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Frequent Contributor
Posts: 382
Registered: ‎06-26-2012
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need some advice with snowballing our SL debt...

My wife and I have been slowly working on paying off our debts in hopes of having all paid off eariler. We are finally down to THREE different debts that we have and looking for some advice to maximize how we pay them off.

 

We've snowballed everything else (started with the smallest and have been working up to the larger ones) now that we're down to three its left 2 balances rather low, and one rather large - however the smaller balances have much lower interest rates.

 

Heres the rundown-

 

Her Student Loan (the big one) - Balance is $31,745.45 interest rate is 4.75% payment is 210.74 (just came out of rehab the other month and haven't been making extra payments)

My student loan - Balance is $7,899.43 interest rate is 3.125% payment is $67.40 (been adding an extra $50/month) came out of rehab earlier this year.

Car loan - Balance is 3,457.31 interest rate is 2.816% payment is $202 (but I've been adding an extra $50/month)


We don't have the cash flow to just go out and drop 3K to pay off the car loan without tapping into our savings/reserves and honestly, we wouldnt' save that much on interest doing so since it should be paid off in just over another year.

 

My question is this - I know snowballing says to pay off your smaller debts first and take that money to tackle the larger ones to keep the momentum going. However I feel we've already gained some momuntum in the past year by paying off other debts we had and no matter what in less than 1.5 years the car debt will be gone even if we don't bump each payment up and that will add some momentum. So would it be wiser to take that extra $100/ month we've been adding to the car and my student loan and add that to her student loan get that thing down then in 1.5 years when the car loan is paid off completely take that $200 and put it towards her student loan since it has a 1% higher interest rate on a much larger balance?

 

How would you tackle this? I'm interested in all your thoughts and your basis for your opinions.



Current: Eq- 624 Ex - 631 (lender pulled) TU - 661 (lender pulled)
Goal 700+ across all three
Frequent Contributor
Posts: 470
Registered: ‎08-14-2012
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Re: need some advice with snowballing our SL debt...

[ Edited ]

scarrollprint wrote:

My wife and I have been slowly working on paying off our debts in hopes of having all paid off eariler. We are finally down to THREE different debts that we have and looking for some advice to maximize how we pay them off.

 

We've snowballed everything else (started with the smallest and have been working up to the larger ones) now that we're down to three its left 2 balances rather low, and one rather large - however the smaller balances have much lower interest rates.

 

Heres the rundown-

 

Her Student Loan (the big one) - Balance is $31,745.45 interest rate is 4.75% payment is 210.74 (just came out of rehab the other month and haven't been making extra payments)

My student loan - Balance is $7,899.43 interest rate is 3.125% payment is $67.40 (been adding an extra $50/month) came out of rehab earlier this year.

Car loan - Balance is 3,457.31 interest rate is 2.816% payment is $202 (but I've been adding an extra $50/month)


We don't have the cash flow to just go out and drop 3K to pay off the car loan without tapping into our savings/reserves and honestly, we wouldnt' save that much on interest doing so since it should be paid off in just over another year.

 

My question is this - I know snowballing says to pay off your smaller debts first and take that money to tackle the larger ones to keep the momentum going. However I feel we've already gained some momuntum in the past year by paying off other debts we had and no matter what in less than 1.5 years the car debt will be gone even if we don't bump each payment up and that will add some momentum. So would it be wiser to take that extra $100/ month we've been adding to the car and my student loan and add that to her student loan get that thing down then in 1.5 years when the car loan is paid off completely take that $200 and put it towards her student loan since it has a 1% higher interest rate on a much larger balance?

 

How would you tackle this? I'm interested in all your thoughts and your basis for your opinions.


Exactly. You are paying much more interest on the 31k SL at a higher interest rate than the 3k car loan. Same goes with your SL but to a less of a degree. Anything extra should be going to the highest interest rate loan from this point forward.

In my wallet: Amex PRG & Zync, Amex BCE (19.2k), Chase Freedom (5k), PSECU Visa/PSL (20k)
Current Scores: Equifax: 738 (Fako) TransUnion: 721 (Fico) Experian: 717 (Fico)
Disclaimer: I am by no means a financial advisor. My posts are based on opinion, experience, and/or knowledge.
Frequent Contributor
Posts: 470
Registered: ‎08-14-2012
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Re: need some advice with snowballing our SL debt...

Savings in interest, calculations (considering you just pay $100 for the remainder of the loan which you plan on doing more when you can so your savings in interest will be even greater)

Loan Balance:  $31,745.00 
Loan Interest Rate:  4.75%
Loan Term:  15 years
Regular Monthly Loan Payment: $246.92 
Extra Payment:  $100.00 
Extra Payment Frequency:  Monthly

 
Without Extra Payments
Number of Payments:  180
Total Payments:  $44,693.24 
Total Interest Paid: $12,948.24 

 
With Extra Payments
Number of Regular Payments:  114
Cumulative Regular Payments:  $28,148.88 
Number of Extra Payments:  114
Cumulative Extra Payments:  $11,346.02 
Overall Total Payments:  $39,494.90 
Total Interest Paid: $7,749.90 

 
Savings
Prepayment Savings: $5,198.34 
Reduction in Interest: 40.15%
Reduction in Payments: 11.63%
Reduction in Loan Term: 5.5 years ( 36.67%)

In my wallet: Amex PRG & Zync, Amex BCE (19.2k), Chase Freedom (5k), PSECU Visa/PSL (20k)
Current Scores: Equifax: 738 (Fako) TransUnion: 721 (Fico) Experian: 717 (Fico)
Disclaimer: I am by no means a financial advisor. My posts are based on opinion, experience, and/or knowledge.
Frequent Contributor
Posts: 375
Registered: ‎01-20-2012
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Re: need some advice with snowballing our SL debt...

I'm a big proponent of using the snowball method for paying off debt because of the morale boost it gives to see accounts paid down to $0 fast. In your situation, you've used the snowball method to great effect. If the two of you are committed to paying down your debt and no longer need the morale boost from seeing another small(ish) bill zeroed out then I would say you should switch gears and put that extra available cash toward the higher-interest loan.

 

Great job on the work you two have already done, and congratulations on getting yourselves to a point where you no longer need the snowball method to keep going on your debt reduction!

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Frequent Contributor
Posts: 382
Registered: ‎06-26-2012
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Re: need some advice with snowballing our SL debt...

Thanks for the responses.

 

It just seems like everyone is "pay off that lower one first" and I guess your right, we're to that point were we need to evaluate which is better in the end.

 

I thought it made more sense to put the extra money in on her student loan, but something in the back of my head said "don't do it, get the car paid off in 5 months then add that money". But in the end numbers don't lie and its not like her car has years to go.



Current: Eq- 624 Ex - 631 (lender pulled) TU - 661 (lender pulled)
Goal 700+ across all three
Frequent Contributor
Posts: 470
Registered: ‎08-14-2012
0

Re: need some advice with snowballing our SL debt...


scarrollprint wrote:

Thanks for the responses.

 

It just seems like everyone is "pay off that lower one first" and I guess your right, we're to that point were we need to evaluate which is better in the end.

 

I thought it made more sense to put the extra money in on her student loan, but something in the back of my head said "don't do it, get the car paid off in 5 months then add that money". But in the end numbers don't lie and its not like her car has years to go.


If you do the interest calculations, and you pay the car loan "as is" for the next (it seems like you have 17 months to go?) you will be spending less than $100 combined over those 17 months in interest for the car loan. However, in one month, her student loan has probably close to $150 in interest per month. So, if you do pay your car payment off in less than a year, you will be saving at most maybe $80. Meanwhile, you now paid $1,800 in interest on that loan in the same year. See where I am going? Make sure when you apply the extra money to her loan, you specify that the extra money being paid is to be "Applied to the principal", otherwise they will just apply it to the interest of the next payments.

I've been battling my student debt heavily as well. But, you are at the point where snowballing is ineffective and actually will cost you more in the end. You're battle now is the high principal/interest SL's.

In my wallet: Amex PRG & Zync, Amex BCE (19.2k), Chase Freedom (5k), PSECU Visa/PSL (20k)
Current Scores: Equifax: 738 (Fako) TransUnion: 721 (Fico) Experian: 717 (Fico)
Disclaimer: I am by no means a financial advisor. My posts are based on opinion, experience, and/or knowledge.
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