Pausing retirement investing to pay down student loans helped me become a debt- free millionaire in my thirties. Here’s why and how.
Seven years ago, my husband and I had good careers, a 4-bedroom house, a savings cushion and we did exactly what our parents told us to do — contribute to the 401(k) offered by our employers. Although it appeared we had our finances together, the truth was we owed more than we owned with student loans, mortgages and our everyday bills.
I did some research online and most financial experts advise paying off debt and investing at the same time to be financially stable. I’ve battled with mental health issues on and off in my adult life, and here I felt overwhelmed and hopeless in getting out of debt.
My husband and I made a bold move and went against the traditional advice. We paused our investing to pay down student loans, and it taught me six invaluable lessons to be an even better investor long term.
Train Your Brain To Focus On Your Total Net Worth
We had six figures’ worth of cash in investments, but we had more in debt. Even if you invest a lot of money, you can still be broke if you continue to carry debt that cancels out investments out in your net worth.
Focusing on paying off debt forced me to stop buying depreciating items, like cars and clothes, and to get excited about closing down loans that subtracted from my net worth. I stopped creating new debt because I didn’t like seeing my net worth go down.
After the student loans were paid, we got more excited to pay down our first mortgage. Putting extra payments toward the mortgage not only caused our debt to go down, but our home equity went up, up which felt more exciting. It then motivated me to learn other ways to invest.
Get Creative With Growing Income Streams
My debt-free journey inspired me to learn new ways to make money beyond traditional investing and diversifying my income streams. I rented a room in my house. I started charging people to pick my brain. I embraced minimalism and sold unused items.
After a year of hustling, I paid off my student loans. I felt the freedom and courage to quit a job at an organization that didn’t value me and turned one of my side hustles into a full-time job. Even though I paused investing for retirement, I instead invested in growing my skills and income streams to eventually quadruple my earnings.
Student Loans Became A Short-Term Solution, Not A Long-Term Lifestyle
Student loans aren’t just a problem for young adults. Borrowers ages 35 to 49 have the highest number of people owing more than $100,000. I’ve seen my peers carry their student loans into middle age and even into retirement. Even my own husband exclaimed, “Everyone we know has debt! Why are you so stressed about your student loans?”
But I couldn’t fathom carrying what felt like a heavy burden for a decade or more. I wanted to have the freedom to pursue different career paths or to take time off after being burned out in a corporate job, and I didn’t think that was possible with student loans looming over me.
In 2016, two months after completing graduate school, I resolved that I would pay off my $72,000 of student loans in two years instead of ten.
Paying off my debt faster came with many trade-offs, including downsizing from two cars to one, forgoing some vacations, living off of one income instead of two, and carefully budgeting our daily expenses. It also required us to pause our 401(k) investing to divert as much money toward the student loans as possible.
Interestingly enough, the fear of missing out on investing actually motivated me to pay off the debt even faster so that I could get back to investing as soon as possible. We surprised ourselves by paying off the $72,000 in one year instead of two, encouraging me to exhaust all other options before ever taking on debt again.
Stop Falling For Fear Tactics And Generic Investing Advice
Inevitably, someone always challenges me on the math of losing time and compounding returns if you stop investing. But when I actually did the math, I was surprised to find that wasn’t necessarily true.
Before pursuing debt freedom, my husband and I invested $500 monthly into his 401(k) because of the match. We didn’t fully understand what we were investing in, why we were doing it, and we even withdrew from the 401(k) with a penalty because we never fully educated ourselves on investing. We were trying to keep our heads above water.
I learned to use a simple compound interest calculator to test if we were losing money. Assuming a 30-year horizon, starting at $0 and a 7% return compounded annually, we would save $566,764.72 before taxes and inflation. If we add in the match, we would save up $1,133,529.44. It sounds scary to give that up.
How To Build Your First $1 Million Of Net Worth In 5 Years Instead of 30
Thanks to our aggressive debt payoff plan, we did in fact lose a few years of compounding interest. But the tradeoff was instead of contributing the minimum we could afford, we were able to make up for the lost time by now contributing maximum amounts to my husband’s 401(k) and both of our IRAs.
Once I built the courage to leave my day job, I was able to open up my own 401(k) to also max out, match myself and contribute more to profit sharing. We now have contributed at least $50,000 consistently annually since becoming debt free — a huge increase from the $6,000 we would have contributed had we stayed in debt.
Unfortunately that 7% assumption didn’t pan out in our investment plans, and many people are seeing their investments take a hit, when the narrative for so long has been a growing stock market and economy.
Thanks to the discipline and the skills we learned in paying down debt, our current net worth is more than $1.3 million, even with investment fluctuations. I don’t regret paying off the debt first. It was the sure bet at the time, and now I can take on more risk. More importantly we have the freedom to retire early instead of waiting for 30 years from now.
Paying Off Student Loans Recession-Proofed Our Money And Our Mental Health
We’ve built and maintained a healthy six-month contingency fund and learned to live within our means. Even if we lost those jobs, it wouldn’t take much to adjust our expenses while searching for new opportunities.
When my father passed away suddenly during the Covid-19 pandemic, I had the privilege of being able to take as much time off as I needed, and to pay for unexpected costs during a really hard time. Even I underestimated how committing to debt freedom would build the mental fortitude to not only become a long-term investor, but to help keep my mental health in check.
Without any debt payments, rising interest rates aren’t increasing any of our monthly bills, a source of stress for many people with loans right now. As experts predict an upcoming recession, I’m not afraid about downturns like I used to be.
I don’t prescribe this strategy for everyone. If you’re struggling to pay off debt and invest at the same time like I was, you can give yourself permission to focus on one thing at a time. If you commit to being done with student loans for good, you can find not only financial stability, but financial—and mental—freedom sooner than you expected.
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