To Pay or Not To Pay

I had a conversation with a friend recently where I outlined my New Student Loan Scheme for her.  I put a large chunk of my tax return toward this new endeavor, and I was starting to see a little bit of progress, so I was feeling good.  Then we had a conversation which I found...odd.

Her: "But why bother worrying about paying them down when they'll be forgiven in ten years anyway?"

Me: "Right, maybe, I don't exactly know what the next ten years will bring, but even if they do get forgiven, I have to pay income tax on that amount, and I'd rather not pay income tax on $100,000 if I can avoid it."

So here, I think, was the fundamental difference between the way the two of us approach this situation.  In my mind, she has half the amount of debt that I do, and with a little sacrificing, she could pay it off.  In her mind, the amount is insurmountable, so she will continue to pay the minimum until the loans are forgiven.  As much as I know it's stupid to get worked up about such a big number, I also knew (kind of) what I was getting into when I took out the loans, and I feel like I have to make a real effort to pay them back.  I've always been the person who pays my debts--usually early--and this is the same thing to me.

Despite the fact that the number is huge and scary, I'm not redirecting all of my disposable income toward reducing it.  I'm also making a big push to max out my Roth IRA contributions for 2012 (which I can do until April), and start contributing to 2013.  I'm also socking away a little money each month in my emergency fund.  As good as it is to lock away money in retirement, you never know what's going to happen and it's important to have money you actually have access to.

I'm pleased to report that since I focused my student loan repayment efforts on the biggest, highest interest loan, I have made actual progress.  My last payment of $300 reduced the principal amount on that loan by $240 and it's now less than $15,000.  If I can really focus on getting that one loan down, I'll save myself a chunk of money in interest, and make the whole repayment process that much more worthwhile meaning actually reducing the amount owed rather than just paying off interest.

Yes, it's a small victory, but it's important to me to really feel like I'm making progress.  I'm calling this the year of sacrifice and if I can stay on track with saving and make a dent in my loan debt, I'm setting myself up for a less-stressful 2014.