I recently wrote about how I am working at getting rid of days I have to work by investing to receive dividends. But I got to thinking again about a different way to think about things. Thinking differently is the key to innovation. I am trying to go through university without taking on debt and I began to think about how incurring debt is like giving away some of your life by adding work days to your time.
The average student graduates with $25,000 (this figure is for US students, Canadians should have less). This is likely 50% or more of your first year’s salary. I don’t think anybody would want that hanging over their head, let alone somebody who won’t be making a lot nor what they expected.
I have a line of credit from TD and the interest rate is 4.5%, which is more fortunate than a lot of students out there, although not the best. While I am in school I am only required to pay the interest every month. Assuming I kept that $25,000 for my senior year that would be $1125 in interest without making a dent in the amount I owe the bank. I calculated that someone with $50,000 of after tax income takes home $192.31 every work day. So my first six days of full-time work after I graduate will simply pay the interest for the school year already completed. Then I need to keep paying interest and eventually pay off that $25,000.
If you are simply paying he minimum on the debt than more than one week of every year, or one out of every 44 days you work you reap no benefits from your labour outside of paying that interest. Being smarter than that you would try to pay it off as quickly as possible. Making $50,000 you could save one quarter of your income and pay off the principle alone in two years. Adding the interest to your payments might add another month to your efforts. So $1,000 every month you work during the most important time for you to invest your money.
Would you go to work and one day of every week ask them not to pay you? This is what that student debt would do to you. With the year of interest payments and then the 25 months of paying one quarter of your income you lose 136 days of your life by having this debt. Doesn’t seem worth it if you can avoid debt.
This does not even take into account additional debt such as a car loan (unnecessary) or credit card debt (also unnecessary) or any other debt for that matter. Each dollar of debt you have adds time that you have to work to your life, essentially shortening your life with debt. You can’t literally buy time on Earth but this is as close as you will get.
So debt is actually killing you in a small way, a leech sucking the life out of you. Usually it is slow enough so you don’t notice all the damage it is doing, until you don’t have the money to go on vacation because you have to pay your student loans. Or maybe you are “lucky” and you don’t see the leech until you are 65 and working longer than all your friends and family. See that leech trying to get at you now, and keep it at bay so the debt can’t harm you.
Poor Student was featured at NerdWallet in The Carnival Of Personal Finance.