Minimizing my student debt

Being a minimalist is great for budgeting.  I can afford to spend ridiculous amounts on organic hippie food because I don’t care about how many pairs of pants I own.  (Oversimplification, I admit).

Another thing I can afford to do is pay down my student debt faster than I would normally be able to.  I make enough money to pay double the minimum payment on my smallest loan.  I decided that the following plan would be my method of attack, on loans #1 (balance: $1,339), #2 (balance: $7,835), and #3 (balance: $49,365). Yes. $49,365.  I call that loan, “I regret grad school.”

Here’s my plan:

  1. Pay off Loan #1 quickly by paying more than the minimum payment ($40 minimum, I am paying $80/month).
  2. Add $80/month to Loan #2 payment ($96 minimum, I will be paying $180).
  3. Pay off Loan #2 years ahead of schedule.
  4. Add $180/month to Loan #3 payment ($340 minimum, I will be paying $520).
  5. Pay off Loan #3 YEARS AND YEARS ahead of schedule.

I will have Loan #1 paid off at the end of this month after I get my tax refund – how exciting!  I will then begin the snowballing process of attacking the bigger ones.

UPDATE:

The greatest birthday gift!  I paid off Loan 1 today!

The greatest birthday gift! I paid off Loan 1 today!

Back to original post.  I was just so excited I had to interject with the good news.

I have been having a love affair with repayment calculators lately.  I really like this one.

I found out the following information:

  • Paying my minimum of $96 on Loan #2, I would repay the debt in a little under nine years, for a total of $10,247. 
  • Paying $180 on Loan #2, I would repay the debt in just over four years, for a total of $8,920.

Paying the exact same amount per month that I pay now, I can cut my debt repayment time in half with this snowball effect of repayment.  I’m impressed already – I just gained four years of my life back from debt repayment.

Let’s look at Loan #3.

  • Paying the minimum $343 on Loan #3, I would repay the debt in 25 years, for a total of $96,015. 
  • Paying $520 on Loan #3 (if I could do it starting right now), I would repay the debt in a little over 11 years for a total of $69,500.

To be perfectly honest, I can’t figure out how to calculate what the balance of this loan would be after paying $343 for four years until I could snowball up to $520 for the rest.  If anyone has the know-how to crunch those numbers, let me know.

Until then, I can still see that snowballing the payments on this loan can cut the repayment time in half and significantly reduce the interest I pay over my lifetime.  Sticking with the minimum would mean I end up nearly DOUBLING the debt over the repayment term – from $49,000 to $96,000.  Unacceptable.

My ultimate dream would be to be debt-free before I have children.  Kids are in my five year plan — while I can safely say that two loans and my car will be paid off, I don’t think I can kick Loan #3 out that quickly.  That won’t stop me trying!

I do have a small amount of other debt.  I have a car payment, refinanced from 7.75% down to 2.25% a year ago, and I believe I only have two more years of payments on it.  I’m comfortable with that low interest rate, and I believe I will probably roll that amount of money into my loan repayments as soon as the car is paid off.

My goal is to be debt free in ten years.  By my 35th birthday, I want all these loans paid off!

Look out loans, I am coming for you.

11 thoughts on “Minimizing my student debt

  1. journeytominimalism says:

    Congrats on paying off the first loan! I know that is a big victory for you – yay! Dude – those are some hefty school loans! I’m cheering for ya – you can do it with hard work and determination….and who needs another pair of pants anyway?!🙂

    • Caitlin says:

      I was able to refinance with consolidation loans and that helped a lot! I’d love to be able to get the debt forgiven but it’s my goal to pay it back before the ten years that the Forgiveness Act would kick in, if I understand correctly. Bureaucracy is always exciting, haha!

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