Tracy, a teacher in Dallas, graduated from college in 2016, thinking she had some student debt, but not really knowing how much. Her mom had always handled the finances, so Tracy trusted that things were under control. “I knew I had student loans eventually coming out of college, but she kind of handled all that,” she said on the recent “The Ramsey Show.”
The Shocking Truth Arrived In 2020
It wasn’t until 2020 that Tracy finally got access to her loan information. Her mom handed over the login details, and that was the moment it all became real. “That’s when I got the login,” she said. “At that point, it was kind of one of those launch situations, like, this is yours now.”
Don't Miss:
- Fast Company Calls It a ‘Groundbreaking Step for the Creator Economy' — Investors Can Still Get In at $0.86/Share
- Have $100k+ to invest? Charlie Munger says that's the toughest milestone — don't stall now. Get matched with a fiduciary advisor and keep building
The number she saw floored her: nearly $140,000 in private student loan debt. “It just feels like they’re never really going to get paid off,” Tracy admitted. Over the past several years, she's managed to bring it down to $106,000, but the process has been slow and draining.
Adding to the pressure, Tracy and her husband, who is also a teacher earning about $62,000 a year, are juggling other debts. There’s his $30,000 in federal student loans, a $19,000 car loan, and a $115,000 loan on their tiny home on wheels. Monthly costs include a $1,000 mortgage payment and $700 in land rent.
When she called into the show, Tracy asked a question many people in her shoes have wondered: is it ever okay to just default on student loans?
Trending: Forget Flipping Houses—This Fund Lets You Invest in Home Equity Like Wall Street Does
“No,” co-host Jade Warshaw said plainly. “If you were 88 and on death’s door, I might say yes if you had no money. But you sound young and it seems like there’s a lot of life ahead of you to try to make this happen.”
Warshaw quickly zeroed in on Tracy's approach to the debt and recommended switching to the debt snowball method. That means paying off the smallest debt first, no matter the interest rate, and working up from there. “You pay off a $3,000 debt, it frees up a little bit of money. You pay off another $6,000 debt, it frees up a little bit of money.”
Tracy revealed that her mom had refinanced and consolidated the student loans privately in Tracy's name. While she vaguely knew loans were being taken out during school, she didn't know the final amount until years later. For a time, her mom even made payments by taking money from Tracy's paycheck through a shared bank account.
See Also: Wall Street's $12B Real Estate Manager Is Opening Its Doors to Individual Investors — Without the Crowdfunding Middlemen
“Some money from your paycheck? How was she getting your paycheck?” Warshaw asked.
“I think my bank account was still lumped into when I was like 16,” Tracy said.
Warshaw encouraged Tracy to fully separate her finances and take back control. She also suggested selling the car, if possible, to get the $400 monthly payment off their backs.
Despite everything, Tracy and her husband have solid income. Together they make $124,000 a year. Warshaw called that “fabulous news” and reminded her there’s a way forward. “You gotta do the debt snowball,” she said.
Read Next: From Chipotle to Red Bull, Top Brands Are Already Building With Modern Mill's Tree-Free Wood Alternative — Here's How You Can Invest Too
Image: Imagn
