Repaying the student loan has been our top financial priority for the last few years.
Like many others, we started our adult lives in the red. Our $65K-ish starting debt wasn’t entirely student loans. We had a couple small credit cards, a car loan and a credit line balance from a previous vehicle, too.
But the majority of that $65K — close to $48K — came in the form of student loans.
While I can’t deny student loans made it possible to finance an education that has opened a lot of doors for us, I also won’t pretend they are not the actual bane of my existence.
I want these loans gone. And we’ve put a lot of work (and money) into making that happen.
Lately, we’re less focused on the student loan. In fact, for the better part of 2021, we’ve only made minimum payments. This has slowed down our progress significantly.
But it’s OK. And today, I want to talk about why.
Repaying the student loan, so far
We have been focused on repaying the student loan for the last couple years. We started with about $48K, on minimum payments, with the majority going toward the interest.
Because we used the snowball method for our debt-free journey, the student loan was the last loan on our books. After paying off the credit cards, car and credit line, we shifted our focus — and all our extra cash — to driving down the balance on the student loan.
We have made a ton of progress. As of today, we are sitting at just shy of $16K owning — a big difference!
But for a little over a year now, we have only been making minimum payments.
Reasons why we’re only making minimum student loan payments right now
There are three key reasons we’re only making minimum payments on the student loan.
- The interest rate is low
In fact, it’s non-existent for one portion of the love.
As of November 2021, the interest rate on the provincial portion of the loan is 2.45 per cent…and the federal portion is interest-free until March 2023.
With a balance just shy of $16K, this amount to less than $20 a month in interest. This, to me, is a big reason I’m not too fussed about this loan right now.
Additionally, student loan interest can be claimed on your tax return. That said, $20 a month is unlikely to make a big difference.
- The minimum payment still allows us to make some progress
With the interest rate so low, the majority of our minimum payment actually goes toward the principal of the loan. It’s not the kind of progress we’re used to making, but it’s still progress.
- We have other things to focus on
In particular, refilling our emergency fund.
Our emergency fund took a beating over the summer, making me so glad we realized early on that $1K is never going to be enough for a genuine emergency. We went into my maternity leave with $10K saved and through a series of unfortunate events, that account has been depleted. I’d say we have about $6.5K in that account still. It would be nice to get it back to $10K before I go back to work and we enter the world of paying for daycare.
The impact of switching to minimum payments only
The impact of switching to minimum payments only is obvious: repaying the student loan is going to take longer.
Currently, our minimum student loan payment is $136.06. It used to be closer to $450, but this was adjusted near the end of summer 2021 due to aforementioned change to the interest rate.
We owe a little less than $16K currently.
I won’t lie: it’s tough to be slowing down so close to the finish line.
This loan was about $48K when we started focusing on it a couple years ago. We’ve made so much progress! But right now, we have more important things to focus on.
Repaying the student loan has been a goal for a long time.
The idea of no longer making payments to this debt is still appealing…but a lot has changed since we started repaying our debt. The baby, the house (and some upcoming, necessary house repairs), the upcoming addition of daycare to our budget, the reality of likely needing to replace our car in the next few years (and being completely unwilling to get a “Dave car” — been there, done that. It was not worth it)…we have a lot on the go financially right now.
And as much as it pains me to admit, there’s a chance it results in not just standing still, but potentially taking a step backwards.
But even if it does, I can’t say I have any regrets. Yeah, daycare is going to be expensive, but it’s worth it because our kid is worth it. The idea of dipping back into the paid off credit line for house repairs hurts the soul a bit, but I’d rather do that then deal with a leaking roof (or another summer without some form of central air).
These are exactly the kind of things I was thinking about when I picked Our Bill Pickle as the name for this blog. And the older I get, the more of these situations I begin to encounter.
Even taking a step backwards, we’re still miles ahead of where we were before. And we have more knowledge and tools now to get back to where we want to be in a faster, more efficient way.
As I often told J when she was a baby, it’ll all be OK.
Have you ever had to take a financial step backwards?
Photo by Shopify Partners from Burst
Leave a Reply