A few months ago, in a quick conference call, my co-workers and I learned that our company was going to split into two smaller ones. Our department was most likely not going to be part of the parent company going forward. So far, it looks like no actual positions are threatened.
Nevertheless, knowing how these things work, I decided to prepare for the worst. At the time, I was in the middle of paying my student loans and was actually kicking some butt. With about $12,000 left, I was halfway there less than a year in.
Nevertheless, a big decision had to be made. If something were to happen, I would be completely out of cash in a matter of days. My conclusion was that I could either keep pounding at the student loans and live on the edge (I only had about $1000 in savings), or I could put the monthly student payments towards savings and ignore the loans until I was sure that my position was secure.
Side note, when I was paying them down, I was putting way more than minimum payments on my student loans. As a result, I can literally go two years without paying anything and not get in trouble with Sallie Mae.
I ended up deciding to put a temporary stop to my aggressive debt payment plan. It came down to having to pick between the emotional discomfort of my student loans staying stuck at the same number for a while and the rational discomfort of being an executive decision away from unemployment with no cash reserves.
I knew that no matter how long it took to get my job situation sorted out, freezing my loan repayment was only temporary. On the other end, the potential damage stemming from being unemployed with no cash was enormous and long lasting.
If I took a nerd approach to the problem and started comparing interest rates, I reached the same conclusion. Credit card interest rates are much higher than my student loans’. There was no point spending time on the subject. In the end, I felt very good about my decision. My main worry was no longer how I would survive in the worst case scenario I described, but instead whether I should start looking for other job opportunities. After all, I didn’t want to have to use the savings.
After weighing all my options, I realized that the only upside to sticking to the original plan was the mental satisfaction of seeing my loan balance go down. Don’t get me wrong, I’m the most anti-debt person you will ever meet. But over the years, I’ve come to learn that sometimes, we need to be flexible in order to make the right decisions.
Student loan debt is bad, but credit card debt is worse. If I can avoid the latter by temporarily ignoring the former, that’s exactly what I’m gonna do.
This whole experience made me realize that personal finance is not always about following a plan with no room for flexibility. Sometimes, smart decision making can make the difference between complete financial distress and a minor setback. Is this situation ideal? Hell no! I certainly don’t enjoy not making progress on my student loans or better yet having the balance increase due to interest. But I still feel very confident in my ability to weather any type of storm, however brutal it might be. The worst case scenario is me losing my job and having to dig into that savings account for a few months.
I just couldn’t afford to ignore the higher than usual potential for an emergency. I know for a fact I wouldn’t have the same peace of mind even if my loan balance was at zero today. Being one conference call away from deep credit card debt is not a situation I want to be in.
Real Time Update
I wrote the above post a few months ago. This section is from “real time me”.
A few weeks ago, about six months after my company’s announcement of the big shakeup, I was informed that I was part of a small group that would be staying with the parent company. This means that my position is secure for the near future.
By the time I got the news, I had already stashed $11,000 in savings. I immediately wrote a check to Sallie Mae for that amount ($10,400 to be exact – I hate seeing my bank accounts go to zero). With less than $2000 left in my original $20,000, I am now exactly where I would be if I didn’t go with this plan, minus a few hundred dollars in interest.
Of course, I was lucky and that was the best case scenario. But if things didn’t go as well, I was fully prepared.