 3 years to accomplish this.

The Stats

So you have the background and you have the challenge, now you need the stats. Earlier, I said my husband and I want to eliminate all of our debt in a little over 3 years. So, let’s take a look at what we are working with:

1. Debt: This section summarizes our current debt and interest rates (as of August 2013)

  • 2011 Toyota Highlander: $15, 362 at 0%
  • 2006 Honda Accord: $3,089 at 5.25%
  • Hubby’s Student Loan 1: $310 at 4.125%
  • Hubby’s Student Loan 2: $6, 589 at 4.125%
  • My Plus Loans: $36,650 at 7.9%
  • My Direct Unsubsidized Loans: $56,862 at 6.8%

2. Income: This section summarizes our current sources of income after taxes and other contributions.

  • Total Monthly Income: $7,900

I contribute 10% of my salary to my 401k and my husband contributes about 5% of his salary to his 403b. We also put aside $5,000/year into a pre-tax childcare FSA in addition to pre-tax payments for healthcare, etc.

3. Fixed Expenses: This section summarizes our fixed expenses

  • Mortgage: $2,200/month
  • Minimum Payment on existing debt: $907/month
  • Daycare: $1810/month

I know that daycare isn’t really a fixed expense, but to me and my husband it is.  Regardless of our goals we are not compromising the care of our son. End of discussion.

The Plan

Since I’m still in school until December and I get a 6 month grace period after I graduate, I won’t have to make an actual student loan payment until July 2014. Given this, we decided to take a divide an conquer approach: we are going to try and eliminate as much of our current debt (hubby’s student loans and car payment) as we can before we have to start paying on my student loans. The one debt we won’t really focus on is the Highlander. It’s at 0% and even with the ridiculously low interest rates, our money can do more for us in other areas.

I did a lot of research on approaches for paying down debt, and being an economist, I really wanted to take the rational, “avalanche” approach. But, I think shedding debt is a lot like shedding weight – you need small wins to keep you motivated and you need to make incremental changes to move yourself toward a new lifestyle. Given this, we opted to take the Dave Ramsey’s “debt snowball” approach where we tackle the smallest debt first and work our way up to the largest debt.  For us, this means paying off hubby’s small student loan, then the Honda, then hubby’s larger student loan, then focusing on my ginormous student loans. The hope is that by the time we get to my loans we’ll have enough emotional endurance to meet our goal.

We plan to officially start on our journey on September 1 and will spend the next few days organizing our information and solidifying our plan of attack.

Next Steps

In the next couple days, I’ll post more complete financial data related to the mission including amortization tables and a pro-forma income statement for the next 8 months. I’ll also post a bit about some of the risks to successful completion of the mission and mitigation strategies. Expect to get more details about the execution plan as well.

Can we do it? Will we meet our goal? What twists and turns will come along the way? Regardless of what happens, I think this will be a great exercise and a learning experience for our family. I hope you’ll stay tuned and share your thoughts and comments along the way:)

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One Comment
  1. You are incredible. You can do it!

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