Joe Mihalic graduated from Harvard Business School with his MBA—and $95,000 in student loans—in 2009. After two years of loan payments, Mihalic resolved to pay them off in 10 months. He started a blog, No More Harvard Debt (nomoreharvarddebt.com), to chronicle his experiment in cutting costs and earning more money. In March, he paid the last of his loans several months ahead of schedule.
U.S. News recently spoke with Mihalic about his creative cost-cutting strategies. Excerpts:
When and why did you decide to get more aggressive about paying off your student loans?
In August 2011, I logged into my student loan accounts and the total came up to somewhere just shy of $91,000. This was after almost two years of paying down the loan at $1,057 every month. I had put over $22,000 into these loans that started out at $101,000. The principle was still at $90,000 because most of the payment was going towards interest for the first couple of years. I looked at that total and it blew me away. I realized that I wasn't really happy with that trajectory of those loans. I felt like I was trapped. Emotionally, I felt it would just be better to be debt-free.
In a finance class that I took at Harvard, the professor said that debt was good. They're being held accountable to make a monthly payment to their debtors every fiscal quarter, so it keeps them focused and on track. I agree with that. The question is, "What's the right level of debt for an individual?" I thought that a mortgage was plenty of debt for an individual. This student loan debt was a little onerous for me. The pressure was too high.
Do you think it was worth taking on that much debt to get your MBA?
I do. I met a lot of really smart, talented, ambitious people who I probably wouldn't have met otherwise. I made great friends. The case method taught me to think in a whole new way. It made me a better decision-maker. Because of that, I was a more effective employee. I really don't think that it was that much debt when you consider that my salary doubled, as well as the fact that I was able to pay most of it down in seven months.
What steps did you take to cut expenses and boost your income?
I threw security and common investment wisdom to the wind and I used my life savings to kill a $25,000 loan to start my debt snowball. I stopped contributing to my 401(k), but I still have about $45,000 in my 401(k) that I didn't touch. I also had a $12,000 IRA from my old job. It started out as a 401(k), but I rolled it into an IRA and used it to pay down my loans. I took a hit on it, of course, when I did the early withdraw so it turned into $8,000.
Certainly, if I had a qualified financial officer, they wouldn't say, "Withdrawing your IRA is the right thing to do," because you'll realize some loss. My situation does not apply to everyone, but it was my choice. Emotionally, I'm in a way better state now than I was this time last year.
I gave up my privacy and got two roommates on Craigslist. I also started a landscaping business, which was mildly successful. I also sold my motorcycle for $2,000, and I sold my bicycle for about $1,000. Then I sold some miscellaneous stuff on Craigslist: an iPod, motorcycle accessories, bicycle accessories, even an old pair of Burberry reading glasses that I had sitting around from grad school.
I saved 74 percent of my income. At the beginning of the challenge, I was making $103,000, which is really only $70,000 after taxes.
I didn't go home for Christmas or to friends' bachelor parties or weddings. I didn't go on any dinner dates or to the movies. I'd hike around the park. I'd get bagels and coffee, random things that didn't cost a lot of money.
How did people react in your life to this sudden lifestyle change?
It takes a certain type of girl to go on a hiking date instead of a dinner date, but that's kind of the girl I'm looking for. As far as my life, I still have a great time. I hang out with friends a lot but I bring a flask to bars, which some of them thought was a good idea.
For the most part, my friends were pretty frugal. I think I just may have subconsciously chosen frugal friends. Yes, most of them have houses and they do travel, but they don't really throw their money around unwisely. So, when they saw me tighten my belt a little bit they were like, "Yes. We get it. That's cool." They didn't go out of their way to do really flashy things and exclude me. I appreciated that.
Do you think that the accountability of blogging played a role in helping you reach your goal?
I'm pretty intrinsically motivated to begin with, but I knew that I would be held accountable at the end of every month with my progress report.
"Here's how much I made, here's how much I spent, here's why." Just knowing that at the end of the month I would have to admit to my sins, so to speak, made me think twice about buying things and doing certain things.
For example, when I quit my pedi-cabbing gig, it was very humbling to report that on the blog. It made me approach future revenue opportunities with a lot more caution. There are so many pedi-cab drivers in downtown Austin just driving around without anybody in their trailers. I should have seen that and made the connection. I was just excited to be a pedi-cab driver. I thought it would be really fun. I didn't really do the due diligence. I had to admit on my blog that I failed in pedi-cabbing. It was kind of humiliating.
Now that you've paid off your loans, will you continue some of your cost-cutting measures or go back to the lifestyle you had before?
The roommates signed their lease until the end of June, so they're entitled to stay there until the end. After that, I'm thinking of renting the house out and getting a studio closer to the city, because the house is really too big for me.
Spending is pretty similar to when I was paying off the debt. I haven't gone on a dinner date yet. I'm still driving my 12-year-old Honda. I'm still packing a lunch every day. My friends and I are still hitting up the BYOB place before we go downtown. I bought a couple of shirts for the first time in a year.
I need to build back up my cash cushion to get six to eight months of living expenses in the bank just in case anything happens. Then I'll have the option to spend more. Right now, I just got used to the lifestyle I was living.
People who win the lottery, their level of happiness actually returns to the baseline even though they have so much money. People who lose all their money, there will still be some dark days, but they'll rebound. I got used to that lifestyle. So, I haven't been in a rush to go spend crazy amounts of money or do anything really wild.