Sin­gle mom mas­ter­minds $700K swing from debt to sav­ings

The Reporter (Lansdale, PA) - - BUSINESS - By Kevin Voigt NerdWal­let

When Takiia An­der­son grad­u­ated from Bos­ton Col­lege Law School in 1999, she was a sin­gle mom with a 2-year-old child, nearly $100,000 in stu­dent loans and a new job as a gov­ern­ment at­tor­ney that paid $34,102 a year. She didn’t like that math.

“Peo­ple are talk­ing about 20 years to pay off a stu­dent loan, and my daugh­ter is go­ing to col­lege in 16 years,” re­calls An­der­son, now 47 and based in At­lanta. “I didn’t want to be in a sit­u­a­tion where I’m help­ing her pay for col­lege while I’m still pay­ing my stu­dent loan.”

To­day, An­der­son’s stu­dent debt is long gone. She has nearly $500,000 in re­tire­ment sav­ings, and her daugh­ter, Taje Perkins, fin­ished her third year at Spel­man Col­lege in At­lanta with no stu­dent loans to cover its nearly $30,000 per year in tu­ition and fees.

How did she do it? She set a se­ries of tar­gets and kept a laser-like fo­cus on them that, even though she later be­came a hig­h­earner and has rid­den a surg­ing stock mar­ket, can serve as a les­son to oth­ers to­day.

“Any time I got a raise, a bonus or a tax re­fund, I put it to­ward my debt, my daugh­ter’s ed­u­ca­tion sav­ings and then re­tire­ment,” An­der­son says.

Tough choice: save for re­tire­ment or col­lege?

Many fi­nan­cial ad­vis­ers would ad­vise flip­ping those last two pri­or­i­ties: “The same way that air­plane an­nounce­ments tell us par­ents should put on their own oxy­gen masks be­fore as­sist­ing their chil­dren, par­ents should pri­or­i­tize sav­ing for re­tire­ment and putting them­selves in a good fi­nan­cial po­si­tion be­fore sav­ing for their chil­dren’s

Once An­der­son paid off her stu­dent loans and credit cards in 2008, she be­gan sav­ing $12,000 a year to­ward her daugh­ter’s ed­u­ca­tion. By the time Taje started col­lege, An­der­son had saved $56,000 and added an­other $22,000 dur­ing her first years.

ed­u­ca­tion,” says Paul R. Ruedi, CEO of Ruedi Wealth Man­age­ment in Plano, Texas.

Yet more par­ents like An­der­son are pri­or­i­tiz­ing sav­ing for col­lege over re­tire­ment — 56 per­cent are do­ing the for­mer vs. 54 per­cent the lat­ter, ac­cord­ing to a re­cent sur­vey by Sal­lie Mae , one of the na­tion’s largest stu­dent loan lenders.

“Al­though col­lege wasn’t as ex­pen­sive when I went in 1989, I know what it’s like not to have to pay those bills, and that’s what I wanted for her,” says An­der­son, a Howard Univer­sity grad­u­ate.

Tack­ling her big debt first

An­der­son at­tacked her stu­dent loan debt first with sin­gle-minded de­ter­mi­na­tion.

“We didn’t have cable. No in­ter­net,” she re­calls, adding that in­stead they watched old or bor­rowed DVDs and VHS tapes. “I was lit­er­ally liv­ing in over­draft pro­tec­tion. But I was pay­ing my bills on time. I drove the same car for 12 years, cooked at home and packed lunches.”

As her salary in­creased and she was pro­moted to roles with the U.S. Depart­ment of La­bor in Mary­land, Philadel­phia and At­lanta, she pumped more cash to­ward her debt.

“Even when I was mak­ing low six fig­ures, I was rent­ing $1,200 apart­ments — a lot of money for some peo­ple, but much less than I could af­ford,” she says.

In the end, An­der­son was able to pay off her $100,000 in debt in nine years rather than 20.

Col­lege sav­ing: from $135 in change to $12k a year

An­der­son be­gan sav­ing for her daugh­ter’s ed­u­ca­tion when Taje was 3 years old. She started small. Fol­low­ing ad­vice she heard on “Oprah,” An­der­son paid for daily ex­penses in cash and at the end of each day threw change in a drawer. Af­ter one year, she had $135 that she used to open a sav­ings ac­count for Taje. She later rolled that into a 529 col­lege sav­ings plan and be­gan con­tribut­ing $50 a month.

Once An­der­son paid off her stu­dent loans and credit cards in 2008, she be­gan sav­ing $12,000 a year to­ward her daugh­ter’s ed­u­ca­tion. By the time Taje started col­lege, An­der­son had saved $56,000 and added an­other $22,000 dur­ing her first years.

But to do so, An­der­son quit con­tribut­ing to her gov­ern­ment re­tire­ment plan for two years — a move most fi­nan­cial ad­vis­ers would cau­tion against.

“For­tu­nately, the two years I didn’t con­trib­ute to my re­tire­ment plan was dur­ing the fi­nan­cial cri­sis,” she says. In 2010, she re­sumed con­tribut­ing to her em­ployer-spon­sored re­tire­ment plan up to the le­gal limit — $16,500 a year at that time — “to catch up,” she says.

An­der­son’s max con­tri­bu­tions have aligned nicely with the cur­rent nine-year bull mar­ket, in which the S&P 500 in­dex has seen an­nu­al­ized re­turns of about 10 per­cent.

Debt-free means more life choice

Some might view An­der­son’s story as one of sac­ri­fice, but she be­lieves that ag­gres­sively pay­ing down her debt has brought her free­dom, like the op­por­tu­nity to choose early re­tire­ment this year af­ter work­ing 20 years with the gov­ern­ment.

An­der­son has $15,000 in emer­gency sav­ings, owns a home and is do­ing con­tract le­gal work to keep earn­ing some money. She also writes a per­sonal fi­nance blog, “The Fru­gal Biddy.” Her daugh­ter has be­gun her last year in col­lege, and she will be tak­ing over pay­ments from her mother and get­ting stu­dent loans to fin­ish her de­gree.

Ded­i­cat­ing five or 10 years of a ca­reer to pay down debt “may seem to some that they are los­ing their life, but what they don’t re­al­ize is how much they gain,” says An­der­son.

NERDWAL­LET VIA AP

Taje Perkins, left, poses for a photo with her mother, Takiia An­der­son, on her first day at Spel­man Col­lege in At­lanta.

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