Our Debt Story: Does Buying a House Instead of Paying Student Loans Make Sense?

buying-a-homeWhen I first heard Jeff promoting The Debt Movement I got excited! Why?

Because I am in the process of saving to help my fiancee pay off her massive student loan debt after we get married!

How massive? When she graduated from her four year RN nursing program she had over $80,000 in student loan debt! Crazy!

We’re aggressively working to pay down my fiancee’s student loans. I want to share our progress to help motivate others to pay off their debt too! What follows is our debt pay off story so far…

My fiancee graduated from college just a couple short years ago into one of the worst job markets for new grads in years. Luckily she had a four year nursing degree so she was able to get a decent job within a few months of graduating.

How We Began Repaying Her Student Loan Debt

On the day she received her first paycheck she took all of the student loan cash she had left over from her last semester of college (except $2,000 which she kept for an emergency fund) and made a decent sized payment on her student loans.

The next thing we did was set up her budget. With the ultimate goal of paying her student loans off aggressively, we crafted a tight but livable budget that would allow her to make larger additional payments toward her student loans.

She kept just enough money from each paycheck for her minimal living expenses and any money above that was applied to her student loans every two weeks.

There have been other windfalls that have helped her pay her debt down.

Whenever any extra money comes in from bonuses, tax refunds or other gifts, she uses most — if not all of it — to pay down her highest interest rate student loan.

How Far We’ve Come

We recently started sharing our debt pay off with my blog community over at Money Life and More. Our first debt pay off update was in December 2012 and in the update her student loan balance was down to $60,265.53.

With my support, she paid off over $20,000 of debt in a little over a year and a half after she graduated from college!

The updated also mentioned that, in addition to the money she has paid off, I personally had been saving money to pay toward her student loans when we get married.

In December 2012 I saved $22,380.49 to pay toward her loans once we get married. This resulted in a net student loan balance of $37.885.04.

We update our debt pay off around the middle of every month over at Money Life and More. Our most recent update was in February and we had made substantial progress…but then there was a change of plans.

Priorities Change

We’re still working on paying down the student loans on an accelerated schedule. However, we decided that rather than having her student loans paid off by the end of 2013, we would rather buy a larger long-term house in town closer to our jobs.

We aren’t buying a huge house, in fact, it is under 2,000 square feet. We felt now was the perfect time to buy our long-term house before prices start going up and while interest rates are low.

Some people would say that taking on a mortgage (more debt) before paying off her student loans is a huge mistake. We came to a different conclusion.

After running the numbers it makes sense to make this move now. We’ll still be able to have the student loans paid off way ahead of the minimum payment schedule. In fact, our new goal is to have her student loans paid off by the end of 2016.

Does Delaying the Student Loan Make Sense?

I’m glad you’re pondering this very question.

We run our personal finances based on facts much like a business would, and try our best to take emotion out of the equation.

Based on the facts it makes more sense for us to buy a house now. Why?

By delaying the student loan payoff by three years at most, we will pay more in interest on the student loans to the tune of about $3,000.

While $3,000 is no small sum, if mortgage rates rise even an eighth of a percent or home prices increase at all we’ll actually lose money by paying her student loans off by the end of the year instead of purchasing a house.

It is easy to have tunnel vision when paying off your debt. Make sure you stay cognizant of your surroundings so you don’t miss a great opportunity!

If you have any questions about our debt pay off story so far please feel free to leave a comment and I’ll respond as soon as I can.

 

Lance MlamAbout the Author:

Lance is the blogger behind the scenes at Money Life and More, a personal finance blog that was established to help others further their finances. He is currently in his mid twenties and has consulted many multi-million dollar businesses in his work at public accounting firms and a Fortune 500 company.