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Student Loan Advice
Posted on 5/30/14 at 12:08 pm
Posted on 5/30/14 at 12:08 pm
If I have 15 different loan notes that vary from 1.5k - 20k with varying interest rates from 2.5%-6.8%, is it in my best interest to just pay the smaller amounts off first or go after the big one that I'm paying the most interest on?
My thinking is by paying the smaller ones off first, I can then apply the budgeted payment toward the next loan and multiply my payoff rate.
My thinking is by paying the smaller ones off first, I can then apply the budgeted payment toward the next loan and multiply my payoff rate.
6
Posted on 5/30/14 at 12:25 pm to The Bruce
Time value of money states payoff the higher interest rate loans first then work your way down to the lower rates.
Posted on 5/30/14 at 12:57 pm to The Bruce
quote:
My thinking is by paying the smaller ones off first, I can then apply the budgeted payment toward the next loan and multiply my payoff rate.
You should try to calculate which method will be more advantageous. You can create a payoff schedule pretty easily in Excel.
Posted on 5/30/14 at 1:03 pm to The Bruce
quote:
is it in my best interest to just pay the smaller amounts off first or go after the big one that I'm paying the most interest on?
Debt snowball strikes again.
Financial wisdom says attack the high interest rate first, as you will pay less in total this way.
Dave Ramsey says, emotional victories are important, and you will get a euphoric high from paying off the smallest ones first... and that high will keep you motivated to keep going after the larger balances.
So, are you someone that cares about minor victories and needs the motivation, or not?
Personally... I think way too much thought is put into this. Do whatever you want. The imporant thing is to pay it off by paying as much as you can per month.
Posted on 5/30/14 at 2:40 pm to The Bruce
15 is just mind boggling to me. Is this the new norm? I graduated in 98 and and had two that I later consolidated into one. Do you have to make 15 different payments each month?
My answer is to pay the smallest off first, then as they're paid off, roll the payment from the paid off one into the next lowest.
My answer is to pay the smallest off first, then as they're paid off, roll the payment from the paid off one into the next lowest.
Posted on 5/30/14 at 2:44 pm to The Bruce
quote:
15 different loan notes that vary from 1.5k - 20k with varying interest rates from 2.5%-6.8%
The reality is, these loans are relatively small and the delta in the interest rates is relatively low. The difference in the order that you pay these off is probably a matter of a hundred bucks or so (provided you don't do something objectively unreasonable like paying them in order from lowest interest to highest). The bigger question is how you ended up with 15 different loans?
Posted on 6/1/14 at 12:12 pm to The Bruce
Tackling smaller ones first doesn't make much since except for moral victories.
For ex. I'm on 10 year repayment cycle
I have one in the 3,000 range, monthly payment is 50$ or so.
Largest one is around 46,000$, monthly payment is approx 650$. Both interest rate 6-7%. So if I pay extra on the 3k one, I'm only really saving 50$ a month. If I pay more on the large one then I am saving more in interest in the long run than I would be paying off the small one.
For ex. I'm on 10 year repayment cycle
I have one in the 3,000 range, monthly payment is 50$ or so.
Largest one is around 46,000$, monthly payment is approx 650$. Both interest rate 6-7%. So if I pay extra on the 3k one, I'm only really saving 50$ a month. If I pay more on the large one then I am saving more in interest in the long run than I would be paying off the small one.
This post was edited on 6/1/14 at 12:28 pm
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