The Borrower is Servant to the Lender…Maybe Not?
June 3, 2010 3 Comments
I have $31,829.47 in Student Loans.
Even though my loans are in deferment, I am paying these loans back while still in school. As I mentioned last week, I am paying $350 each month towards this debt. I’ve been crunching the numbers and came up with some scenarios. At the current rate of repayment, it will take 9.3 years to repay the loan in its entirety. By increasing the monthly payment to $450, I can have the entire balance of the loan paid off in 6.8 years, a full two and a half years earlier.
In order to reach my original goal of paying off $14,417.68 by next year I would have to pay $1,246.19 each month. In as few words as possible, “It ain’t happenin’.” If I were to eliminate all travel expenses (estimated at $3,000 to $5,000 a year), as some readers have suggested, it would take 4.8 to 3.6 years to pay the loan off in full. By giving up travel, I could cut the loan time practically in half.
Maybe of more concern than the length of the loan is how much money can be saved. The interest accrued on the loan when payments are $350 a month comes to $9,363.24. Adding $100 a month would reduce the interest charges to $6,634.26, a difference of $2,728.98. The accrued interests at $600 and $775 are $4,637.04 and $3,444.60, respectively. The savings on interest charges could be as much as $5,918.64.
I could be out of debt in 3.6 years and save myself $5,918.64 if I eliminated all travel and applied the money towards debt repayment. That really sounds great but the question becomes, “At what cost?”
Should money be the only consideration when getting out of debt?
The benefits of paying down the debt as quickly as possible are obvious and living with debt limits our potential. Debt forces us to make decisions based on servicing our financial obligations rather than making choices that will bring happiness and satisfaction to our lives. We are slaves to our lenders.
Or so we’ve been told.
The phrase “the borrower is servant to the lender” has been around since Proverbs 22:7 and in so many ways, this idea has weathered the test of time. As I mentioned above, debt limits our potential and becomes the driving force behind so many of our decisions. If we are in debt, taking the risk of quitting a job to pursue a dream becomes almost impossible. Our ambitions are stifled by our obligations to our lenders.
Still, I wonder…is it possible to live a rewarding life while in debt? Can a balance be found? If we are methodically paying down our debts and meeting our financial obligations by building our savings and preparing for retirement, are we slaves to our lenders? If we are able to balance these financial responsibilities while enjoying the moment we are occupying, does that make us slaves to our lenders? There must be something more to this idea of being a slave to our lenders.
We become slaves to our lenders when all of our life energy is focused on servicing our debts. We become slaves to our lenders when each penny we earn is not able to be enjoyed because it must be used to pay off debt. We becomes slaves when we go to work for the sole reason of paying the bills when they come due. Slavery to our lenders means the money we earn doesn’t belong to us anymore. We become the middle man, working for one to give to another. That is slavery.
Can we escape the financial slavery while still having debt?
I believe we can. Being a slave to debt is a very real situation for many people but for a lot of us, it is a self-imposed sentence. It was an imbalance in our finances that got us into trouble in the first place and it is an imbalance that is forcing us into a feeling of slavery. If all of our energy is being spent to earn money to pay down our debts, of course we will feel like slaves. If we work to create a balance between paying down our debt, building our savings and pursuing our passions and hobbies, the feeling of slavery disappears. Paying our debts no longer feels like drudgery.
It will take longer and cost more money to reach an endpoint but the end will come. Does it make sense to put yourself through 3 years of pure Hell to get out of debt faster and save some money or does it make more sense to create a plan that falls somewhere in the middle while you are still able to enjoy the precious few moments we are given on this earth?
That is a decision each of us must make on our own. As for me, I am going to try to fall somewhere in the middle to get out of debt a little sooner while still chasing after my dreams and ambitions. I am going to review my budget, find areas that can be cut and use that money to pay off my debt.
And as for cutting travel?
…
About Steven
2 points to consider: when this was written, lenders could toss you in jail if you weren’t paying your debt in a timely fashion. they DID expect you to pay all that you were earning to pay off the debt. different culture.
and also, you are assuming your future will be the same as your present. that is where alot of people get into trouble. you may not have a job in 12 months. you may have other unforseen expenses. you may be injured. you may be dead. that is one of the reasons people suggest getting out of debt as quickly as possible. but if you’re comfortable with the risk then follow your heart.
good post
@Gail: You bring up an excellent point! Most people will change jobs something like 10 times during their lives, which brings along a huge amount of incertainty in regards to our future earning potential. The way our economy is struggling, debt reduction should be a high priority to anyone in debt.
In my situation, I am going to increase my payments so that I can pay off the debt sooner and I will apply any “extra” money towards debt repayment if the situation arises where I have “extra” money. Before I go totally crazy on debt reduction I want to further increase my Emergency Fund savings in case something unforeseen does occur so that I can be financially prepared and not have to rely on more debt to weather the storm.
The idea of “debt is slavery” is a mentality that is forced upon us by ourselves. Like I mentioned in the article, it was an inbalance that led us into debt and it is an inbalance that leads us into slavery. I believe there is a balance to be found where we can be responsible with our finances. We can get out of debt fast, plan for the future and still have money left over to enjoy the moment.
It is a different story if you are enjoying the moment at the expense of preparing for the future while making minimum payments on your debts. Pay more than the minimum (a lot more, if possible), save for a rainy day, invest for the future and whatever is left over, enjoy it like crazy! :)
I recommend that you not cut back on your travel expenses too much. It seems like the trips you take are definitely the high points of your years. Debt isn’t so much slavery as it is a financial inconvenience; as you mention, Steven, it’s a personal choice: how much of an inconvenience can I tolerate?
Personally, I finally decided to start aggressively paying off my school loans: $8K this year and next is my personal goal, which will more or less eliminate it. Up until then, I’d been settling with a small amount over the minimum payments (totaling less than $200 per month), because I knew I would be able to write off the loan interest on my taxes each year. But nowadays dealing with the loan seems more of a pain than the tax write-off is worth…As time went on when I paid the minimums, it seems like I barely scratched the surface of my loans. I was tired of seeing what looked like the same amount over and over and over…
Pay the minimums until you finally lose your patience (it takes a while…even for a modest amount like I accrued, I paid minimums or deferred as long as I could stand it, and I’ve been out of school for 10 years). When you’re finally sick of debt or whatever, then turn a significant portion of your monthly expenses towards debt elimination. Even if the economy is in the toilet and you don’t have a steady job, you can still defer school loans (of course, acquiring more interest payments as time goes on…).