- September 7, 2017
- Posted by: Travis
- Category: Doctor, Marriage
A look behind the curtain here folks. We’ve got a lot of student debt too, or at least it feels like a lot. I started Student Loan Planner after helping my fiancee Christine put together a plan for her $124,000 med school loans. We decided student loan freedom is what we’re after.
So far, we’ve made some pretty legit sacrifices to get us there. I thought I’d share perhaps the most amusing with you all and ask what kind of sacrifices you’re making to be debt free someday.
Where We Started: No Car, No Money, and No Student Loan Freedom
Christine and I met in Philadelphia. Luckily, she lived in the Center City district and so did I, so there was no need to own a car. We took the subway, bus, Uber/Lyft, Megabus, or just walked. The cost of living was higher, but not having a car payment rocked.
Of course, we were also comparably broke compared to now because Christine was in her final year of fellowship training. There was no money leftover to pay back debt and at the time we treated our finances separately because we were just dating.
Many of you will make far higher incomes someday compared to now. Maybe you’re in residency, fellowship, or maybe you’re a young associate at a law firm or dental practice. You’ll be moving up and becoming junior partners, practice owners, attending doctors, and other better paying roles.
When you know you’re in for a huge pay increase, it’s really hard not to change your lifestyle after years of sacrifice. For this article, I’m mainly going to talk about the car side of things and how that helped us (and could help you too).
Our Move to Car Central Missouri
Christine got a job in Missouri as an attending doctor, and I followed. The huge problem with Missouri is that no one here believes in public transit. It’s pretty unreliable, spread out, and takes a lot longer than driving.
So we decided we had to buy a car. The first big money saving decision we made was to share one rather than buy two. On days she has to drive to branch hospitals, I bike, or if I must, take an Uber. I probably went a little overboard on how hard core I was on the price of our new car.
We bought a 2004 Honda Civic off a private party on Craigslist for cash. In part, this is because I wanted student loan freedom badly, and Christine didn’t have much cash in the bank to buy something nicer.
Our bank had real specific withdrawal limits, so we had to visit a half dozen ATMs each to get the $2200 we needed withdrawn. It was fun, but it definitely felt sketchy haha. We signed the papers at a Panera Bread and we finally had wheels.
The problem? The car rattled a bit and didn’t feel super safe on the highway. So despite how awesome the car was for our budget, it ended up not being the best decision in hindsight.
The Tradeup to the Nicer Car and How We Did It
Most people would be crushed to have to trade in a car 6 months after buying it. Luckily for us though, the sales tax we paid on the car was only $150. Additionally, we sold the car on Craigslist again, and old cars like this really don’t depreciate very much. We sold it for $2,000 and all in took a $350 loss on the transaction if you include the sales tax.
What did we buy? We agreed the car had to feel more substantial and safer, so we bought a 2012 Nissan Altima with about 120,000 miles on it for $6,600. We bought the car on Craigslist again, and it really has done well for us.
The car looked and drove much better than our old Civic. The key here is that even though we could have bought a $25,000 new car like most new attending doctors do, we bought something far cheaper.
Our Motivation Behind Driving Older Cars
Why didn’t we just go to the dealer and pick out a nice 2017 Subaru or Honda Accord first thing? We both want this med school debt gone ASAP and to obtain student loan freedom.
We struggled whether or not to try for some loan forgiveness under the PSLF program, but decided since the balance was relatively small compared to many folks, we wanted to pay it off.
A new car would’ve meant payments of $400-$500 a month, plus additional insurance costs of maybe $150-$200 a month. All in, a new car probably would’ve meant $600-$700 more money out of our pockets. That same amount would shave off all our student loan interest and several thousand in principal over a year.
Now when we make prepayments, all our money goes to paying down the debt, and we’ve made some good progress. As of September 1, we’ve paid down the med school debt from $124,000 to $63,000 since we met two years ago. Our goal is to be completely debt free within 1-2 years from now.
Here’s the problem though, life happens.
Our Car Problem and Whether or Not to Spend Money to Not Be Embarrassed
So the problem with cars is there’s always something to spend money on. One of us was parked in a hospital parking garage and pulled out the wrong way, scraping the side of the door on a concrete pillar.
*BTW, if this ever happens to you, put it in park and go to the security desk and ask them for help 🙂
So how much are appearances worth? We could probably get the door looking good as new for $500. But we live in a city where a lot of people don’t have the best insurance, and frankly, we think of this ugly door as our student loan freedom door.
Sure, we could plunk down money to fix it, but instead we feel like this sacrifice will help us to not have debt anymore sooner.
If the cost of that student loan freedom is to drive old cars and to be a little embarrassed when we pull up to events for doctors at the hospital, that’s a price we’re willing to pay.
What Are You Willing to Give Up to Be Debt Free?
From my experience consulting with hundreds of clients, cars tend to be one of the most destructive budget items for getting out of debt. While you might disagree with me, there’s really not a huge mechanical difference between a car with 50,000 miles and a car that’s new. The largest discernible difference is going to be price.
This price differential has become even more extreme, as depreciation on new vehicles recently hit a decades long record.
In my view, the best deals come in the 3-7 years old, 100,000-150,000 mile range. You still get something with plenty of life left in it, but you pay only 25% or less of the sticker price of a new car. Psychologically, everyone wants to dump a car with more than 100,000 miles, so that mindset pushes down prices farther than it should.
If you’re going for student loan forgiveness, PSLF, or refinancing and student loan payoff, I suggest buying a student loan freedom car. Prioritize saving for retirement, paying of debt, putting money in a side account for taxes, and building a secure financial future.
If you’ve already got a big car payment, I suggest looking into how to get rid of it. Sell the car on Craigslist and buy something that you’ll feel comfortable driving in but not too comfortable. When you’re wealthy, drive whatever you want.
This is still possible even if you’re underwater. It never makes sense to drive a $20,000 car just because you owe $22,000. If you trade it into the dealer, then they’ll give you maybe $15,000-$17,000.
Instead, hire a friend to take really nice Instagram quality pictures of it and pay down the loan enough to make the loan equal to the value. Then sell it to a private party on Craigslist and pay off the loan.
When you still have debt, act like you’re broke, and one day you won’t be.
What kind of sacrifices are you making to be debt free or max your financial situation? Post in the comments below!
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