Why Living Debt Free Rocks

August 3, 2012

Going through life, and especially college, without going into debt can be quite the challenge. The average debt of college students (from 2010) is around $25,000. While that may not sound like a lot to some, imagine starting out your adult life already owing $25,000! It’s no wonder why so many college graduates are returning home to live with their parents. Some people are fortunate to graduate from college debt free, while others are not. Seeing the different outcomes forces me to ask why some graduate with debt and others not.

What’s the determining factor between those with debt and those without?

It’s impossible to pin down one answer to this question. It could be the difference between getting scholarships (or not), coming from a wealthy family (or lower class family), or working your way through school. I was fortunate to graduate college debt free through a lot of hard work and frugal living. I got some scholarships, but had to make up the difference. Growing up, I knew that it wasn’t a good idea to graduate with a lot of debt. $25,000 can cripple a person and leave them stuck paying off their debt for over a decade. It has been part of who I am ever since. I don’t ever want to take out a loan.

As it turns out, I am quite different from other people my age. I am even quite different from some of my closest friends. My friend who I will call Barry, also graduated from college the same year as me. He went to an top-ranked school and ended up going to the same grad school as me. That’s how we met. The difference between him and me is that he graduated with his bachelor’s degree with over $30,000 in student loans. To make matters worse, he financed his graduate education as well. Now that we are both practically done with our degrees, I thought I would track the different approaches to living a life with or without debt. I am averse to debt, while it seems Barry is married to it.

Option 1 – Using Student Loans

As I mentioned, Barry graduated with $30,000 in debt before graduate school. He went to a graduate school that cost him $10,000 in tuition and fees plus housing costs (an additional $11,000 per year). He enrolled in a two-year program and was determined to finish in that time. This meant not working more than a few hours each week so he could focus on his studies. While he was married, his wife had a low paying job for the area and only covered about half of the living expenses. This is what his debt progression looked like:

Undergraduate Loans: $30,000

Graduate Degree (2 years): $30,000

In a matter of two years, Barry graduated with his Masters with an additional $30,000 in debt, or $60,000 total. He was forced to get a job, instead of follow his dreams and is now working a job, where he hates his boss and has no option to advance in the company. He is stuck in the area for a few more years and it is very likely that he will stay at his current job to continue paying off his debt. To add insult to injury, he needed a new car for he and his wife after graduating, so they financed a car (they didn’t have the cash to buy one and leasing a car wasn’t a better option either). What’s a little more debt when you already owe close to $100,000 (when you add in his wife’s student loans)?

Option 2 – Avoiding Debt at All Costs

I, on the other hand, took a completely different route. I started the same graduate program a semester after Barry with no undergraduate debt. I am set against taking out a loan. I understand that in order to pay for school, I need cash. Because of this, my wife and I both got jobs. I started working 30 hours a week and went to grad school part-time. This delayed my graduation date 1 year, but it also meant that I was graduating debt free. For nearly 3 years, I worked my butt off and am almost done. I am less than 4 months away from graduating.

Undergraduate Loans: $0

Graduate Degree (2 years): $0

While my friend Barry was able to graduate 1 year a head of me, it wasn’t like he was getting a job to earn some real money that much earlier than me. I also work full-time now while going to school and I have the benefit of not owing any money to anyone. Let’s look at the benefits that I have graduating debt free and living a debt free lifestyle.

Benefits of a Debt Free Lifestyle

  • Flexibility: While Barry may be stuck in a dead end job, I have the flexibility of following my dreams. Not having to pay back loans immediately after graduating gives me many options.
  • Lower Expenses: While it is hard to pay for school, by doing it without loans means that I have lower expenses than Barry for years to come. I imagine he is paying hundreds of dollars each month for several years.
  • Better Career Opportunities: Instead of not working for the two years like Barry, I now have 3 years of great, consistent work history for my resume. Not only is my resume better off, it also shows that I can manage multiple things at once since I was able to work full-time and go to school part-time.
  • Ability to Save/Invest Money: While Barry is spending his extra money to pay down debts, I am investing it for my retirement. This means that I will have more money later in life and won’t have to sacrifice as much in order to survive.

While many people prefer to finish their degree as quickly as possible, this comparison should show you that avoiding debt at all costs was one of the best choices I could have made. It not only strengthened my career opportunities, but has put me in a better financial situation than I could have thought possible. I am convinced that staying away from debt is the best approach anyone can take (with the exception of getting a mortgage perhaps).

Do you avoid debt at all costs? Or are you married to your debt like Barry?

This is a post  from Corey at 20’s Finances.†He writes to†give young adults the tools needed to conquer financial challenges.

  • Rianka @ Golden Financial Nuggets August 3, 2012 at 11:36 am

    Looking back if I could do it all over again I would have chosen option 2. I am all about the “pay as you go option”, especially now. I am “married” to my student debt for the next 10 years but hopefully with my aggressive budget I can divorce it in 5 years. 🙂

    • Marissa August 4, 2012 at 6:06 pm

      Hhaha. Thats the best way of looking at it. I’m sure you’ll be done sooner.

  • Bridget August 3, 2012 at 5:06 pm

    I graduated owing $20,000 and it was fine. I’m paying it off pretty fast. It annoys me sometimes but really it’s not an unmanageable amount and not a huge detriment to my lifestyle.

    • Marissa August 4, 2012 at 6:07 pm

      I think the key with you is the fact that you can/ are paying it off quickly.

    • Broke Professionals August 5, 2012 at 12:51 am

      I agree with Bridget; I graduated with my bachelor’s from a top 10 university with $17k in debt – and I firmly believe that the “name brand” (for that’s what it is – a recognizable name brand) on my diploma helped me land my first job and, hence, put me on my career track. It’s an investment.

    • thefashionistachic August 5, 2012 at 8:15 pm

      Exactly and you weren’t killing yourself to pay your tuition and you probably had better grades because you weren’t trying to juggle school with at full time job.

      • Marissa August 6, 2012 at 2:57 pm

        Thats an interesting perspective. I graduated from one of the top universities in North America, and happily will work full-time and do it again. Grad school was a different story tho.

  • Modest Money August 3, 2012 at 8:59 pm

    Fortunately I didn’t have to get married to that kind of student loan debt. I only took a 2 year college program and my mom helped out financially. As a result I didn’t really appreciate the debt problem. So when I later had a chance to finance an expensive car I was all for it. I definitely have a different mindset about debt now. I am actually thinking about going back to school for a career change, but I won’t get weighed down by debt if I do so.

    • Marissa August 4, 2012 at 6:07 pm

      Oh, what are thinking about doing in school?

  • Shannyn @frugalbeautiful.com August 3, 2012 at 9:14 pm

    Student loan debt freaked me out, but more than that- the consumer debt that seems to always go with it. One thing I noticed is often when someone is in a significant amount of student loan debt, they feel helpless or ambivalent about the debt and start using credit cards because of the idea “Well, I’m 20K in the hole, what’s another $3k?”

    Not all debt is created equally and I did my best to keep student loans down and I never ever used credit cards to buy into the temptations of the “well stocked student.” Yes, did I drool every time I saw someone taking notes on an iPad, you betcha…did I buy one since I couldn’t afford it AND rent? Nope! I noticed some people are fine with taking on debt, others, like me are scared to death of it!

    • Marissa August 4, 2012 at 6:08 pm

      I was in debt earlier on, but have since smartened up. Debt scares me now.

  • thefashionistachic August 5, 2012 at 8:09 pm

    In terms of debt, I believe the benefits and disadvantages can be viewed in a variety of ways. It all depend on the individual and the opportunity cost. I’d like to play devil advocate for a moment. It’s my understanding that Barry went to a top rated school which is how Barry initially created his debt. One of the advantages of going to a top rated school is the relationships you make. Remember it’s not what you know, it’s who you know. Considering Barry ended up with a Sh&*#y job, tells me while at this top rated school Barry definitely didn’t take advantage of networking with the right people. Then you said, that Barry also financed a new car. Again it demonstrates Barry’s lack of intelligence. Barry should have taken out a personal loan of $5k-8k and purchased a pre-owned vehicle.

    Now in your case you bragged and boast that you worked hard and lived frugally while in college. You graduated debt free. But what did you give up? You probably had meager meals and limited entertainment. In looking back LOL, yes you saved yourself the headache debt. My perspective is a little different. I think you sacrificed your quality of life. You may view it as a different life style. My opinion you only live once.

    I have to admit I too graduated debt free, while in undergraduate my husband help to support me. I went to a State school and was able to pay my tuition, with my tips from waitressing.

    I do understan the pitfalls of debt but you have to recognize your opportunity cost. What have you gain from debt. I have acquired debt from traveling. I have been to Jamaica twice, Hawaii, Costa Rica, The Virgin Island, Cancun and the Bahama’s in the past 10 years. I still have a little debt from the last Jamaica trip but do you have any idea of the memories I have created.

    Yes, you are paying your bills, when you view your bank statement, it may be impressive. But what have you really gained? What have you foregone?

    Barry on the other hand, his situation is a result of him just not being the sharpest tool in the shed. When acquiring debt I suggest you try to leverage to the best of your ability. Another thing I find questionable, why is Barry sharing his personal debit issues with you? Again explains Barry’s intelligence and disposition.

    • Marissa August 6, 2012 at 5:50 pm

      Wow, that is a post on its own. I’m sure Corey meant that debt free gives him peace of mind.

  • Taylor Brione January 24, 2013 at 2:24 pm

    I really like your blog and I love the information you provide as young women who is nearing graduation. I think also, you could shed some light on managing your student loans and school related debt. Some people, like myself, have no choice but to have student loans, if they’d like to go to college. I come from a large working class family and there is no way my family could contribute. I got scholarships, some grants, and I’m maxing the loan limits, and I work multiple jobs while in school, but student loans are something that sometimes cannot be bypassed. College is expensive and sometimes this is the only way some people can afford it. I plan to go to grad school, but I will go part time and I will pay as much of it in cash and also take advantage of employer sponosored options. Thank you for providing great content.