Source
r/StudentLoans•
renasurna

Advice on how I am paying my student loans- should I advocate more to one or another?

Hello StudenLoans!

I am looking for a advice that will help me pay my schools loans off as soon as possible, while still allowing me to have a small social life, please. My loan information is as below and is accurate as of 9/2/2014. I have also included my salary and monthly expenses. I am sorry if this is the wrong sub to post this in, if it is, can you please direct me to the correct sub? Thank you!

Before I get into everything, I should say that my credit is terrible. Last I checked, I had a score below 500. The only reason I got the school loans is because I had a co-signer. Refinancing the school loans with a better rate is not an option for me. I have already called the lender and asked them if they could lower the rate of the private loan and Sallie Mae is less than willing to help. I have been paying them monthly for the last 3 years and have barely made a dent.

Private Loan through Sallie Mae

Amount: $10,528.67

Interest rate is 11.75%

Department of Education Loans (3 total)

Amount: $3743.45

Interest rate is 6%

Amount: $2324.00

Interest rate is 6%

Amount: $4671.52

Interest rate is 6.8%

Total of all loans: $21,267.64

Loans are all paid through Sallie Mae.

I pay a total of $400.00 per month for the loans. $200.00 goes to the private loan. $200.00 goes toward the Department of Education Loans (usually about $55.00 goes toward the principal of the private loan, and $20.00 each goes to toward the principal balance of the 3 Department of Education Loans). Is this wise? Or should I put more toward one? Should I pay more total a month? My minimum payment for the private loan is $145.00. The minimum payment for the Department of Education lonas is $137.00.

My other monthly bills/expenses are (roughly):

Car insurance $45.00

Rent/household: $1100.00

Gas: $200.00

Comcast: $63.00

Groceries: $200.00

Netflix: $9.99

Coffee: $35 a month

Breakfast: $80.00

Lunch: $120.00

Other (household stuff, cleaning supplies, tampons, shampoo, etc): $50 to $100.00

My monthly salary recently went up from $2069.12 to $2488.73 (I received a raise at work).

Until recently, I was paying $900.00 for rent/utilities, but we moved (long story) so that went up, I was carpooling to work, but the person I was carpooling with got a different job, so gas expenses went up. Also, I was paying $300.00 total for the loans, but that went up after I got my raise.

I can easily cut out breakfast expenses every day. I can just fold yogurt and granola into my grocery expense and cut out buying it at work every day. I get coffee from 711 with my coworkers and usually only pay $1.75 a cup. I don’t think I can cut that out, if I am being 100% honest with you all. I have been TRYING to be good about bringing lunch to work, but I am a freaking zombie in the morning and forget to grab it 99% of the time. I am still working on trying to make it so that it’s harder for me to forget. With that in mind, the amount I provided for lunch was 5 days a week at $6.00 a day.

Any and all help is appreciated and I will answer any clarifying questions. I tried to format this to the best of my abilities. Apologies if it comes out wonky. Thank you for your help!

*edit somehow forgot to add Comcast in expenses.

Posted Sep 2, 2014, 7:55 PM UTC · edited

36
SyntheticMemoriesFinancial Aid Reviewer•

To pay the least on interest. You should always pay minimums on all loans, and throw all extra towards to loan with the highest interest rate. Rinse and Repeat till you have no more loans.

Of course cutting cost elsewhere and applying them to your loans will help also. have you tried keeping your lunch next to your keys or coffee? Or at least the lunch sack to remind you?

4
renasurnaOP•

Thank you so much! I didn't realize I was doing it wrong. So for next month, I will pay the minimum on the Department of Education Loans ($136.00) and then put $264.00 toward the Sallie Mae Loan (that's about $119 toward principal). I think what I am going to do is maybe put my keys in the fridge with my lunch... I know that sounds ridiculous, but I refrigerate my lunch overnight and that way I will HAVE to grab it...

1
SyntheticMemoriesFinancial Aid Reviewer•

Yup! Then once you pay that loan off you can take the minimum and the extra on that one and transfer it to the loan with the next highest interest. ;)

Hey, whatever works! =D

3
renasurnaOP•

Thank you so much!

1
studentloanhero•

Hi Renasurna!

First off, I have $107,000 in student loan debt (most with Sallie Mae), so I feel your pain. I performed an in-depth student loan analysis that you can check out at the end of this post, but first let me explain the overall strategy:

Step 1) Lower monthly payments as much as possible. By lowering monthly payments, you can reallocate monthly payments based on the debt repayment strategy you use. To lowest your federal student loans, you will need to enroll in an Income Based Repayment program. Based on your Adjust Gross Income of $29,856, your lowest monthly payments appear to be $103 on the PAYE - (Pay As You Earn) program. For your private student loans, you might be eligible for interest only payments, but only select this option if you choose option B) "Debt Avalanche" from below.

Step 2) Choose a debt repayment strategy: Option A) Debt Snowball B) Debt Avalanche.

A - The Debt Snowball method pays off the smallest principal debt first. Once you pay off the smallest loan (in your case the federal loan of $2,324), you take the freed up cash flow and increase your monthly payments on the second smallest debt until it is paid off, and then continue paying off the larger loans in this order. The Debt Snowball strategy has been labeled as "psychologically rewarding", as you see the fastest progress under this strategy.

B - The Debt Avalanche method pays off the highest interest rate debt first. Once you pay off the highest interest rate loan (in your case the private loan of $10,528), you take the freed up cash flow and increase your monthly payments on the next highest interest rate loans until all debts are paid. The Debt Avalanche strategy is the most "financially rewarding", as you avoid the most amount of interest over the repayment period under this strategy.

Step 3) Based on any leftover net income from your budget, you should try to make additional payments towards the specific loans under whichever strategy you picked. For example, if you have an extra $100 at the end of the month, and you chose the Debt Avalanche strategy you would end up saving $4,296 in interest over a 10 year repayment period.

Step 4) Enroll in ACH. ACH is auto-debit which typically awards the borrower with .25% interest rate reduction. The savings aren't huge in your situation (about $400 over the lifetime of repayment), but will help you stay on track and avoid missing payments.

Step 5) If you are able to improve your credit score, student loan refinancing would great reduce the amount of interest accrued on the private student loans. For example, if you refinance at 5.49% on a 10 year term, you would lower monthly payments by $35 (to $114/mo.) and save $4,239 in interest. If you don't qualify, you should consider a co-signer that can help you apply.

CONCERNS: There seems to be several items missing from your monthly budget, such as cell phone, car payments, and other misc. items. The first step is paying off debt is a solid budget that is ideally cash flow positive, meaning you have money left over at the end of the month.

Happy to help further! Let me know if you have any questions or spot any errors/issues.

Cheers, Andy Josuweit CEO & Founder, Student Loan Hero

P.S. - Your student loan analysis can be found here: https://docs.google.com/spreadsheets/d/1X8_kZXH3FmQ2Q8OQDaCaL2muP-hN84ZCrSaNpkM-qY0/edit#gid=184879608

3
renasurnaOP•

Hi Andy! Thank you so much for your in-depth response! I think the Debt Avalanche method seems like the best move for me. I am going to start making the minimum payment on the Department of Education loans (the smallest with the smallest interest rates) and put the extra toward the Sallie Mae loan (the biggest). That means I will be paying $119 in interest on that loan from here on out.

To address your concerns, I am very fortunate to be on a family plan for my cell phone. My dad pays it for my siblings and myself. I bought my car with cash, so there is no payment on it (it was used).

The loan analysis you provided is awesome! I want to sit down and have a good look at it. I can use it in my budgeting in all aspects. Thank you!

1