Every once in awhile, I wonder about the road not taken. What would life have been like if I hadn’t moved out of the city after graduation and to a rural area. What if I hadn’t totalled my fiancé’s car, broken my wrist and had to buy a new (to me) car?
What if I hadn’t paid off my debt?
How much debt would I have right now if I’d only made the minimum payments after school? Fortunately, we can figure that out pretty easily. My original debt amounts are burned into my mind for eternity, so it’s pretty easy to plug those amounts into a basic debt calculator and see where I’d be in July 2014. Here’s what I came up with:
My original student loan debt was $26,720. The interest rate was 5.5% and it was amortized over 9.5 years. I didn’t have to make my first payment until November 30th 2011. If I’d only ever paid the minimum on it, I’d owe:
That’s a lot! In almost three years of payments, I would’ve only paid down around $6,000 in principal, and paid $3,492.75 in interest. As it stands I only paid about $1,600 total in interest, which is why, my friends, it’s smart to pay off your debt. You will actually save a ton of money in interest charges.
In reality, I never ended up making even one minimum payment on my debt. I was primed for extra payments since my very first payment on November 30th 2011. It took me about 16 months to clear that debt, and I’m happy I did it!
As I mentioned, I was in a pretty bad car accident almost exactly three years ago that resulted in me breaking my wrist and my husband’s car getting totalled. That was when I had my first real personal finance wake up call, because I was a new grad, and we had exactly $0 stashed away for a situation like that.
We ended up buying a used Volkswagen Golf, to the tune of $11,282. We bought used from a dealership because I had absolutely no confidence in buying a beater car by myself, and we needed financing. I financed the car at 2.9% over 5 years. We made our first payment on the car on August 6th, 2011. The minimum payment on the car was $202.23. If I’d continued only making the minimum payment instead of attacking it once my student loan was eliminated, I’d owe:
Over half paid off, and more paid off than the car is currently worth, but I’d still be looking at two more years before it was finally paid for. I would also have paid $695.90 in interest charges.
So, if you haven’t been keeping track, if I hadn’t paid anymore than my minimums, I’d still be $25,466.59 in debt. That’s a whole lot of debt.
There are things in my life, events that have happened to me, or decisions that I’ve made, that make me think about the ‘what ifs’. What would be different? Would I be happier?
Doing these calculations, I definitely know that I made the right decision to pay my debt off now, instead of just making the minimums. I’m happy, healthy, and debt free. Can’t get much better than that.