Dealing With Debt
When you dig yourself out of debt, a tangible benefit can be to learn lessons that help you more easily handle future financial challenges.
That’s the case for Deborah Sweeney, an attorney and the owner of MyCorporation.com, an online legal and business filing service, who paid off some $80,000 in student loan debt. The key techniques she acquired have helped her ever since.
A main one is to pay off a little more on your debts than you need to do. That helped Deborah to retire her student loans, acquired while earning two graduate degrees, and it’s a strategy she’s using to help her retire her mortgage before the term is up.
She’s also learned to live leanly, and never spend flagrantly, but also not to be debt-averse. As we often note in these personal accounts, debt is a bad financial partner when it’s mishandled, but a best friend financially if it’s used well—as when Deborah borrowed in order to launch a business that was successful, and is now free of debt.
This interview has been edited for length and clarity. Have you paid off a lot of personal debt? Email us at media[at]valuepenguin.com to share your story.
What was your total debt, and how did you acquire it?
My debt was $8,000, and I used to it buy a minivan for our growing family. I took out a personal loan from SpringLeaf Financial (editor’s note: Springleaf Financial is now part of OneMain Financial).
Was the debt worth acquiring?
Fortunately, after I graduated and was a lawyer, I was earning a decent salary. Since I was able to invest in myself and my growth as a person, the debt was 100% worth acquiring. I attribute my success to my academic endeavors, and I would not have had attained those without incurring the student loan debt.
What motivated you to pay it off?
I was motivated to pay it off because I don’t like having debt. I was also motivated to continue to have great credit, and I have simply never considered the option of not paying off my debt.
What was your plan to reduce your debt?
My strategy was quite simple: I paid more than I owed every single month. I saved and I lived frugally. I also consolidated my loans to a lower interest rate loan.
Six years out of law school and business school, I made my final loan payment on my law school debt. I considered it a victory and my husband and I truly celebrated.
Even now, I continue to have a very similar financial strategy. On our home loan, we pay more than we owe each month to continue to pay down the loan quickly. It is anticipated that we will pay off our home in six more years, and I think we will do it.
I believe in living within your means. I also believe that it is okay take on some debt when you are investing in yourself and your future. For instance, we took on debt to buy the business I now own and I think that was the right decision. We no longer have any debt associated with the business. Our strategy has served us well and we have great credit to show for it.
How did you stay on track?
I tracked the amount due and the amount of interest and principal payment each month. I paid attention to the progress I was making each month. I felt motivated by my continued progress toward paying it off and I stayed diligent.
How long did it take you to pay off the debt?
It took me seven years to pay off my debt, which was shorter than I expected. I had 10 years on my initial loan. I refinanced to a lower interest rate about three years into my loans, and then I paid it off about four years after I refinanced. In the final year, I received a good bonus at the end of the year, every penny of which I out toward my loan and paid off the entire outstanding debt.
What advice would you give to others struggling with debt?
Maybe it’s easy for me to say, but I would say not to spend beyond your means and do not consider not paying it an option. I see people defer and defer. I see people not make the entire payment, but meanwhile they buy themselves things they don’t need. And then it just adds up and gets away from them. It’s critical to consider payment of debt as a necessary payment like you would rent or a mortgage payment. If you get behind, it can really haunt you. Stay on top of it and it just becomes part of what you know.
How do you remain debt-free today?
I only take on debt when it makes sense: to purchase a home, to purchase my business or to make further investments in myself. I evaluate the risk of the debt and the cost to repay it and I ensure that I pay all loans diligently. I always pay more than I owe on loans, even if just $100 more per month. I make sure to pay all credit cards off each month and I make sure to spend within my means.