BiggerPockets Money Podcast - 199: Is It Worth $500,000+ In Student Debt for Higher Paying Careers?

Episode Date: May 24, 2021

The average American takes a long time to pay off debt, especially student loan debt. These amounts can vary, some people have a few thousand in student loan debt, others have tens of thousands, but what about $521,741 in student debt? Would you be able to pay off over half a million dollars in student loans, all while trying to buy a house and regularly invest? This is exactly what Ty from Debt Ascent did, and he did it quite successfully. Ty is an engineer and his wife is a dentist, so they both are in high-income careers with advanced degrees. Ty makes the argument that their degrees are a good investment, as they’ve been able to make $400,000+ as a couple, years after finishing school. This is a very high income, and with smart money management (as you’ll hear in the show), the high debt can be easily argued as being worth it. You’ll also hear from Ty on the importance of tracking your spending (something both Mindy and Scott have been fans of for a long, long time). Tracking the spending for Ty and his wife made it simple and easy for them to live off of one income alone, while dedicating the other income completely towards paying off debt and setting up other income streams. As of now, they are debt-free, with another $500,000+ in assets! Talk about financial efficiency!  In This Episode We Cover When student debt is (and isn’t) worth it for a future career Why it’s harder for lower-income households to pay off debt The importance of tracking your spending (via YNAB or manual tracking) Paying for your future self, your current self, and your past self Staying away from the “two-income trap”  And So Much More! Links from the Show BiggerPockets Money Facebook Group BiggerPockets Forums Finance Review Guest Onboarding Scott's Instagram Mindy's Twitter Mr. Money Mustache YNAB BiggerPockets Money Podcast 106 with Megan Gorman BiggerPockets Money Podcast 20 with JL Collins Debt Ascent Net Worth  Check the full show notes here: https://www.biggerpockets.com/moneyshow199 Learn more about your ad choices. Visit megaphone.fm/adchoices

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 essence 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 assent. Welcome to the Bigger Pockets Money podcast, show number 199, where we interview debt assent and hear his story of massive debt payoff.

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 know, you really should do everything you can to minimize it. But the counterpoint to that is if you do find your 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, you know, give you some guidance and or encouragement that, hey, you can do this. This isn't the end of the world. You are going to be okay.

Hello, hello, hello. My name is Mindy Jensen and with me as always is my intrepid co-host, Scott Trench. I love how you're always exploring new ways to describing me, Thank you. 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. 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 and problems out of the way so you can live the life of your dreams. 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 in debt. And he and his wife are making six figures. And I want to make sure the people who are listening know each. Each. There is 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, oh, 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. Yeah, absolutely. I think, look, this is just another perspective. We have folks that earn much less than this in the median income range.

We have folks that are in the upper middle class. We have folks that are in the top 1 or 2% of income earners in this country. And our guest today, Ty and his wife, are in that category of the top 1% to 2% of earners at their journey here. But that doesn't, I think, disqualify them the learning we can get from them

on the occasions that we do get a chance to interview some folks that are in that upper bracket. Right. I mean, they have, 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 that 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 1% 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 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. Oh, yeah, I got some good ones today. Yeah, do you have any more? Huh?

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If you're looking to turn everyday moments into real progress, Audible has been indispensable for me over over 10 years. kickstart your well-being journey with your first audiobook free when you sign up for a free 30-day trial at audible.com slash BP Money. 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's 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 of debt at a point in your life where you were newly graduated from college. Is that correct? Yeah, from grad school, yeah. Welcome to adulthood. Here's $500,000 of debt. Wow. What comprised this amount of debt?

Yeah, so first off, thank you very much for having me. But yeah, 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 effectively as a pre-dentistry. and 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 my PhD and she got her degree in dentistry. And in February of 2014, we found ourselves just, just over half a million dollars in student loan debt with a car loan on top of that. And, yeah, it amounted to just over $521,000. Wow, that is, I'm not going to lie. That's a big number.

That's like, that caught my eye. And I was like, oh, I got to figure out, I got to hear this story. You're an engineer with a PhD. I'm guessing you're not making minimum wage. 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, you know, that's still a lot of money. Are you making a million dollars a year? We're certainly not making a million dollars a year. Shortly after, you know, when we started working, we both started in the low six figures. And it's grown from there. We both make a little over, we average the last year, 2019. I think we broke 400,000 between the two of us. But it's been growing from the low 200s up to that over the last.

few years. And so, yeah, that first year, we had that $521,000. The average interest rate on that was just south of 7%. So the interest we were paying each month just to service the debt was over $2,000 a month in the beginning. So we had to pay $2,000 just to not grow the debt any further. So that first year, we did what we could to, you know, lessen the burden as much as possible. So we ended up decreasing the principal balance by $50,000. 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 sub 4%. And that was kind of the big kickstart that we needed to not only decrease the principal balance,

but instead of having $2,000 in interest payments a month, it was immediately cut to $1,000. So it was like getting $1,000 raise all on its own. When you graduated, did you kind of finish your piece? at the same time that she finished dental school? No, I was a little bit further behind. So her program was very structured, so she was like in and out four years on the nose. And 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 kind of was that final thing that dropped us down to that 521. And 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 this new spot. This is as bad as it's ever going to get.

And we just really buckled down from there. So what was the sentiment? Did you have peers that maybe that graduated from dental school at the same time or whatever, that were in a similar position? Or was this by far the worst debt that you knew of in your social circle? Yeah. 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. You know,

not many of them had spouses that had student loan debt from, you know, 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, you know, this was a private dental school, you know, a lot of her peers. They were all paying the same amount in tuition. Like I know that debt burden was high for most of them. Well, congratulations. on being the best, being the top. So you said you negotiated a new rate. How did you do that?

Yeah, so we just kind of looked around and found some random bank in, I believe it was Connecticut or something that was offering variable rate loans. And the variable rate loan sounded kind of scary. When we actually dug in and looked at the max rate, it could have increased to. It was like a half a percent higher than we were paying. on our fixed rate from the government loans, from the Fed loans. So we figured, you know, the rates are sub-4% now, even if they grow over time, they're going to grow over time on a smaller balance.

So let's take the guaranteed lower rate now, pay down as fast as we can, and then if and when, you know, 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 off anyway because by the time it gets there, we will have paid it down enough that the math will work out that way. And thankfully, you know, rates continue to drop. So we're actually 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 at the beginning of 2017 for just under 3% fixed. And we just paid off the last of that in October.

Wait, so you're debt free? 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. We're only like five minutes into the show. You've already spoiled it. You've paid off $521,741 in, what is that? Five years, five and a half years. Yeah, it's just over five and a half years. That's unbelievable.

That's fantastic. So where do you live now? Are you at a high cost of living area or are you in a lower cost of living area? It's pretty high cost of living. Yeah. It's not the highest. We've been in higher spots, but it's certainly above above average in the U.S. Yeah, one of the coastal cities.

Okay. Well, yeah, the coast is where everybody wants to live because it's the coast. You're by the beach. I'm not by the beach. So when you start out and you move to this new area, what do you do for housing and what are you guys driving? So we invented for the first number of years, but we did overtime while paying off the debt, we did save up for a down payment. and we did buy a house.

Actually, I think it was two months after we refinanced the $300,000. So the number one goal we had was to make sure that we got that $300K, that last $300K refinance to the low rate, even if it meant 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, yeah, we own what I think is a very nice house. You know, 2,000 square feet, enough bedrooms for my wife.

nine, 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. So, well, so let's walk through this. Can you break us down that for how you were able to start attacking this problem when you, when you had so much debt? Like, like, what, what were the driving factors? Was it just the, did you feel like you were, hey, we're living quite reasonably like a middle-class family while earning $200,000, and that's what allowed us to do it, or they're a conscientious spending plan to kind of keep those expenses in line and allow you to accelerate? What was the kind of driving force for you? Yeah. So, 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. So it was like built-in lifestyle inflation control. Like I often make the argument, like 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 have been so huge. So I basically pretended that we didn't have this huge income and we pretended 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, you know, with what we have left, what can we get done with it? And so that meant prioritizing. So that meant, hey, we don't need a brand new car. The car we have is fully functional. It works fine. It gets us for me to be.

But within that, we did have the goal of, you know, buying a house and getting the place that we wanted to live and call home. So we didn't make that a priority, but it wasn't something we were able to do 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 our money. us, but we wanted to prioritize it that way anyway. So what, you got, you have an engineering PhD, PhD in related to everybody. What, what exactly do you do?

So I'm a process engineer. So I work in a big company and we, there's a big, a big process line. And so my job is to essentially optimize that, that process from, from this, the small window that I, that I own and operate. And I've kind of had that job from the beginning. And it kind of fits, I feel like. my skill set. And yeah, that kind of leads into my interest in optimizing finances and all that. So, yeah, they kind of go hand in hand for me.

Got it. And your wife is obviously a dentist. So in your social circle in this new area, did you do your friends, your colleagues, do they adopt a different lifestyle than what you guys did in those first couple of years? 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, like, 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, you know, recently, you know, new grads. They come from grad school from lesser means. So I feel like if anything, it's 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. It's a lot of that kind of grad school way of life that sort of gets ingrained over time. And, you know, it's hard for them to let go with that, which is, ends up being a great thing. I think they make great financial progress that way. So I don't feel like, 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, you know, cars that get us where we need to go and a house to come home to and all that. And we don't feel like we're wanting for anything. Got it. Yeah, that's, you know, that's really powerful to be able to have other friends who are in the same position or at least mentally in the same position as you are. Because, you know, I've, I just got a letter from a man named

Michael and he said, you know, I just paid off $50,000 in student loan debt or $50,000 in debt. And, you know, congratulations, Michael. That's amazing. And he said, but, you know, 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, really great. It really makes it easier. You know, when you're the only person who drives a crappy car, maybe you feel like, oh, man, I really need to upgrade or, and, you know, when everybody you know drives a crappy car is not, 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. So going back on the story a little bit, before we even got into the full debt, you know, we were, I remember I was in a big bookstore and undergrad and my wife's planning to go to dental school and we kind of were coming to the realization like, hey, we're going to have all this debt someday and we're going to, and trying to come to terms with that and trying to justify 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, like, going in, hey, we know this is going to, this is going to happen. We know that we're going to have this huge debt burden, but we're

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, we 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 was 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 kind of the idea was there's 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 and then save it and then maybe have the prospect of retiring early someday. And so a lot of our refinements have just kind of, you know, spurred off from that naturally. So, yeah, you know, as far as particulars, there's subtle things that we've done, but we just kind of always had that focus that, you know, if we live on less, that, you know, we're going to be okay. You know, when we think about this, this problem, you know, and you're being able to pay off $500,000 in debt, how would you think about that in the context? Okay, you guys made $200,000 to $400,000 a year over this period. is there a difference between you guys making $200,000 and paying off $500,000 in debt versus someone making $50,000 to $100,000 a year paying off $125,000 in debt?

How would you think about that problem and relating it? What are the differences between those two scenarios in your mind? Yeah. So to me, they're completely different problems. One sounds more difficult. You know, you hear $500,000 in student loan debt. And even with a high income, folks think that for somehow that's harder. But just based on everything I've ever looked at and experienced, that's absolutely not the case.

If you look at at folks that make, say, median incomes and have, you know, a reasonable debt, say they make $50,000 and owe $50,000. That's going to be much, much tougher for someone to pay off than even a half a million was for my wife and I. And the reason for that is because of baseline expenses. So a $50,000 household is only, you know, say they live on even half of that. They only have less than $25,000 to tackle that debt with, whereas if we make six figures, we can almost have that much left over each year to pay towards our debt. So in our case, the argument we're trying to make is for the high income folks, you know,

it may sound really scary and everything you read might make it seem like it's really scary for you to pay off debt, but it's 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. And then if you're 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 it's all relative to how much you spend and how much you earn.

And, you know, everyone can skew their expenses down to be roughly the same. You know, if we earn 400,000, we can find a way to live on 50K. If we live on 50K, we have a huge amount left over to pay on debt. If you make 50K and you owe 50K, it's hard to make progress towards paying off your debt. So that's why the problem is it's more difficult for people who earn less. And so part of the, what we try to talk about is not only to give the high income people, you know, the kind of realization that, hey, maybe this isn't as bad as you think it is, but also on the other side for the median income folks to say, hey, this problem,

maybe it doesn't sound as bad as maybe ours looks like at the surface or looks like at the surface, but actually isn't trivial because, you know, you do have to find that gap between your income and you're spending in order to make progress on paying off your debt. Do you think that most high, not most, but maybe a very large percentage of high income earners in the six-figure, even $200,000 a year range as individuals, do you think that a lot of them have a large amount of debt that they suit loan debt in particular that they use to get to that position? I think it's definitely skewing that way.

So a lot of the high-income bloggers out there, personal finance bloggers, you know, a lot of them, I don't know that they came from high debt, but as schools getting more expensive over time and, you know, to get these medical degrees and, you know, to become a lawyer, it's becoming increasingly expensive. Schools getting, you know, is far outpacing inflation. And so for the new crop of high income folks, you know, maybe the incomes aren't as high as they work for the other folks and maybe their debt is higher. So it's 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 getting out the message that people say, have these random rules of thumb about debt to income ratio.

What I mean by debt to income is how much debt you have relative to your annual salary. And saying like a ratio of one is sustainable or two isn't sustainable or something like that. And my argument is that that argument is irrelevant if you don't talk about what those numbers actually are. like someone who owes $100,000 and makes $100,000 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 even higher, it's going to be even easier, even if you take into account the progressive taxes and all that. Because, again, everyone can skew. 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 less gap if you make a median income. That makes perfect sense to me. I think that that's a great concept and a great takeaway.

And, you know, I think that should give comfort of 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 didn't start, where to start it over, do you think you could have put yourself in the same position with the same credentials with a lower debt burden? 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, you know, my degree somewhere cheaper. She could have maybe done it. But just in our situation, our goal was to stay together. We had, you know, we plan to start a family and all that. Like, that to us trumped the, the debt difference that we were going to have. So the other part that I like to talk about is, like, people like to focus on your debt. Like, it's the end of the world.

and that it's like 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, like you are allowed to make a decision that is maybe against your financial interest if it's going to improve your quality of life. So in our case, you know, we did make the conscious decision like, hey, we're going to, we're going to stick together. We're going to 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, you know, we took that into consideration and decided the improved quality life, you know, trumped any added expense. Well, I think that's a good point. And the flip side of your point is, hey, if you are thinking about going to college and incurring massive student loan debt for a job that pays, you know, $25 bucks an hour, maybe that's not the best choice. You knew going into dentistry school that there was.

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. And, you know, whereas there's, she did go to a private dental school, which is more expensive than a state school. But she also, like, 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 that current, you know, in what I studied. So that was a bad option for me and I didn't think about that. So I think that, you know, there's still a lot of takeaways for this, even from people who

aren't on the higher income side, living on one salary is huge. I mean, the potential for savings, the potential for investing, the potential for paying off your debt, if you're married and you only live on one of your incomes, that's a really great practice to, and, you know, really great something to strive for. Optimizing the debt. I mean, thinking, I know so many people who are like, oh, my student loan is 7%. I guess I'll just whittle that away. Nope, I don't want to pay 7%. I want to pay less. So I'm going to look for a place. Were you living in Connecticut when you got this bank in Connecticut to give you a loan? No, we didn't. We just, you know, through research and just say, hey, what's the best deal we can find? If someone's 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, you know, some of these other places, and some places wouldn't even take the chance on us, but these guys did. And, you know, so we took advantage of that for as long as it made sense. And then when it didn't make sense anymore, the rate crept up a little bit. We started at three and a half and it crept over four. we started looking around again and, you know, 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. And so, you know, for the

average person out there, you know, doesn't really matter how much you make. You know, you can go and look and try to find the best deal that you can if you are in debt. Again, I don't, I don't, I don't like to recommend or I don't recommend that you should follow the path that we did. We made very particular choices because, you know, we had the advantage of having the prospect of too high income. So that gave us a little bit, you know, a margin of error. If my wife was going to be the primary breadwinner and, you know, her debt was going to be almost as high as our total ended up being on her own, you know, maybe she would have made a different decision to go to a cheaper school and all that. So like I don't want to minimize the impact of having a lot of debt,

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All eight episodes now streaming Only on Disney Plus So with this In terms of your asset allocation strategy It sounds like during this period of time, this five and a half years I don't know the 500 $1,000 a debt, but you also accumulated the down payment on a property.

Did you put down 25% or was that a low down payment loan that used? We ended up, I think our payment ended up being like 17%. So because my wife's a dentist, we were able to get a physician's loan. And with the bank that we went through, there was no difference in rate between a traditional 20% and I think the minimum in her case was 10. And we were on our way to having 20, but we just figured, hey, now's a good time. We can put 17% down. And yeah, so as far as asset allocation, you know, 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, you know, the balance was either extra principal payment on the debt or saving up for the house down payment. So 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. And so 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 that 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. Love it. So when you say contributing to your retirement accounts, were you both maximizing your 401K contributions? Yeah. So we started, I think as of 2014, since 2014, we've both maxed out our retirement account since then. And so as of the end of last year, those two accounts, or a handful of accounts between the two of us have just exceeded half a million dollars in net assets. 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 to start. Oh, well, then never mind, 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? Yeah. 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, to having two salaries, it is really hard to cut back. It's hard to cut back anyway, but it's really hard to cut back 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 the one salary. And it can be the higher salary if you want,

but maybe you can live off the lower salary. You know, and just I can hear people saying, you know, oh, well, that doesn't, you know, maybe dismissing the story. And I still think that this is an impressive debt that you paid off. And I still think that this is an impressive, you know, 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. So, you know, but still, you were taking advantage of that while paying down your debt load. And I just, I don't know, I feel like I'm rambling, but I really like that story. Yeah, I mean, so our story definitely isn't going to apply to

most people. Most people don't make, you know, 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. You know, like, that's definitely not going to work. You shouldn't take on the debt burden that we took on unless, you know, you really thought it through and, you know, you kind of have your ducks in a row as far as, you know, the ability to pay it off and the job prospects to pay it off. Oh, I'm going to jump in right here 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 go to college.

Somebody's giving me a credit card. Great. A pizza's on me. And I'm going to take all the student loan. Who do we talk to, Scott, that said that they didn't take out every bit of student loan, that were able to. They only took out what they needed. Yeah, that was a recent recording. Just because somebody is going to give you $100,000 in student loans doesn't mean you have to take all $100,000. And, you know, making conscious choices, just 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. And, you know, not keeping track of like, I don't know that I would have kept track to $741. I probably would have just said $750 or, you know, whatever. But knowing what is there is so powerful. And knowing what is not, or not knowing what's there can just, I mean, it doesn't change

the fact that you owed $521. If you didn't know it was $521, does it 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, you know, that's good job you. Yeah, well, 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. You know, some people don't care about money for as important as it is. Some people just, you know, whatever, the bills come in, the bills go out. I just want to live my life. Whereas like, I just think about money. Like, it interests me. It's the sort of thing I want to read about. And so I don't think that that advantage should be understated. And if you, if that isn't your interest, If you're somehow listening to this and you're not interested in money, like good for you, first of all. But second of all, like either trying to increase your interest or at least becoming

informed is such a huge advantage, just kind of knowing and just showing up and knowing where you're at and where your money's going, where, you know, what's coming in. It's just going to be such a huge help because it's, you know, you find those leaks and you can, you can shut them down quickly if you know they're there. And it's hard to know that they're there if you don't care. So, For anyone out there, you know, if you do have debt, I try to say like, 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're forced to live on less than you make. And so if you can find a way to expedite your repayment, that's such a huge

advantage because you've proven to yourself and to everyone else that you can live on less than you make. And so 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. And so I try to make the argument that, like, us having this huge debt burden is what kind of help prepare ourselves for financial independence. Like, we proved to ourselves, hey, we don't need all this money. We don't need this income. We can use that to pay off the debt. And when the debt's gone, we can use that to buy our financial freedom over time. So let me ask you this. When you were a couple years into this, you said you refinanced the student,

the student loan debt to a rate that was lower than your mortgage payment, is that right? Yeah. So at that point in time, what was your mortgage interest rate and what was your student loan interest rate? So our mortgage rate was just about 4% at the time. We financed that as well, but at the time that was 4%. And our student loan interest was 2.95. 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.

Yeah, that was a big question that we had and a big problem that we kind of focused on and talked a lot about. So if you just look at the numbers, you know, both those interest rates are fairly low. You know, we could either decide to invest or we could, if anything, we pay off the house first because that has a higher interest rate. Ultimately, it came down to a cash flow thing. So in order to refinance down to 2.95%, our minimum payment each month was just under $4,000 a month. So the idea was that, hey, let's, let's attack the thing that's, that's affecting our cash flow the most. And when we can pay that off, that immediately frees up $4,000 that we do not even need to make every month. So if we wanted to have a flexible

work arrangement, or, you know, maybe we don't work. You know, maybe my wife scales back to four days a week instead of five. Like 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 payment on just the loan. loans every month. So it became a cash flow optimization. And it's why I don't really like the, you know, the debt snowball or all this. Like you have to make pragmatic decisions and you have to consider cash flow as much as you consider, you know, interest rates. And so in our case, yeah, sorry, go ahead. No, no, this is, this is really good, good, a good discussion here with this. With the, okay, so I get it. So the cash flow, that means your, your amortization period,

which is the amount of time for those listening that you are required to pay back the loan over, you probably have a 30-year mortgage on your home payment. And what was the amortization payment on your student loan debt? Yeah, so it was seven years for $300,000. So in order to get the low rate, we committed to a seven-year repayment. We could have gone longer and gotten a slightly higher rate. We could have gotten it slightly lower if we'd gone to five years or maybe even three. But we didn't want to commit to that cash flow requirement.

And so, you know, the $4,000, we felt like was a good mix between, getting the lower interest rate and not over committing a monthly payment. Now here's another question. What year did you buy your house? 2017. 2017. Okay. So was there ever a discussion about, hey, the house is appreciated. Let's let's HELOC out of there and use that to advance this? Or was that kind of too little insignificant relative to the overall? Yeah. I mean, we were able to to get to just refinance on its own at a lower rate,

then, and when we refinanced the debt, the student loan debt, just before we bought the house. So, you know, we never really considered, you know,

tapping into our retirement or dealing with anything with the equity of the house. Like, it was always like, hey, we have the cash flows to support these payments. Let's just keep doing that. And then towards the beginning of 2017,

we really kind of focused on, Once we had bought the house, so I guess the middle of 2017, we decided to really, really focus on the debt. It said, hey, every spare penny we have beyond the minimum payment on the mortgage and maxing out retirement accounts. We treated those as givens. And then we just kind of figured everything else that we have, let's 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. Love it. So did you have an emergency reserve during this period as well? Yeah, we did.

So I really, really love Wynab for that. So I was never, you know, even though we had kind of planned all this out and knew how much debt we're going to take on, I'd kind of take in on the Mr. Money Mustache philosophy regarding budgets and thought, you know, I don't need them. We just minimize everything and we don't have to worry about it. But once I actually started tracking money in Wynab, I started to see, okay, this is what we're actually spending. And it was really easy to plan out. Like, here's how much we need.

If things got bad, this is how much we'd actually have. have to have. And so we just kind of built up our reserves over time that way. And so, you know, we kind of built in with that, you know, 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 principal payment on the student loans. And so we just, we had kind of a target date for the house. And we just kind of progressed towards that. And along with that increased our emergency fund. And then with every spare penny we had, we just focused on the debt. Love it. It sounds like you finally completed this all in October of 2019, right? Yeah.

So congratulations on that. Thank you. 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? Yeah. What's your phone number? So we want to kind of retarget our asset allocation a bit. So when we did this, we treated the debt as kind of the bond portion of our portfolio, the, the, kind of like fixed return. So didn't want 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. Like 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, you know, we're kind of under presented

for our position and also in real estate. So real estate's the next thing that we want to get into. So kind of saving up for that and try to try to find some things. Do you think you'll buy real estate as a owner-operator, like that you'll control like a duplex, quadplex? Or do you think that you'll, you guys are, I assume, are obviously accredited investors at this point? Do you think you'll invest passively in syndications? We're definitely pursuing both routes. I'm personally very interested in the owner-occupied. idea. I really like to work on things, you know, make improvements and all that. So that definitely interests me. But there's something to be said for the simplicity and the ease of going through one

of these funds. So we're probably going to honestly pursue both options. I think we'll save up the cash. And if the right owner occupied, the right physical property makes sense for us, we'll do that. But if not, you know, maybe we'll put the money in the funds or split the difference somehow. So, yeah, that's kind of the goal for 2020 is to increase our real estate exposure. Yeah, I always think that the long-term goal is to acquire the title, limited partner. Limited partner. That's the do-nothing job. No risk, no liability.

You can risk your money, of course, but no liability there, no, no management responsibilities, that kind of stuff. So, no, I love it. So that's great. So I think you're going to have a very good. 2020 here and have a lot of fun experimentation and learning from that. I hope so. Yeah, 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. I mean, or if you don't, send it to me, but, you know, you're still budget. And that's really

important for people to hear. I think, you know, I don't need to budget. I have so much money. Yeah, you still need a budget. You still need to know where your money is going. And you track it in YNAB, which is you need a budget. Is there website, yNab.com? Yeah, I think so. Yeah. My budget's on a piece of paper. I actually, I was recording a podcast yesterday with a friend and he asked me, you know, is it important to have a, you know, your spending tracker in like writing it down is the process of writing it physically down more important or more helpful than, you know, putting it into a tracker on my phone? I'm like, you know what? Absolutely. having that and having to write down every time I spend money makes me think about it every single

time. And at the end of the month, I've got this big long list and now it's a game, you know, how long can I go without spending money? I think having a budget like that physically in front of you, not on the computer that you're going to look at, you know, print that out and show yourself, at least for the first few months, show yourself what you're doing. But that's just awesome that you have a budget. Yeah, I definitely agree with you. So Wynab now has the feature, I guess, 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? And more so than anything, it's a deterrent. Like, oh, man, do I really want to put in 20 different transactions? Like, it makes you think about,

do I really want to spend this money? And 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 just, it's kind of calming, for me to know, like, hey, everything is, 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 probably would be fine if we just kind of, just let, let things happen and just kind of check the balance from time to time. But just accounting for every penny was, for us in the beginning was so important just to kind of make sure we're tracking all the things that we wanted to that I just don't ever see how we're going to get away from that. Yeah, you know, when you don't, when you're not money conscious, when you're not continuing to think about it, and you 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, you know, oh, it's 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? Yeah. That's, I mean, that's a lot for me. Um, no. judgment if that's you, maybe a little bit of judgment. But, you know, if you're financially free, then do what you want. But yeah, no, it's just, it's really, really helpful to have that accountability, because I would absolutely let myself creep. I do let myself creep when I don't write it down. So I have to force myself to write it down. And part of it is, like, 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 it.

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. Like, there's just, you know, little things that it's, I don't want to explain it. So it also keeps me from not spending money when I don't have to make up an excuse for going to Starbucks. Yeah, you know, I think 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. So in a few years, you'll make that transition and start calling it cash flow management. It sounds like. No, a few years ago, he started making that transition. He didn't call it a budget.

He called it his cash flow. Yeah, there you go. Yeah, that does bring up another thing that like With student loans, everyone talks about how bad they are and all that. But I try to make the argument, we always treated it like a cash flow argument. Like if I told someone that I had a $400,000 mortgage on a property that I owned and it cash flow, 10 grand a month, would real estate investors tell me that I got a bad deal? Probably not. But when I frame it as to a financial independence blogger that I have $400,000 in student loan debt, they don't care how much money you make.

it was a horrible decision and, you know, how could you get yourself in this mess and you can't eat out again until you pay it off? So it's all frame of reference, but to me, I just kind of always viewed it that way. Like, we traded this huge debt for this extra large cash flow. And we use that to service the debt and now we're on the other side of it, just like if we had just paid off a $400,000 property and we're taking in all the rents instead of having to pay out on the mortgage. You know, I love that framing. I think, I think just, you know, if you find yourself $500,000 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, if you do it strategically like you did, then it can be a good decision. And a lot of people

might find themselves in that situation and feel, you know, it's guided or whatever. But like, hey, maybe they actually made a good decision from a long-term cash flow standpoint. Yeah. I mean, that analogy kind of breaks down because we can't sell our degrees for the equity and the property. But it's just kind of viewing it in a different way, you know, maybe just can for someone who finds themselves on a lot of debt or whatever, like, just think about the advantages that that day gave you. If it got you a job that you're looking for and you make more money, like, don't pretend that that doesn't exist. So in the end, like, where I was to try to frame it, like, we're grateful that we kind of went through this because it taught us a lot about managing

money and living on less than we make and all that. So just trying to try to see the silver lining and finding yourself in whatever situation you're in if it's not ideal. Do you have anything else you would like to talk about before we move on to our famous four? No, I think we've covered a lot of the stuff that I think like the message that we try to get out to people, you know, for the high income earners and then also for those median income murders, particularly the ones that are fighting through paying off student loan debt. You know, I very much appreciate the position that you're in. And I think people undersell how difficult it is for you and kind of give people like us. us too much credit when, you know, for all the reasons that we talked about. So I try to amplify those voices as much as I can and try to talk with them and just let them know, hey, you know,

this situation you're in isn't trivial. And if you can find your way to get out of it, that is really impressive. Yep, 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? Sure. What is your favorite finance book? my favorite finance book so i'm going to go with two jell collins's book is my current favorite um but i'm going to go with uh one that kind of introduced me to the to this idea of money management and that uh was david david box uh the automatic millionaire that was a book i picked up in a bookstore

when we were in undergrad and so you know i i read that and it would kind of just got the wheels turning and was kind of 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 and when people ask me what my favorite is. And you said J.L. Collins book, that's the simple path to wealth. Yeah, yeah. Yeah. His stock series is great. Whenever someone asked me about how we view, you know, 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 just 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. 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. Yeah. Oh, the simple path to wealth. I didn't even try to do that on purpose, Scott. Yeah, he's great. I watched that episode, followed his blog for a long time. Yeah, he's a great resource. Awesome. What was your biggest money mistake? The easy answer would be getting into all the debt. But in all honesty, 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 just kind of let all that money slip through my fingers and I spent it all. I never, I didn't take this money management stuff seriously until the tail end of of college of undergrad. And so I wish that, you know, I'd take it advantage, you know, not that I could have 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 I had, when I had those next to zero expenses that I had taken better advantage of what income I did have coming in and not just, you know, spend it all on frivolous things. Wow, you weren't perfect in high school. Yeah, no, definitely not.

Okay, what is your best piece of advice for people who are just starting out? Well, we kind of touched on already, but I would recommend whatever position you're in for at least a period of time, track every penny. And it's not necessarily the same thing as budgeting, but just track your spending, track what's coming and what's going out. Just know where you are and then see, you know, where there's fat to trim and then ask the question of whether it's worth trimming it. you know, maybe you really enjoy eating out and your $500 month eating out budget is worth it to you. Or maybe you realize you're not getting your $500 of value out of it and just kind of make some changes based on that. And it doesn't have to be so much budgeting so much as just knowing where it's going and then just kind of see 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 really look at it and see, you know, what's out there. That is my best piece of advice, too. Love it. You hear it all the time, folks. If you're not tracking your spending, time to start. You know, that's a good comment, Scott. You hear it all the time. All of the things that we listen to today are things that we hear all the time. There's not really a big secret sauce here. And it's, it's, you have to proactively change your financial situation. Yep. Okay, sorry. Now it's your turn. 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.

Oh, I do have a really bad dentist joke. I'll tell it if you want. Perfect. You've probably heard it. But what's the best time to go to the dentist? Two-thirty. Oh, that's awesome. I was bracing myself.

Oh, my, I quit you. But this was the hard special for me. So my non-dentist joke that, for whatever reason, I think it's hilarious, is why did the old man fall into the well? Because he's a dentist and he was filling it. Oh, my God. Because he couldn't see that well. I like it.

I like that one better than Scott. All right. Okay, Ty, tell me where people can find out more about you. So we blog over at Debtassent.com and also fairly active over at Twitter. Also same handle, debt assent. Love chatting with folks about money, about student loan debt. about financial independence, about optimizing any of that stuff. Yeah, 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, you know, kind of mirror your story or at least be someone that you can look up to and learn from. You know what? That is such a nice thing to say. I don't think anybody's 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 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, really great. Okay. We will link to all of these things in our show notes, which can be found at biggerpockets.com slash money show 118, Money Show 118. Tye, thank you so much for your time today. This was fantastic. Yeah, thank you so much for having me. It was a lot of fun. I really appreciate it. Okay, we'll talk to you soon. All right, bye. Scott, what did you think? I love this episode. I thought it was great. I thought there's a lot of good lessons from it. And what I think the biggest

thing for me was when it dawned on me, you know, a couple minutes in that, hey, this wasn't like a mistake. They didn't just like find themselves $500,000 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, it's a good strategy. You know, I suppose that if you're, if you're listening to this and you're graduating high school, there might be a more efficient path to fire than the strategy, but this is certainly one viable way. And what I think was a nice bonus is 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.

You know, you don't have to live on beans and rice and, you know, struggle to pay off your debt. And 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, you know, in grad school, just out of grad school, not living the, what's the term, the baller lifestyle? And 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 in debt. And frankly, sometimes it's kind of hard when you're the only person doing it. When you're the only person doing it,

find somebody else who's 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 right now, do you know we have a Facebook group. Scott's in it. You can tell him really terrible jokes. Some people do. Yes, some people do. Go nuts. His email is Scott at biggerpockets.com. Don't send them to me. Send him to Scott. But 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, you know, 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 slash groups slash BP money. Okay, Scott, should we get out of here? Let's do it. From episode 199 of the Bigger Pockets Money podcast, this is Mindy Jensen, saying over and out.