How I paid off $25,000 in 2 years

Student debt is the worst kind of debt.

Let me clarify. Student debt is the worst kind of debt I have.  In general, I rank student debt better than credit card debt and personal loan debt (if you have those, pay them off immediately!), but thankfully I’ve never had to worry about that.

My parents made a deal with me and my siblings: they would foot the bill for college, but we were required to pay for any further education. Lucky for me, they agreed to pay my fees for grad school up front and I would pay them back when I graduated, on my own time, and, most importantly, interest-free. To-date, this is the single best thing my parents have done for me financially. It has not only kept me officially debt-free, but saved me thousands of dollars in interest.

As of today, I have paid off $25,000 of my $35,000 student debt to the Bank of Mom and Dad.

And in only 2 years! Well technically, it took me 2 years, 1 month, and 20 days to pay off $25,000. Here’s the basic timeline of how I did it:

Immediately after graduation, I got a job that was near home, so I moved back in with my parents to save some money. I saved a lot of money. I was putting most of my paycheck into my 401k, and saving the rest. The first $15,000 came easy; it took me a little over a year because I was putting away about $1,000 a month. If you can stand being around your family 24/7, I highly recommend staying at home as long as possible. The money you put away the first few years of your career makes a HUGE difference towards retirement, plus, it’s so important to start off the right financial foot when entering adulthood.

Then, I made the decision to move in with 2 friends. Financially, it may not have been the best decision, but I also really wanted the experience of not living at home and not living with a significant other (more on that later). All of a sudden my expenses increased dramatically, and I wasn’t saving nearly as fast as I had been before. It took me 6 months to pay off another $5,000 of debt to my parents. My savings rate was down nearly two-thirds! This was extremely frustrating to me, even if I was still saving a lot of money.

The final $5,000 only took an additional 4 months to save up, due to the following reasons:

  • I received a tax refund (the most beautiful $1,000 I’ve ever seen)
  • I got a new job
  • I increased my monthly savings rate

So here I am today, 71% through my debt and extremely happy to be at the final $10,000! I plan to have that fully paid off by June 1st (don’t worry, I’ll be providing updates along the way).

In the meantime, having my debt paid off means that I’ll be able to free up my savings for other purposes. Last week, I opened my very first personal investment account, and I would like to start putting money in it on a regular basis. At the moment, I also have no emergency account, which needs to be addressed ASAP. The biggest conflict right now is deciding if it’s better to pay off my debt faster or to invest my money instead. The math tells me to invest, but my heart is telling me to pay off my parents first – there’s no reason to owe them money if I don’t have to. If my debt was accumulating interest, this would be a much easier decision.

So here’s the question: is it generally better to pay off student debt (to avoid paying accumulating interest) or to invest savings (potentially growing your savings at a faster rate than your student debt collects interest)? I think the answer varies widely based on a person’s risk aversion level.