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Which loan to focus on?
My husband and I do well financially. We stick to a budget, own our car, have an e-fund (we have %s of our paychecks deposited directly to our savings), retirement accounts, and other investments including stocks.
We have 3 sources of debt:
Our mortgage, which we've had for one year and has a an extremely low interest rate, and we pay with ease each month.
My undergrad loans, which is a moderate amount, and a low interest rate
My graduate loans, which is a high amount with a high interest rate
I really want to get the loans paid off, because that's money that could go toward paying off the mortgage sooner. I've been approved for a significant raise in the next few months, so I am trying to decide which of my loans to focus the extra money on.
I feel like I should focus on the higher one, but the part of me that loves closure wants to focus on the lower one since I can pay it off sooner and have it completely out of my life forever.
Or, should I apply more to each? Any advice is appreciated!!
Re: Which loan to focus on?
In the long run, you're going to save the most money by putting your extra money toward the loan with the highest interest rate. But if it helps keep you motivated to pay off your loans, I don't see a problem with putting some or all of the extra toward the loan with the lower rate.
If you put all your extra money toward the undergrad loan, how long would it take to pay it off? If it's a short time, then you may just want to take care of that so you can start throwing all that extra money at the bigger loan.
Do you mind sharing your loan balances and minimum payments, as well as the monthly amount of your raise that you're looking to add to the payments? If you do, MM can crunch some numbers and tell you how much of a difference it will make.
"You know you're in love when you don't want to fall asleep because reality is finally better than your dreams." - Dr. SeussUsually you want to focus on the one with the higher interest rate, you will lose less money in the long run.
When we first started paying down debt we started w smallest even though the interest was higher, but it was a cc under 1000 and it only took a few months. I needed the more immediate satisfaction to get the ball rolling.
Not sure on the final raise amount yet, it will be somewhere between 15 - 20K. We already live well within a budget and are able to save with my current income, so I imagine even after taxes this should be enough extra income each month to help knock out those pesky school loans! (I just want them out of my life forever!!)
Thanks for the whatsthecost calculator, it's great and I've already passed it on to a few friends in a similar situation!