Paying Off Loans

It's all about interest. Pay of the cards with higher interest rates faster.

Balance transfer if needed.

 

hmm. It depends on what makes you feel better. If feeling like you are making headway is important, then pay the minimum on 3 of the loans and quadruple up on the fourth and smallest one - You will see the difference much much faster - then when its paid off, quadruple up on the next lowest loan.

However, it will take a little longer this way, although it will "feel" faster because you'll see a difference in the balance on one of them quicker.

This is called a debt snowball and its designed to help you keep motivated.

Again, it will take a little longer this way, but many people do this so that they can see result quicker and therefore keep motivated.

Either way, you are very smart to pay these off as quick as you can. Good luck.

 

From what my friends in financial fields tell me is that Student debt is sometimes good debt. Like a house loan in a sense that you can use the interest you pay toward some tax advantages.

If you need money then don't pay double. Save the money and use it towards your business. Like I said if you can claim the interest paid on your taxes then I wouldn't worry about it so much.

 

I ain't payin ****

 

this is the route to go. but i dont' know why you're saying it will take longer. by quadrupling the payment on the highest interest loan, he's effectively decreasing his total payment on his loans combined.

 

I'm saying quadruple up on the smallest loan first (not necessarily the highest interest loan). That way it feels like he's making headway - you can see a result faster. Then you move to the next smallest loan - by the time you get to the largest loan, you have a lot of money to chunk at it.

 

ah, i see. reading comprehension does wonders.

 

When you make a double payment make sure the extra is being sent to pay down the principle not the interest. You may have to write a letter to the owner of the loan or write on the check you pay with that you want the extra applied to principle. As it is now the majority of your extra payments are probably going to pay the interest and is why you aren't seeing much progress. Look at the breakdown of your payments online and you will see how little is being applied to the principle.

Those extra payments so go towards the principle. Call and ask if this can be done; it should be able to b done. They will give you the runaround but tell them this is how you want your payment applied.

 

Any debt that is not directly bringing you in money is bad debt and needs to be paid off. Yes, there are a few exceptions to the rule, such as those trying to (re)build credit. There are those who can invest and make better returns on low interest debt, but the fact remains, this is not most people.

Leveraging debt primarily for tax purposes is silly. If you're making 50k and you're an employee and not able to write anything else off, the interest will never come close to meeting your minimum standard deduction. Additionally, for instance, you pay $5000 a year towards loans, the interest is only a couple hundred dollars. The tax savings is pocket change.

For the OP, I suggest snowballing the the debt. Start with the highest interest loan first. The advantage towards snowballing is that you are paying off a single account quicker. If you hit hard times and you've paid off half the accounts, its easier to scale back and manage two accounts than four. Additionally, if you need to pick up another debt account(due to an emergency) and it has a much higher interest rate, you can reallocate and pay it off quicker. Simply put, the less accounts you have and the more disposable income you can use towards that debt, you have much more flexibility in which you can manage your debt.

 

If you are interested in paying off the loans in such a way that you pay the least amount of interest, here's what you do:

Pay the minimum due on every loan that has a minimum balance due for that month. Anything ABOVE this amount should go to the loan with the highest interest rate first, regardless of how much principal is left on the loan. Once that loan is paid, you move on to the loan with the next highest and so on and so forth until all are paid.

This will ensure that, in the end, you pay the least amount of interest that is possible with whatever payments you are making each month.

Also, as mentioned before, make sure your payments are going towards the principal, and not the interest.

 

Good stuff here from Space Ghost, however 1 point about the bolded part - If you don't already have an emergency fund, I would suggest putting about $1,000 in a money market account so that you can get to it quickly for an emergency. This way, you don't add to your debt. 1K will cover most minor emergencies especially if your a single person just out of school. I use a money market because it gives a few interest points more than a regular savings account. I've also got checks and a debit card for that account that I can use any time. On average, I only have to use it about 1-2 times a year (AC repair in August at home, etc), but its a good safety net.

 

I am in the financial field and I do not agree with your friends. Scroll up and see Space Ghost comments about debt snowball. The tax savings are minimal. You may want to look up Dave Ramsey Financial Peace University and take the $100 course. Debt snowball, how to approach debt, and building wealth are his teachings. $20K debt is not much so attack the debt aggressively. You may want to create a monthly budget and emergency fund of $1K before you attack debt. Email me at cpntrader@gmail.com if you need to some help.

Good luck.

 

Focus on highest interest rate first. If interest rates are equal (or nearly so, perhaps), do smallest first, because knocking out some lines of credit will give you more flexibility in an emergency. Longest tenure is irrelevant.

 

Another point; None of us know your financial circumstances and burden. The advice given is not always an absolute. There are many things to take into consideration. For example, you're highly encouraged to pay off high interest loans first. Personally, I look beyond that. If one loan is several interest points higher, then yes, do that. But if they are all pretty similar, you may want to consider paying off the smallest balances first. Another point to keep in mind are the lenders. You have more flexibility with federal loans than private loans. If you get in a tight spot, you certainly would much rather negotiate with a federal loan over a private. These are just a couple other points to keep in mind. There are many more.

All in all, you are taking your debt seriously. Don't over complicate it to where it becomes a headache. Sometimes trying to squeeze a savings of a $100 over the lifetime of a loan may not be worth the complexity.

 

I've never understood the logic behind carrying debt in order to get a tax write-off.

I'm no CPA, but it seems like not paying interest at all would save you much more money than paying interest and getting a tiny tax credit because of it.

 

it's the rallying cry for real estate agents. a tax deduction is hardly ever a good reason to take on debt.