How I’m Paying off My Debt
Now that you’ve learned a little more about me and where my debt comes from, I figured I’d share my strategy on how I plan to pay these debts off as soon as I can and by paying the least amount of interest possible. First thing’s first, the infamous car loan.
I currently owe $8,576.55 on my car with a ridiculous interest rate of about 15.59%.
My Method of Repayment
Since my car note has the highest interest rate I plan to pay it off before all of my student loans to avoid paying thousands of dollars in interest over the course of my loan term.
I’m paying about $70 dollars extra each month in addition to the minimum payment. While this isn’t a crazy good amount every little bit counts and I’m already seeing a lot of progress by doing this.
I like that fact that my loan provider doesn’t charge interest on extra monthly payments after I’ve paid the minimum on my car note. I take advantage of this by making double payments whenever I receive any extra income like work bonuses. I’m determined to pay off my car quickly and never finance another vehicle again.
If I stick to my method and remain determined to reach this goal I should have my car paid off by early 2016! Once that is out of the way I plan to lower my auto insurance rate (since I will no longer be required to have a specific type of car insurance for a financed vehicle) and use the extra money to tack on to my student loan payments.
Now for these darn student loans. I’m lucky to have only taken Federal loans out during college with fairly low-interest rates. No Sallie Mae over here!
| Type | Amount | Interest Rate |
|---|---|---|
| Subsidized (L1) | $8,345.00 | 3.4% |
| Subsidized (L2) | $5,500.00 | 3.86% |
| Subsidized (L3) | $3,500.00 | 4.5% |
| Unsubsidized (L4) | $2,500.00 | 3.86% |
| Unsubsidized (L5) | $1,000.00 | 6.8% |
Total: $20,845.00
The way my loans are set up make utilizing Dave Ramsey’s debt snowball method seem ideal. My loans with the lowest principal amount also have the highest interest rates so paying them off in the order would be a great and effective strategy right? Well for me there’s only one problem.
The monster loan as I call it, also known as L1, does have the lowest interest rate but if I leave it untouched it will earn around $283.73 each year interest alone. Compare that to L5, my loan with the highest interest rate, that if left untouched would earn me around $68 per year.
Related: Debt Mindset Series: Paying Off Student Loans For a Chance at a Better Life
My Method of Repayment
After talking to my loan provider and learning that my student loans are earning about $1.50 in interest each day, I knew I had to get somewhat aggressive with my repayment strategy. So with a minimum monthly payment of $140, I plan to pay extra to pay off the interest that generates each month so more money will go toward my principal balance.
I am starting with my two unsubsidized loans, L4 and L5. I should be able to pay off these rather quickly since I plan to take $1,000 from my tax return next year and put it toward my principal balance. Next, I plan to tackle the monster, L1 and save myself from having to pay some unnecessary interest. Then I will take care of L3 and L2.
Paying off almost $21,000 in Federal loans is definitely going to be an uphill battle but once I pay off my car that will free up even more money to help tackle these loans. If I stick to my budget, increase my income, and make each dollar I earn work for me, I should be able to banish these loans for good in 3 or 4 years.
Related: Reflections on Paying Off My Student Loans In Less Than 3 Years
Do you still have student loan debt or have you paid it off already? How did you pay it off or how are you currently paying it off?
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