Is It Worth $500,000+ In Student Debt for Higher Paying Careers?

Mindy:
Hey there. Today’s episode was recorded in February of 2020, and originally scheduled for release at the end of March 2020. The story we share today is of massive, but purposeful, debt accumulation and the subsequent debt payoff after graduation. Scott and I didn’t feel that last March was the right time to share this story, but we do still really like the lessons the Debt Ascent’s story can teach and feel that there are some great takeaways. So without further ado, here is the rise and fall of a mountain of student loan debt, as told by Debt Ascent.

Mindy:
Welcome to the Bigger Pockets Money Podcast, show number 199, where we interview Debt Ascent and hear his story of massive debt payoff.

Debt Ascent:
I don’t want to minimize the impact of having a lot of debt, whether that, in our case over half a million, or for someone else it’s 40,000. You know, you really should do everything you can to minimize it, but the counterpoint to that is if you do find yourself in this situation, maybe kind of block out all the people that tell you all the reasons why you can’t make progress and why it is such a problem, and just figure out… voices out there that are going to be helpful for you and then maybe give you some guidance and or encouragement that you can do this, this isn’t the end of the world. You are going to be okay.

Mindy:
Hello, hello, hello! My name is Mindy Jensen and with me as always is my intrepid co-host Scott Trench.

Scott:
I love how you’re always exploring new ways to describe me, Mindy. Thank you.

Mindy:
Scott and I are here to make financial independence less scary. Less just for somebody else. To introduce you to every money story because we truly believe that financial freedom is attainable for everyone, no matter when or where you’re starting.

Scott:
That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate or simply sail around the world for a year or two. We’ll help you get money problems out of the way so you can live the life of your dreams.

Mindy:
Scott, I am super excited about today’s show and I do want to tell listeners who are tuning in right now that the show starts off, I don’t want to say a little slow but it takes a minute to get into his story and he paid off 521,000 dollars in debt and he and his wife are making six figures and I want to make sure the people who are listening know

Scott:
Each.

Mindy:
Each, yes they each make six figures but they still have two and a half times their annual salary in debt when they’re starting off and while that sounds like a lot of money in debt and it sounds like, well they’re making so much money it doesn’t matter, I really think that there are lessons that anybody at any income level can learn from the things that they did while they were getting into debt, the attention that they paid to all the different details and how they strategically pulled themselves out.

Scott:
Yeah, absolutely. I think that this is just another perspective. We have folks that earn much less than this, the median income range, we have folks that earn in the upper-middle class, we have folks that earn the top one or two percent of income earners in this country and these are guests today. Ty and his wife are in that category of the top one to two percent of earners… their journey here, but that doesn’t disqualify the learning we can get from them on the occasion that we do get a chance to interview some folks that are in that upper bracket.

Mindy:
Right! I mean, my favorite part of his story is how he decided to refinance his student loan debt and how he purposely took out the amount of debt he took out so he could stay near his wife during grad school and how he strategically paid it off. They live on one salary, and yes that salary is a top one percent salary, but they still only live on one salary. They did not allow lifestyle inflation to happen and part of it is because they had the debt. But there’s just so many lessons to be learned in this episode and I just really want to encourage people to listen all the way to the end because at the end of the story, Scott tells really bad dental jokes.

Scott:
Oh yeah, I got some good ones today.

Mindy:
Yeah, do you have any more?

Scott:
Huh? Well, no I just think…

Mindy:
Well brace yourselves.

Scott:
We should award them a nice little plaque for their success.

Mindy:
Oh I quit.

Scott:
All right, should we bring them in?

Mindy:
Yes. Ty from Debt Ascent, welcome to the Bigger Pockets Money Podcast, I saw a comment that you made on twitter a few weeks ago and I was like, oh, he paid off a lot of debt, how much debt did he pay off? I’m going to make a spoiler alert for anybody who is listening right now and say, I’m going to share the amount of debt that you and your wife had because it is, frankly, impressive. You and your wife found yourselves in 521,741 dollars of debt at a point in your life where you were newly graduate from college, is that correct?

Debt Ascent:
Yeah, from grad school, yeah.

Mindy:
And, welcome to adulthood here’s 500,000 dollars of debt. Wow. What comprised this amount of debt.

Debt Ascent:
Yeah, first off, thank you very much for having me, the number sounds very large and it was very large. It amounts to a combined 16 years of college and grad school between my wife and I. We graduated from college in 2009, right at the peak of the great recession. Me as an engineer and my wife as a pre-dentistry. She wanted to go to Dental School and I couldn’t really find a job in 2009 in the market that we were looking at for her to go to Dental School and we were not at all interested in separating from each other, so, where she got into school is where we went and where we went is where I found the best grad school I could and a few years later after that I graduated with my PhD and she got her degree in dentistry and in February 2014 we found ourselves just over half a million dollars in student loan debt with a car loan on top of that. It amounted to just over 521,000 dollars.

Mindy:
Wow. That is, I’m not going to lie, that’s a big number. That caught my eye and I was like, oh, I’ve got to figure out, I’ve got to hear this story. You’re an engineer with a PhD, I’m guessing you’re not making minimum wage.

Debt Ascent:
No.

Mindy:
Your wife is a dentist, I’ve been to the dentist so I know she’s not making minimum wage. She provides a great service, I’m very pleased that I have a great dentist, but, that’s still a lot of money. Are you making a million dollars a year?

Debt Ascent:
We’re certainly not making a million dollars a year. Shortly after when we started working, We both started in the low six figures and its grown from there. We both make a little over, we averaged the last year in 2019 we broke 400,000 between the two of us.

Mindy:
Okay.

Debt Ascent:
It’s been growing from the low 200s up to that over the last few years and so that first year we had that 521,000 dollars. The average interest rate on that was just south of seven percent so the interest we were paying each month just to service the debt was over 2,000 dollars a month in the beginning. So we had to pay 2,000 dollars just to not grow the debt any further, so that first year we did what we could to lessen the burden as much as possible. We ended up decreasing the principle balance by 50,000 dollars and in the process we had worked through and refinanced and actually cut our interest rates in half. So instead of nearly seven, we were subbed four percent and that was the big kick start that we needed to not only decrease the principle balance but, instead of having 2,000 dollars in interest payments a month it was immediately cut to 1,000. So it was like getting a thousand dollar raise all on its own.

Scott:
When you graduated, did you finish your PhD at the same time that she finished dental school?

Debt Ascent:
No, I was a little further behind. Her program was very structured, she was in and out four years on the nose. Mine took effectively a semester longer so it was near the tail end of 2013 when I was finally done and so we actually relocated so that I could start my job and it was actually that car loan in February that was that final thing that dropped us down to the 521. That’s when we kind of took note because we knew, like hey, we both have jobs, we both have our transportation, we’re in the same spot. This is as bad as its ever going to get and we just really buckled down from there.

Scott:
So what was the sentiment? Did you have peers that graduated from Dental School at the same time that were in a similar position or was this by far the worst that you knew of in your social circle?

Debt Ascent:
As far as I know, I don’t know that she ever really talked numbers with anyone else. I know everyone else was in a somewhat similar situation, I don’t know how bad it was. Not many of them had spouses that had student loan debt from also being in graduate school, some of them either didn’t have spouses, or they had spouses that were working. So I feel like we were probably near the high end of the distribution, but this was a private dental school, a lot of her peers were all paying the same amount in tuition, I know that that burden was high for most of them.

Mindy:
Well congratulations on being the best. Being at the top. So you said that you negotiated a new rate, how did you do that?

Debt Ascent:
So we just looked around and found some random bank in, I believe it was Connecticut, that was offering variable rate loans and the variable rate loans sounded kind of scary. When we actually dug in and looked at the max rate it could have increase to it was like a half a percent higher than what we were paying on our fixed rate from the government loans. From the Fed loans. So, we figured the rates are subbed four percent now, even if they grow over time, they’re going to grow over time on a smaller balance. So let’s take the lower rate guaranteed right now, pay down as fast as we can and then if and when it does grow, it’s going to be on a smaller balance anyway.
Even if it were to magically grow to that max number, we’re going to be better anyway because by the time it gets there, we will have paid it down enough that the math will work out that way. Thankfully, rates continued to drop so we were able to refinance again later on for a fixed rate that was even lower. So in the very end, we refinanced our last 300,000 dollars at the beginning of 2017 for just under 3 percent fixed and we just paid off the last of that in October.

Mindy:
Wait, so you’re debt free?

Debt Ascent:
We are now, yeah. As far as the student loans and all that, we’ve officially paid it all off, as of a few months ago.

Mindy:
We’re only like five minutes into the show, you’ve already spoiled that you’ve paid off 521,741 dollars in – what is that, five years? Five and a half years? That’s…

Debt Ascent:
Yeah, just over five and a half years.

Mindy:
That’s unbelievable. That’s fantastic. So where do you live now? Are you in a high cost area of living or are you in a lower cost of living area?

Debt Ascent:
It’s pretty high cost of living yeah. It’s not the highest, we’ve been in higher spots, but it’s certainly above average in the US. We’re in a coastal city.

Mindy:
Okay. Well yeah, the coast is where everybody wants to live because it’s the coast.

Debt Ascent:
Yeah.

Mindy:
You’re by the beach, I’m not by the beach.

Scott:
So when you start out and you move to this new area, what do you do for housing and what are you guys driving?

Debt Ascent:
So we rented for our first years but we did, over time, while paying off the debt, we did save up for down payment and we did buy a house. Actually, I think it was two months after we’d refinanced the 300,000 dollars. So the number one goal we had was to make sure we got that 300k refinanced to the lower rate even if it meant that we couldn’t get a house. So we had the money saved up for the down payment. We made sure we got the refinance taken care of and then later we went and we got the mortgage. So we own what I think is a very nice house. 2,000 square feet, enough bedrooms for my wife and I and our two kids, and as far as the cars we drive, we drove the car that we bought that day in February 2014 and the other car we have is one that we bought a few years before that while we were still in grad school.

Scott:
So let’s walk through this. Can you break us down that first… how you’re able to start attacking this problem when you had so much debt? What were the driving factors? Did you feel like you were ‘hey we’re living quite reasonably, like a middle class family while earning 200,000 dollars’ and that’s what allowed us to do it or was there a conscientious spending plan to keep those expenses in line and allow you to accelerate? What was the kind of driving force for you?

Debt Ascent:
I mean, to be honest, it wasn’t overly difficult because we went from making no money to making a lot of money and even though we had this huge debt payment, there was still so much left over that we hadn’t been accustomed to. It was like built in lifestyle inflation control. I often make the argument that if we didn’t have any of this debt, our lifestyle would probably be much different, much more extravagant than it is now because the gap would’ve been so huge. I basically pretended like we didn’t have this huge income, and we pretended that we didn’t have this huge debt, we just cared about, hey what’s this cash flow difference that we have? Let’s make our payments and all that, but, with what we have left, what can we get done with it? So that meant prioritizing, so that meant we don’t need a brand new car. The car we have is fully functional, it works fine, it gets us from A to B.
But, within that, we did have the goal of buying a house and getting the place we wanted to live and call home. We did make that a priority, but it wasn’t something where it was done right away. It took a number of years to save up for that and it made for the conscious decision to save up instead of dedicating that money towards the debt, which was probably not financially advantageous for us, but we wanted to prioritize it that way anyway.

Scott:
So you have an engineering PhD. What exactly do you do?

Debt Ascent:
So I’m a process engineer, so I work in a big company and there’s a big process line and so my job is to essentially optimize that process from the small window that I own and operate. I’ve kind of had that job from the beginning and it kind of fits my skillset. It kind of leads into my interest into optimizing finances and all that, they kind of go hand in hand for me.

Scott:
Got it. And your wife is obviously a dentist so, in your social circle, in this new area, do your friends, your colleagues, did they adopt a different lifestyle than what you guys did in those first couple of years?

Debt Ascent:
So, my wife is practicing in her practice kind of solo. She doesn’t have a whole lot in the way of interacting with other established dentists and all that so we don’t get much influence that way, and surprisingly, a lot of the engineers that I work with are recently new grads. They come from grad school, from lesser means so I feel like if anything its skewed a little more on the frugal side than you’d expect. I don’t see a lot of people going out and buying the brand new cars right away. A lot of that kind of grad school way of life that gets ingrained over time and its hard for them to let go of that which ends up being a great thing. I think they make great financial progress that way, so I’ve never felt like we’ve sacrificed in any way by having to pay off the debt, make the debt payments. I feel like we live a great life, we have cars that get us where we need to go and a house to come home to and all that. We don’t feel like we’re wanting for anything.

Scott:
Got it.

Mindy:
Yeah that’s really powerful to be able to have other friends who are in this same position or at least mentally in the same position as you are because, I’ve just got a letter from a man named Michael and he said ‘I just paid off 50,000 dollars in student loan debt or 50,000 dollars in debt’ and congratulations Michael that’s amazing! He said ‘but sometimes it’s really hard because I’m the only person that I know who is doing this’. So having other people in the same boat as you is really great. It really makes it easier, when you’re the only person who drives a crappy car, maybe you feel like you really need to upgrade and when everyone you know drives a crappy car is not so bad.
Okay so, what were some of the things that you did to – I mean obviously refinancing the debt was fantastic, what were some of the other things that you did to focus more on the debt.

Debt Ascent:
So, going back on the story a little bit, before we even got into the full debt, I remember I was in a bookstore in undergrad and my wife was planning on going to dental school and we were coming to the realization like ‘hey, we’re going to have all this debt some day’, and trying to come to terms with that and trying to justify it and say ‘hey that’s going to be okay because the quote unquote shovels that we’re going to have and the way of income is going to be so high that it’s going to offset that’. So, from the beginning we just kind of had the mindset just going in, hey we know this is going to happen, we know that we’re going to have this huge debt burden, but were going to have this big income.
So the idea was always that we would live on one income, ignore the debt effectively and live on one income. If we can live on one income and we ignore the other one, eventually that other income is going to pay off the debt and then magically we’ll just have this other income that we haven’t been worrying about, haven’t been counting on. And a side benefit of that is we’re going to learn to live on half of what we make and then this is kind of before discovering the FIRE movement and financial independence and all that, and so we’ve sort of refined our focus from there, but that was just always the idea.
There was no reason for us to need both of these high incomes once the debt is paid off so why can’t we live on one of them now, use that to pay it off, then save it and maybe have the prospect of retiring early some day. So a lot of our refinements have just spurred off from that naturally. As far as particulars, there are subtle things that we’ve done but we’ve always just had that focus: if we live on less we’re going to be okay.

Scott:
When we think about this problem, you being able to pay off 500,000 dollars in debt, how would you think about that in the context that you guys made 200 to 400 thousand dollars a year over this period. Is there a difference between you guys making 200 to 400 thousand dollars a year and paying off 500,000 dollars in debt versus someone making 50 to 100 thousand dollars a year paying off 125,000 dollars in debt? How would you think about that problem and relating it, what are the differences between those two scenarios in your mind?

Debt Ascent:
So to me they’re completely different problems. One sounds more difficult, you hear 500,000 dollars in student loan debt and even with a high income folks think that that’s somehow harder, but based on everything I’ve ever looked at and experienced, that’s absolutely not the case. If you look at folks that make median incomes and have a reasonable debt, say they make 50,000 and owe 50,000 that’s going to be much tougher for someone to pay off than even the half a million was for my wife and I. The reason for that is because of baseline expenses. So a 50,000 dollar household, say they live on even half of that, they only have less than 25,000 dollars to tackle that debt with. Whereas if we make six figures, we can almost have that much leftover each year to pay towards our debt.
In our case, the argument were trying to make is for the high income folks, it may sound really scary and everything you read might make it seem like its really scary for you to pay off debt but its really not as difficult or as big of a problem as people make it out to be because you have such a big shovel in comparison if you are high income. Then, if you are low income, you might see a story like ours or someone else that paid off a huge amount of debt and think hey why can’t I do that, and you’re not talking about the same situation because without talking about the expenses and the income side of the equation, knowing how much debt you have or have paid off is really, doesn’t matter a whole lot, because its all relative to how much you spend and how much you earn.
Everyone can skew their expenses down to be roughly the same. If we earned 400,000 we can find a way to live on 50k. If we live on 50k, we have a huge amount leftover to pay on debt. If you make 50k, and you owe 50k, its hard to make progress towards paying off your debt. So that’s why the problem is more difficult for people who earn less. So part of what we try to talk about is… to give the high income people the realization that this isn’t as bad as you think it is, but on the other side for the median income folks, to say hey this problem maybe it doesn’t sound as bad as ours looks like at the surface but actually isn’t trivial because you do have to find that gap between your income and your spending in order to make progress paying off your debt.

Scott:
Love it. Do you think that a large percentage of high income earners in the six figure or even 200,000 dollar a year range individuals, do you think that a lot of them have a large amount of student loan debt that they used to get to that position?

Debt Ascent:
I think that it’s definitely skewing that way. So a lot of the high income bloggers out there, personal finance bloggers, a lot of them I don’t know that they came from high debt, but school is getting more expensive over time and to get these medical degrees and to become a lawyer, it’s becoming increasingly expensive. School is far outpacing inflation and so for the new crop of high income folks, maybe incomes aren’t as high as they were for the other folks and maybe the income is higher, so its skewing more and more towards being higher debt relative to their income. So that’s another big thing that we try to focus on, is giving out the message saying: people have these random rules of thumb about these debt to income rations, and what I mean by debt to income is how much debt you have relative to your annual salary. And saying a ratio of one is sustainable or two isn’t sustainable or something like that.
My argument is that that argument is irrelevant if you don’t talk about what those numbers are. Like someone who owes 100,000 dollars and makes 100,000 dollars is going to have so much easier of a time than someone who owes 50 and makes 50. So if you skew the income and debt higher it’s going to be even easier, even if you take into account the progressive taxes and all that, because, again, you can only minimize your expenses so much but relative to your income there’s a much larger gap if you make a lot of money and there’s a smaller gap if you make a median income.

Scott:
That makes perfect sense to me. I think that’s a great concept and a great takeaway. I think that gives comfort to some of these folks with huge debt loads, if they’re able to earn that high income. Let me ask you this, if you’re looking back at you and your wife’s educational trajectory. If you started over, do you think you could’ve put yourself in the same position with the same credentials with a lower debt burden?

Debt Ascent:
Could we have? Yeah, we certainly could have. We could have decided to hold off and gone to different schools maybe, or we could have decided to split up for a period of time and I could have gotten my degree somewhere cheaper, she could have maybe done it. But in our situation, our goal was to stay together, we planned to start a family and all that, that to us trumped the debt difference that we were going to have.
So the other part that I like to talk about is that people like to focus on your debt like it’s the end of the world and that its somehow some shameful thing and even though I wouldn’t ever encourage someone to go into debt if they can avoid it, but again, if your job prospect is such that you’re going to make a high income, you are allowed to make a decision that is maybe against your financial interest if it’s going to improve your quality of life.
In our case, we did make the conscious decision to stick together and go to this market because we both have these opportunities and maybe our debt ended up a little higher because of it, but I think we took that into consideration and decided that the improved quality of life trumped any added expense.

Mindy:
Well I think that’s a good point, and the flip side of your point is that if you are thinking of going to college and incurring massive student loan debt for a job that pays 25 bucks an hour, maybe that’s not the best choice. You know going into dentistry school that there was a high potential income so it’s not as risky to take the student loan burden for dental school because the world needs dentists and dentists make a lot of money. Whereas, she did go to a private dental school which is more expensive than a state school but she didn’t go to private art school. I went to private art school, I’m not talking smack about people who go to private art school, I’m talking smack about me because it was a bad choice for me. My income potential was minimum wage and in what I studied so that was a bad option for me and I didn’t think about that.
So, I think that there are still a lot of takeaways from this, even for people who aren’t on the higher income side. Living on one salary is huge. I mean the potential for savings, investing, paying off your debt. If you are married and you only live on one of your incomes, that’s a really great practice, something to strive for. Optimizing the debt, I know so many people whose student loan is 7% interest, and just whittle that away. Nope, they don’t want to pay 7%, they want to pay less so they are going to look for a place. Were you living in Connecticut when you got this bank in Connecticut to give you a loan?

Debt Ascent:
No we didn’t. We just did research and found the best deal we could find. If someone is willing to take on this debt and give us a better rate, we’re willing to hash it out and see. We talked to SoFi, we talked to some of these other places. Some places wouldn’t even take the chance on us, but these guys did and we took advantage of that for as long as it made sense. Then, when it didn’t make sense anymore, the rate crept up a little bit, we started at 3.5 and it crept over four.
We started looking around again and rates had continued to drop and pretty soon we were able to find a local bank where we are that, for some reason, was willing to offer us student loan refinancing at a cheaper rate than you could get a mortgage, which I’ve never really understood, but, hey we didn’t ask a whole lot of questions we just took advantage of it. So, for the average person out there, it doesn’t really matter how much you make, you can and look and try to find the best deal that you can if you are in debt.
Again, I don’t recommend that you should follow the path that we did. We made very particular choices because we had the advantage of having the prospect of two high incomes so that gave us a little bit of a margin of error. If my wife was going to be the primary breadwinner and her debt was going to be almost as high as our total ended up being on her own, maybe she would have made a different decision to go to a cheaper school and all that.
I don’t want to minimize the impact of having a lot of debt, whether that, in our case is over half a million, or for someone else it’s 40,000. You really should do everything you can to minimize it, but the counter point to that is that if you do find yourself in this situation, maybe block out all of the people that tell you why you can’t make progress and why it is such a problem and just figure out… voices out there that are going to be helpful for you and then maybe give you some guidance and or encouragement that you can do this, this isn’t the end of the world, you are going to be okay.

Scott:
So with this, in terms of your asset allocation strategy it sounds like during this period of time, this five and a half years… the 521,000 dollars of debt, but you also accumulated the down payment on a property.

Debt Ascent:
Yeah.

Scott:
Did you put down 25 percent or was that a low down payment loan that you used?

Debt Ascent:
We ended up, I think our payment ended up being 17 percent. So, because my wife is a dentist, we were able to get a physicians loan and with the bank that we went through, there was no difference in rate between a traditional 20 percent and I think the minimum in her case was 10. We were on our way to having 20 but we just figured, hey now is a good time, we could put 17 percent down. As far as asset allocation, from the beginning, because we had the means to do it, we had the cash flow to do it, we’ve always prioritized our retirement investing on top of our debt repayment and then with anything we had left, the balance was either extra principle payment on the debt or saving up for the house down payment.
As soon as the house down payment went away, that’s when we really focused all the extra that we had on paying off the loans but for us, in our situation, because we had the cash flow, we prioritized the retirement savings above all else because our main objective was to make the best use of every dollar that came in. To do that meant taking advantage of all the pre-tax money that we could, dumping that into retirement because we knew the loan companies were going to come after us. They were going to make sure they got paid back, it was up to us to make sure we saved and that we prepared for our future. So we kind of had this three-prong approach between paying for our future, paying for our past and paying for right now.

Scott:
Love it. So, when you say contributing to your retirement accounts, were you both maximizing your 401K contributions?

Debt Ascent:
Yeah, so we started as of 2014, since 2014, we both maxed out our retirement accounts since that so as of the end of last year, those two accounts, a handful of accounts between the two of us have just exceeded half a million dollars in net assets.

Mindy:
Okay, so I can hear somebody listening to this episode and saying ‘oh my god, they had half a million dollars in debt, holy cow!’ And then hearing you say, well I was making 200,000 dollars to start, oh well then nevermind that’s not applicable to me. But look at percentages. You had debt two and a half times your salary. Did I do the math right? Is that right?

Debt Ascent:
Yeah.

Mindy:
You had two and a half times your annual salary in debt. Yes it matters that you had a high salary, but you had two and a half times your salary in your debt load. So, there are still a lot of really great things that you can take from this. Live on one salary. That is so powerful because when you get used to having two salaries it is really hard to cut back. It’s hard to cut back anyway, but it’s really hard when you’re like ‘oh we’ve got all this money’. No, pretend you don’t. Pretend that you have this one salary and you’re living on this one salary and it can be the higher salary if you want, but maybe you can live off the lower salary.
I can hear people maybe dismissing the story, but I still think this is an impressive debt that you’ve paid off and I still think this is an impressive way you paid it off. You didn’t just focus on the debt, you also took advantage of that ridiculous stock market that we’ve been having, today notwithstanding. We’re recording this in late February when the market has crashed spectacularly, but still, you were taking advantage of that while paying down your debt load and I just, I feel like I’m rambling but I really like that story.

Debt Ascent:
Yeah, so our story definitely isn’t going to apply to most people. Most people don’t make six figure salaries, let alone have a couple that make six figure salaries. So, I’m not going to try to pretend like hey do what we did. That’s definitely not going to work. You shouldn’t take on the debt burden that we took on unless you’ve really thought it through and have your ducks in a row as far as the ability to pay it off and the job prospects to pay it off.

Mindy:
I’m going to jump in and say you’ve really thought it through. You made strategic choices by looking at different options and saying ‘I’m consciously accepting this amount of debt. I’m consciously making this choice because of my life circumstances’. And I think a lot of people don’t do that, I think ‘oh I got to college, somebody is giving me a credit card, great! Pizza is on me! And I’m going to take all of the student loan’. Who did we talk to, Scott, that said that they didn’t take out every bit of student loan, that they were able to, they only took out what they needed.

Scott:
This is a recent one.

Mindy:
Yeah that was a recent recording. Just because someone is going to give you 100,000 dollars in student doesn’t mean you have to take all 100,000 dollars and making conscious choices, you’re a better informed person. You understand how much debt you’re getting into. I think there’s a lot of people who graduate college and they don’t even know how much debt they have. Not keeping track of, I don’t know if I would have kept track to 741 dollars, I probably would’ve just said 750, but you know whatever, but knowing what is there is so powerful and not knowing what is there doesn’t change the fact that you owed 521. If you didn’t know it was 521 does it just magically go away? No, it only goes away when you pay attention to it and it only goes away when you make conscious decisions to pay it down. So, that’s just, good job you.

Debt Ascent:
Yeah. One advantage I don’t take lightly is the fact that I have an interest in this stuff and I feel like that’s a big part of it. Some people don’t care about money or as important as it is some people just, whatever, the bills come in the bills go out, I just want to live my life. Whereas, I just think about money, it interests me. It’s the sort of thing I want to read about, so I just don’t think that advantage should be understated and if that isn’t your interest, if you’re somehow listening to this and you’re not interested in money, good for you first of all.
Second of all, either trying to increase your interest or at least becoming informed is such a huge advantage. Just showing up and knowing where you’re at and where your money is going, what is coming in is just going to be such a huge help because you find those leaks and you can shut them down quickly if you know that they’re there. It’s hard to know that they’re there if you don’t care, so, for anyone out there, if you do have debt, I try to say, I don’t want to encourage anyone to go into debt, obviously, but if you do find yourself in debt, try to use it as an advantage in the long run. If you’re paying off debt, that means that you are forced to live on less than you make, so if you can find a way to expedite your payment, that’s such a huge advantage because you’ve proven to yourself and everyone else that you can live on less than you make.
Once that debt is paid off, you’re going to have that gap left over. Don’t just immediately translate that into lifestyle inflation, instead use that to propel yourself into savings. I try to make the argument that us having this huge debt burden is what helped prepare ourselves for financial independence. We proved to ourselves we don’t need all this money, we don’t need this income, we can use this to pay off the debt and when the debt’s gone, we can use that to buy our financial freedom over time.

Scott:
So let me ask you this, when you were a couple years into this, you said you refinanced the student loan debt to a rate that was lower than your mortgage payment, is that right?

Debt Ascent:
Yeah.

Scott:
So, at that point in time, what was your mortgage interest rate and what was your student loan interest rate?

Debt Ascent:
Our mortgage rate was just about four percent at the time, we’ve since refinanced that as well, but, at the time that was four percent. Our student loan interest was 2.95.

Scott:
So when you got to that point, why did you decide to keep paying off the student loan debt instead of either paying off the mortgage debt or beginning to invest in after-tax investments?

Debt Ascent:
That was a big question that we had and a big problem that we focused on and talked a lot about. If you just looked at the numbers, both those interest rates are fairly low, we could either decide to invest or we could, if anything, pay off the house first because it has the higher interest rate. Ultimately, it came down to a cash flow thing. In order to refinance down to 2.95 percent, our minimum payment each month was just under 4,000 dollars a month, so the idea was that we would attack the thing affecting our cash flow the month. When we can pay that off, that immediately frees up 4,000 dollars that we do not even need to make every month. So, if we wanted to have a flexible work arrangement, maybe we don’t work, maybe my wife scales back to four days a week instead of five. That option is on the table, whereas that’s not on the table if we have a million dollars in the bank but we still have a 4,000 dollar payment on just the loans every month.
It became a cash flow optimization and its why I don’t really like the debt snowball. You have to make pragmatic decisions and you have to consider cash flow as much as you consider interest rates. Sorry, go ahead.

Scott:
No, no, this is really good. A good discussion here with this. Okay, so I get it, that means your amortization period, which is the amount of time, for those listening, that you are required to pay back the loan over, you probably had about a 30 year mortgage on your home payment…

Debt Ascent:
Yeah.

Scott:
And what was the amortization payment on your student loan debt?

Debt Ascent:
Yeah, it was seven years for the 300,000. So in order to get the low rate, we committed to a seven year repayment. We could’ve gone longer and gotten a slightly higher rate, we could’ve gotten a slightly lower if we went to five years or maybe even three. But we didn’t want to commit to that cash flow requirement so the 4,000 we felt was a good mix between getting the lower interest rate and not over committing a monthly payment.

Scott:
Now, here’s another question. What year did you buy your house?

Debt Ascent:
2017.

Scott:
2017, okay. So, was there ever a discussion about how the house is appreciated, lets you walk out of there and use that to advance this or was that kind of too insignificant relative to the overall…

Debt Ascent:
Yeah, we were able to get to just refinance on its own at a lower rate and when we refinanced the student loan debt just before we bought the house, so, yeah. We never really considered tapping into our retirement or dealing with the equity of the house. It was always like we have the cashflow to support these payments, let’s just keep doing that and then towards the beginning of 2017, we really focused on- once we had bought the house, so I guess the middle of 2017, we decided to really focus on the debt. Said hey, every spare penny we have beyond the minimum payment on the mortgage and maxing out our retirement accounts, we treated those as givens and then we just kind of figured everything else that we have, lets just put it towards the debt so that we can boost the cash flow back up and pay that off and then we can just focus on the next thing after that.

Scott:
Love it. So did you have an emergency reserve during this period as well?

Debt Ascent:
Yeah, we did. I really love YNAB for that. Even though we had kind of planned all of this out, how much debt we’re going to take on, I had kind of taken on the mister money mustache philosophy regarding budgets and thought I don’t need them. We’ll just minimize everything and we don’t have to worry about it but once I actually started tracking money in YNAB, I started to see, okay, this is what we’re actually spending and it was really easy to plan out. Here’s how much we need, if things got bad this is how much we’d actually have to have, so we just kind of built up our reserves over time that way. So, we kind of built in with that saving extra for the house down payment and all that. So that was all just kind of baked into our monthly budget and then the last line item was extra principle payment on the student loans and so we had a target date for the house and we just progressed towards that. And along with that, increase our emergency fund and then with every spare penny we had we’d just focus on the debt.

Scott:
Love it. It sounds like you’ve finally completed this all in October 2019, right?

Debt Ascent:
Yeah.

Scott:
So, congratulations on that.

Debt Ascent:
Thank you.

Scott:
What do you do now with what I imagine to be is an enormous pile of cash coming in every month and no need for the outlay.

Mindy:
Yeah, what’s your phone number?

Debt Ascent:
We want to kind of re-target our asset allocation a bit, so, when we did this we treated the debt as kind of the bond portion of our portfolio the kind of fixed return. So all the money that we put into the stock market was put into equities because I really didn’t see the point in not putting money towards the loans but somehow putting them towards the bonds. The whole advantage of the bond is to try to minimize volatility and to us the best way to minimize volatility was to throw extra money at this fixed debt. So now that we have that paid off, we’re kind of under… for our position and also in real estate. Real estate is the next thing that we want to get into, so kind of saving up for that and try to find some things…

Scott:
Do you think you’ll buy real estate as an owner operator, like that you’ll control a duplex quadriplex, or do you think that you guys are obviously accredited investors at this point, do you think you’ll invest passively?

Debt Ascent:
So we’re definitely pursuing both routes. I’m personally very interested in the owner occupied idea, I really like to work on things, make improvements and all that. So that definitely interests me, but there’s something to be said for the simplicity and ease of going through one of these funds. We’re probably going to honestly pursue both options, I think we’ll save up the cash and if the right owner occupied or the right physical property makes sense for us, we’ll do that. If not, maybe we’ll put the money in the funds or split the difference somehow. Yeah, that’s kind of the goal for 2020, to increase our real estate exposure.

Scott:
I always think that the long term goal is to acquire the title limited partner.

Debt Ascent:
Limited partner.

Scott:
That’s the do-nothing job. No risks, no liability, you’ll risk your money of course, but no liability there no manager responsibility that kind of stuff.

Debt Ascent:
Yeah.

Scott:
No, I love it. So, that’s great. I think you’re going to have a very good 2020 here and have a lot of fun experimentation and learning from that.

Debt Ascent:
I hope so, yeah.

Mindy:
I just want to go back and say I’m so excited that you budget. I think that there’s a lot of people who have excess funds and I disagree with you saying oh we’re making more money than we need. No, you need every dollar, or if you don’t send it to me, but, you still budget and that’s really important for people to hear. I don’t need to budget I have so much money, yeah you still need to budget, you still need to know where your money is going and you track it in YNAB which is You Need A Budget. Is their website YNAB.com?

Debt Ascent:
Yeah, I think so.

Mindy:
My budget’s on a piece of paper. I was recording a podcast yesterday with a friend and he asked me, is it important to have your spending tracker, writing it down. Is the process of physically writing it down more important or more helpful than putting it into a tracker on my phone? I was like, absolutely, having that and having to write down every time I spend money makes me think about it every single time. At the end of the month I’ve got this big long list and now it’s a game, how long can I go without spending money. I think having a budget like that, physically in front of you, on the computer that you’re going to look at, print that out and show yourself at least for the first few months what you’re doing. That’s just awesome that you have a budget.

Debt Ascent:
Yeah I definitely agree with you. So YNAB now has the feature where you can import transactions. I’ve never done that. It’s probably overkill at this point, but I still manually input every single transaction so that way I think back, what was this for? Was it really worth it? More so than anything, it’s a deterrent. Do I really want to put in 20 different transactions? It makes you think like do I really want to spend this money? To me it’s just a natural thing but it’s probably overkill for most people to do it that way but it’s what works for me, it’s kind of calming for me to know.
Like everything is where it’s supposed to be and I know where we are and there’s no loose ends, there’s nothing unexpected, so for me it’s huge and I doubt I’ll ever move away from that even though at this point we’ll be fine if we just let things happen and just check the balance from time to time. But just accounting for every penny for us in the beginning was so important to make sure, tracking all the things that we wanted to that I just don’t ever see how we’re going to get away from that.

Mindy:
Yeah, when you’re not money conscious, when you’re not continuing to think about it, you don’t have to obsess about it, but you have to think about it. When you don’t think about it, all of a sudden you get that lifestyle creep and its so much easier to go out to dinner when I don’t have to write down every single time that I go out to dinner and then you start looking back and you’re like wow five times this month, really?

Debt Ascent:
Yeah.

Mindy:
That’s a lot for me. No judgment if that’s you. Maybe a little bit of judgment but, if you’re financially free then do what you want. It’s really helpful to have that accountability.

Debt Ascent:
Yeah.

Mindy:
Because I would absolutely let myself creep. I do let myself creep when I don’t write it down so I force myself to write it down. And part of it is, I share it with my husband. So, he shares it with me. I don’t want to have to explain it and it’s not like he keeps track of every penny but if I spend money at the grocery store he’s not questioning but ‘oh you went to Starbucks four times this month Mindy? Why? You have coffee at home.’ Oh you’re right I shouldn’t have done that, there’s just little things that I don’t want to explain it so it keeps me from spending money when I don’t have to make up an excuse for going to Starbucks.

Scott:
It’s funny, we had, on episode 106, we had Megan Gorman from the Wealth Intersection and she kind of made a funny comment where the wealthy that she works with, they still have to do the same thing with budgeting they just call it cash flow management. In a few years, you’ll make that transition and start calling it cash flow management.

Mindy:
No, a few years ago he started making that transition. He didn’t call it a budget, he called it his cash flow.

Scott:
Yeah, there you go.

Debt Ascent:
That does bring up another thing that, with student loans, everyone talks about how bad they are and all that, but I try to make the argument that we always treated it like a cash flow argument. If I told someone that I had a 400,000 dollar mortgage on a property that I owned and it cash flowed 10 grand a month, would real estate investors tell me that I got a bad deal? Probably not, but when I frame it to a financial independence blogger that I have 400,000 dollars in student loan debt, they don’t care how much money you make it was just a horrible decisions and just how could you get yourself in this mess? You can’t eat out again until you pay it off. So it’s all frame of reference but to me I always just viewed it that way. We traded this huge debt for this extra large cash flow and we used that to service the debt and now we’re on the other side of it, just like if we just paid off a 400,000 dollar property and we’re taking in all the rents instead of having to pay out on the mortgage.

Scott:
I love that framing. I think that if you find yourself 500,000 dollars in debt and then you’re like ‘oh, shoot! What do I do now?’, you’ve really kind of screwed up there, but if you do it strategically like you did then it can be a good decision. A lot of people mind find themselves in that situation and feel misguided but maybe they actually made a good decision from a long term cash flow standpoint.

Debt Ascent:
Yeah. That analogy kind of breaks down because we can’t sell our degrees for the equity and the property but just by viewing it in a different way, maybe can for someone who finds themself in a lot of debt, just think about the advantages that that debt gave you. If it got you a job that’s really important, you make more money. Don’t pretend that that doesn’t exist. In the end, we always try to frame it that we’re grateful that we went through this because it taught us a lot about managing money and living on less than we make and all that. Just try to see the silver lining in finding yourself in whatever situation you’re in if it’s not ideal.

Mindy:
Do you have anything else you would like to talk about before we move on to our famous four?

Debt Ascent:
No, I think we’ve covered a lot of the stuff I think, the message that we try to get out to people, for the high income earners and then also for those median income earners. Particularly the ones that are fighting through paying off student loan debt. I very much appreciate the position that you’re in and I think people undersell how difficult it is for you and give people like us too much credit for all the reasons that we talked about. I try to amplify those voices as much as I can and try to talk with them and just let them know, the situation you’re in isn’t trivial and if you can find a way to get out of it, that is impressive.

Mindy:
Yeah, I completely agree. Okay, it is now time for the famous four. These are the same four questions we ask of all of our guests. Ty, are you ready?

Debt Ascent:
Sure.

Mindy:
What is your favorite finance book?

Debt Ascent:
My favorite finance book. So, I’m going to go with two. J. L. Collins’ book is my current favorite, but I’m going to go with one that introduced me to this idea of money management. That was David Bach’s The Automatic Millionaire. That was a book I picked up in a bookstore when we were in undergrad and so I read that and it kind of just got the wheels turning and was the starting point for me. So even though I don’t really refer to that book now much, it was kind of the bridge that got me into this community and into this mindset, so I’m very much appreciative of that book and I still have it so I refer to it often when people ask me what my favorite is.

Mindy:
And you said J. L. Collins’ book, that’s The Simple Path to Wealth?

Debt Ascent:
Yeah.

Mindy:
Yeah, great book.

Debt Ascent:
His stock series is great, whenever someone asks me how we view our asset allocation, all that, I refer to that stock series and now having that book, I think I’m going to start handing that out to relatives when they graduate and say hey, this is a great starting point. If you read this and implement even a fraction of it, you’re going to be ahead of most people.

Mindy:
Yeah. Jim was on our podcast episode 20 and he’s just, the way he looks at it, the way he explains it is so simple.

Debt Ascent:
Yeah.

Mindy:
Oh, The Simple Path to Wealth, I didn’t even try to do that on purpose Scott.

Debt Ascent:
Yeah, he’s great. I watched that episode, followed his blog for a long time. Yeah, he’s a great resource.

Scott:
Awesome. What was your biggest money mistake?

Debt Ascent:
The easy answer would be getting into all the debt and in all honest I think it started before that. When I started working, I got my first job at 14 and worked through high school and unfortunately I kind of just let all that money slip through my fingers and I spent it all. I didn’t take this money management stuff seriously until the tail end of college, of undergrad. So I wish I’d taken advantage, not that it could’ve made much in the way of progress towards investments and all that, but it was a really good time where I could have increased my financial literacy so I wish when I had those next to zero expenses that I’d taken better advantage of what income I did have coming in and not just spend it all on frivolous things.

Mindy:
Wow, you weren’t perfect in high school?

Debt Ascent:
Yeah. No, definitely not.

Mindy:
Okay, what is your best piece of advice for people who are just starting out?

Debt Ascent:
Well, we kind of touched on it already, but I would recommend, whatever position you’re in, for at least a period of time, track every penny. It’s not necessarily the same thing as budgeting but just track your spending. Track what’s coming in, what’s going out. Just know where you are and then see where there is fat to trim. Ask the question of whether its worth trimming it? Maybe you really enjoy eating out and you’re 500 dollar a month eating out budget is worth it to you, or maybe you realized you’re not getting your 500 dollars of value out of it and just make changes based on that. It doesn’t have to be so much budgeting so much as just knowing where its going and then just seeing where that takes you.
I think whether you’re in a bunch of debt or you make a lot of money, or whatever. Any financial position you can be in, if that’s not something you do, I think it can be eye opening when you start to look at it and see what’s out there.

Mindy:
That is my best piece of advice too.

Scott:
Love it. You hear it all the time, folks, if you’re not tracking your spending, time to start. All right, so…

Mindy:
That’s a good comment Scott, you hear it all the time. All of the things we listened to are things that we hear all the time. There’s not really a secret sauce here, you have to proactively change your financial situation.

Scott:
Yup.

Mindy:
Okay sorry, now it’s your turn.

Scott:
Okay, so, most difficult question of the famous four here is: what is your favorite joke to tell at parties and you get bonus points if it’s a dentist joke?

Debt Ascent:
I do have a really bad dentist joke, I’ll tell it if you want.

Scott:
Perfect.

Mindy:
Yeah Scott will love it.

Debt Ascent:
You’ve probably heard it but, what’s the best time to go to the dentist?
Tooth-hurty (2:30).

Mindy:
Oh my god.

Scott:
Oh that’s awesome.

Mindy:
That’s horrible.

Debt Ascent:
I was pretty sick myself.

Mindy:
Oh my- I quit you.

Debt Ascent:
This was the hardest question for me. So my non-dentist joke, that for whatever reason I think is hilarious is: why did the old man fall into the well?

Scott:
Because he was a dentist and he was filling it.

Mindy:
Oh my god.

Debt Ascent:
Because he couldn’t see that well.

Scott:
I like it.

Mindy:
I like that one better than Scott’s.

Scott:
All right.t

Mindy:
Okay, Ty, tell me where people can find out more about you.

Debt Ascent:
So we blog over at DebtAscent.com and also fairly active over at twitter same handle DebtAscent. Love chatting with folks about money, student loan debt, financial independence, about optimizing any of that stuff. There’s a lot of great voices out there, if our message isn’t for you, go find someone else, there’s plenty out there and someone that’s going to marry your story or at least be someone you can look up to and learn from.

Mindy:
You know what, that is such a nice thing to say. I don’t think anybody has ever plugged anybody else when we asked where can people find out more about you, but you’re right. There is somebody who speaks to you in the way that you can understand it and want to hear it and if you’re looking for somebody to listen to, somebody to get advice from, you’re right there are so many people out there. That’s really great. Okay, we will link to all of these things in our show notes which can be found at BiggerPockets.com/moneyshow118. Money show 118. Ty thank you for your time today, this was fantastic.

Debt Ascent:
Yeah, thank you so much for having me, it was a lot of fun.

Mindy:
I really appreciate, okay we’ll talk to you soon.

Debt Ascent:
All right, bye.

Mindy:
Scott, what did you think? I loved this episode.

Scott:
I thought it was great! I thought there was a lot of good lessons from it and what I think the biggest thing for me was when it dawned on me a couple minutes in that this wasn’t a mistake. They didn’t just find themselves 500,000 dollars in debt. It was a strategy, or at least it evolved into a strategy along the way, during the years of their education and it’s a good strategy. I suppose that if you’re listening to this and you’re graduating high school, there might be a more efficient path to FIRE than this strategy. This is certainly one viable way, and what I think was a nice bonus was that at no point during the implementation of this strategy have they felt like they are deprived or sacrificing along the way which I think is a really interesting outcome of that. So I really enjoyed that and I really enjoyed hearing that perspective.

Mindy:
You know, you don’t have to live on beans and rice and struggle to pay off your debt. Yes, they make six figures, they didn’t have to really struggle at all, but they don’t both drive Mercedes and live in the biggest most fabulous house ever and go on these fancy vacations and do all of the things that such high income earners normally do. They have actually surrounded themselves with people who are in grad school, just out of grad school, not living the, what’s the term? The baller lifestyle.

Scott:
Mm-hmm (affirmative).

Mindy:
That’s a really great place to be in. Like I said earlier in the show, Michael sent us both a note that said I paid off 50,000 dollars in debt! Frankly, sometimes its kind of hard when you’re the only person doing it. When you’re the only person doing it, find somebody else who is doing it too. There’s a lot of groups out there, we have a Facebook group. Did you know- you know we have a Facebook group, Scott, but the people who are listening, do you know we have a Facebook group?

Scott:
I’m in it.

Mindy:
Scott’s in it! You can tell him really terrible jokes!

Scott:
Some people do.

Mindy:
Yeah some people do! Go nuts. His email is [email protected] don’t send them to me, send them to Scott. Yeah we have a Facebook group and sometimes just posting in there and saying hey, I’m really having a hard time today, because everybody just went to Tahiti for a month and sent me all their pictures and I’m feeling like wow I’m so deprived, or whatever situation you’re having. People in this group are fantastic and they jump in and they give you that oomph that you need. You have a question? Hey, how do I do this? Here’s 15 people telling you exactly how to do it. It’s a great place to be and the group, you can get to it at Facebook.com/Groups/BPMoney.
Okay, Scott, Should we get out of here?

Scott:
Let’s do it.

Mindy:
From episode 199 of the bigger pockets money podcast, this is Mindy Jensen saying over and out.