For several years, interest rates on high-yield savings accounts were high enough to justify choosing to leave extra money in savings accounts rather than using that money to pay off certain debts faster. I was paying only the minimum payment on my consolidated student loan. The loan’s interest rate was 4.25% and I had been earning a little more than that in savings after taxes.

At that time, there was no urgency to pay off the low-interest debt, but the financial climate started to change at the end of last year. Interest available on high-yield savings accounts began to dwindle. By the end of 2007, I decided to eliminate my student loan, my only debt, by the end of 2008. At that time, I had about $13,000 remaining on the loan and had been making payments of my minimum, less than $150, each month.

I had enough cash available at that time to write one check for the $13,000 to eliminate the loan entirely, but I decided it was important for me to keep cash in the bank for flexibility. In January, February, and March, I doubled my monthly payment to $250 to cover interest and principal. In April and May, I paid $500 towards the student loan. For the rest of 2008, I continued to increase my payments through September. In October, with about $6,300 left on the loan, I directed half of the remaining balance to the student loan, leaving about $3,150. I again sliced the remaining debt in half in November.

On Friday, I paid off the remaining $1,500. The payment has cleared today, so I am officially out of debt.

At least for the time being.

If I’ve learned anything from television and other debt-focused blogs it is that I should be jumping up and down with excitement. The fight against debt is often a struggle, especially when that debt is acquired through poor choices. But I feel mostly ambivalent about the achievement. It has helped that I’m earning more than just my day job salary, and thanks to this extra income, I did not have to sacrifice much in order to achieve my target of paying off this debt by the end of 2008. Unlike many struggling with debt, my pursuit is not due to excessive spending. My treatment of debt was not perfect, however.

I graduated in January 1998, but by August 2003, I still had about $4,000 left of my undergraduate student loan. In 2003, I decided to pursue a master’s degree in business. 90% of the tuition (and 0% of the additional fees) would be covered by my employer. Rather than having the company pay the university directly, I allowed the school’s financial aid adviser to convince me to open a loan and use my company’s reimbursements to pay back that loan.

With a long-term view, it was a poor decision. I wonder if the university’s financial aid adviser is instructed to suggest the loan even when expenses are reimbursed because the university makes more money with that option.

With a short-term view, it may have been necessary. At the time, I was not earning much money outside of my day job — my blogging activities didn’t begin earning money until 2004 — and my level of expenses dangerously approached my level of income on a regular basis.

Rather than using my reimbursements to repay the loan, I occasionally deposited the checks into my checking or savings account, allowing the loan to grow. If I had skipped the loan option and decided to have the company pay the school directly, I would have had a tough time with my cash flow for a few years but I might have paid off my remaining student loan much quicker.

As I mentioned, this state of being debt-free is likely only temporary. I do not have a mortgage. I’ve been a renter as long as I’ve been living on my own, and I expect I will continue to rent until I make some decisions about where to live in a more permanent state of being. I expect that I will, at some point, own a house and require financing. Perhaps the feeling of euphoria and excitement that seems to be associated with debt elimination will come once I’ve acquired and conquered a mortgage.

Those who have been following Consumerism Commentary may remember that I also had a car loan. In 2004, I purchased a new Honda Civic — the price differential between “new” and “acceptably used” was negligible — and opted to finance most of the purchase. A loan from family helped me stay away from high interest rates and fees. I paid this loan off within three years.

According to the government, for the first time ever, American household debt has decreased since the same figure was measured three months ago. Don’t get too excited. Americans aren’t suddenly becoming more financially secure. Over the past few months, credit has been harder to come by. Thanks to the state of the economy, car loans, mortgages, and other types of financing for large purchases have been less available. But perhaps there are more people like me who used this year’s declining benefit of savings account interest as an opportunity to pay off debt.

Photo credit: mudpig

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