Getting rid of DEBT

When I graduated college in 2010 I owed approximately $20k in student loans.  When I accepted my first job out of college, I financed a brand new 2010 Forester for just over $22k.  When I moved to another city for the job I nearly maxed out my credit card (another $5k) furnishing my new apartment.  At the time, I really thought I NEEDED that 42″ plasma TV.  And I thought it was worth the debt I incurred.

I WAS WRONG.

As I made interest payments each month I began to realize how much I had underestimated both the total cost and the amount of time it would take for me to pay what I owed.  Many college students rely on their parents to do their taxes and arrange their student loans.  I am ashamed to admit that I was no exception.  When you take stock of your total finances for the first time, as an independent adult, it can be intimidating at first.  But lessons are better learned late than not at all.  Understanding the big picture enabled me to form and commit to a serious financial plan.

My first step on the road to financial independence was to pay off all of my debts.  I paid off my credit card first, because it had the highest interest rate.  Another way to think about this strategy is that by paying off debt with a higher interest rate, you are getting a higher return on your investment.  Paying off debt is an investment just like buying stock, except that you are guaranteed a certain rate of return (the interest rate).

My student loans had the next highest interest rates so I worked on those next.  THAT WAS A MISTAKE.  When I did my own taxes for the first time, I learned that interest paid on student loans is tax-deductible.  I should have been paying off the auto loan before the student loans, in order to save the most money.  This mistake cost me a few hundred dollars.  Oh, the price of ignorance!

It took me nearly 2 years (!) to pay off all of my debt.  But by paying down the principal as much as I could each month instead of just the minimum payment, I saved myself thousands of dollars in the long run.  When I made that final payment and eliminated my last dollar of debt, I was super excited!  Today, I am free from debt.  And someday, I will be free from work.

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