In my very first blog post, I shared our current financial journey. In January of 2016, we had nearly $78,000 in consumer debt. Two car loans, two credit cards, and a big ol' pile of student loans. Since getting on a budget and having a plan for our financial future, we've gotten rid of two car loans, two credit cards, and a big ol' pile of student loans. There's still a pile of student loans left, but that pile is SIGNIFICANTLY lower that a year ago.
Today, we paid off the last private loan in the debt snowball! This was a Chase student loan that I took out in September of 2008. The fine folks of Chase really gave me a great deal on this loan. Here's the details:
Initial Loan Amount: $10,000
Loan Repayment Term: 195 Months
Interest Rate: 9.25%
To be perfectly honest, I didn't know the actual terms of the loan until a couple of weeks ago when we were nearing the end of it. Before putting our plan in place, I only knew how much a month I was paying on it. And once we put our plan in place, the only thing I cared about was the balance and where that loan fell in place in the debt snowball. I'd be willing to guess that a lot of people probably don't pay too much attention to the details. Most people probably just care about how much it's going to cost per month. Most times, when people are thinking about taking a loan out, that's the main thing they consider. How much will it cost per month?
Looking at the 3 figures I pointed out above, I was horrified thinking about the repercussions of letting that loan go to term.
That's how long Chase gave me to pay this thing off. I'd be 36 years old when this thing would be paid off! When I took the loan out, I certainly didn't think about whether or not I'd be wanting to still be paying on that thing in my 30s. I was thinking about paying for school the only way I really knew how. Seriously, 16 years?
This is the big stab. Again, as a 19 year old trying to pay for college, I didn't really care (or know enough) about the interest rates. I cared about paying for my education. Which obviously isn't a terrible thing. But I didn't think about my future self. I didn't think of mid-20s married Brandon. I didn't think of mid-30s Brandon with kids.
That's how much in interest we would have paid if we took this the full 195 months! We would have paid nearly twice as much as the initial amount. It's sickening. I can think of much better things to do with almost $10,000 than give it to someone else.
Let's talk opportunity cost
You guys know I like my compound interest calculator. Let's say that I took my $9,194 that I would have paid in total interest for that loan and invested it. And I took the minimum payment of $99/month for that loan and invested that for 16 years. How much will that get me?
Yeah Yeah. I know. I already paid on the loan for eight years. My numbers are a bit off. But I think you get the idea.
The messes we get into are often times our own doing. Whether it be based out of need or desire or other reasons. Had I known what I know now, I wouldn't have decided to take on a loan like this. I wasn't thinking of my future self. But the good news is, the past is the past. We're cleaning up the past and looking towards the future through a new lens.
I think a good takeaway for anyone reading this is to evaluate the debts you currently have and calculate how much in total interest you'll be paying if you take the full time to pay it off. And then think about what you could do with it. Use a tool like the Compound Interest Calculator to see what that money can grow to to your advantage and not some big banks advantage. Think about how that could contribute to retiring early. Think about how it could fund your kids education. Think about how it could pay for a once in a lifetime trip. Think about how you could give that money to your church or someone in need or a charity that is close to your heart.
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