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    What order should I pay these off in?

    Hi everyone,

    I had originally posted a thread requesting advice on how to tackle my student loans but after receiving a couple of replies I realized maybe I should post a more general thread to include my other debts since it might make more sense to pay those first. So here goes, I'll appreciate any advice or guidance you can offer:

    a) IKEA credit card $1,000 (0% until 8/09)
    b) Credit Card $12,000 (14.99%)
    c) Home Equity Line $49,000 (3.25% according to my last statement but that doesn't seem right so I have to call to confirm)

    d) Student loans (these are in deferment until 2012):

    1) $3,393.65 - Subsidized - 3.61%
    2) $4,183.38 - Unsubsidized - 3.61%
    3) $5,792.45 - Unsubsidized - 3.61%
    4) $6,371.72 - Unsubsidized - 3.61%
    5) $3,631.28 - Unsubsidized - 6.8%
    6) $2,222.16 - Subsidized - 6.8%
    7) $2,633.97 - Unsubsidized - 6.8%


    Right now I'm on a "plan" to pay off the $12k credit card by 10/09 and the IKEA card by 8/1/09 (before it starts accruing interest) so I'm sending payments to these according to that goal ($2k monthly to credit card and $250 to IKEA). Meanwhile I'm also sending $200 monthly to the equity line (which has a $123 minimum). I'm not making payments to my student loans at all because I hadn't realized that 5 of these were already accruing interest but now that I have I think it might be a good idea to send at least enough to cover the interest so it doesn't continue capitalizing. When I finish paying off the credit card should I focus on the equity line, the student loans, or both at the same time? I will probably be allocating between $1500-2,000 total monthly at that time.

    #2
    You don't have to pay anything on the student loans yet, so I would take the money that you are currently sending to them and put it all towards the credit card. Why pay a loan that is 6.8% interest when you are paying 14.99% interest on another larger amount?

    I would also just send the minimum to the equity line and put that extra $77 to the credit card. 3.25% interest is cheap money.

    I would make minimum payments to IKEA until July, and send all the extra to the credit card. In July, make a lump payment to pay it off (if you seriously and consistently pay $2k to the credit card, you have plenty to make that one time payment). This way, you are knocking down high interest debt immediately but you have the means to pay it off in July. Also, I would make sure to pay it off in July and make sure it posts before the August deadline...don't take chances, because sometimes those furniture loans will accrue all the interest from when you took out the loan if you miss their deadline, which is often before the monthly payment is due.

    After that, go for the student loans based on interest (highest to lowest). If two loans have the same interest but one is less than the other, pay the small amount first.

    Comment


      #3
      I mostly agree with cptacek. However, I'd go ahead and knock off that Ikea card this month. It's one less thing to worry about. Then I'd throw everything at the credit card until it is gone (~ 6 months). Then I'd hit the student loans in the order 6, 7, 5, 1, 2, 3, 4. 6 and 7 have a higher interest rate and you can knock them off in one month each. 5 is next because of the interest rate, then 1 - 4 in order of smallest to largest. I'd leave the equity line until last because it is cheap, large, and the student loans aren't backruptable so if the worst happens at least you'll have them paid off.

      Comment


        #4
        Here's a great spreadsheet that will allow you to set up all of your debts and then calculate your total interest with different payment situations (highest balance first vs. highest interest first, etc.):

        Free Debt Reduction Calculator for Excel

        It is designed to follow a snowball debt repayment schedule, but it will work for what you need as well.

        Comment


          #5
          Thanks! and update

          Thanks everyone! That's really helpful advice. By sticking to this plan I'll be able to pay off the mastercard, Ikea card, and 2 of the higher-interest student loans by the end of the year. Then next year I'll get rid of the remaining student loans and then start focusing on the equity line last.

          One question though, student loans #1 and #6 are subsidized which means they are not accruing interest while I'm in school (at least until 2012). Given that should I pay down the equity line first before sending anything to these loans since the equity line does have interest already and those 2 loans won't have interest for some time?

          Also, one of the things I need to do is start an emergency fund because right now I don't have any $ saved up in case anything happens. Do you think I should start doing this only after all my student loans are paid off or should I do this beginning in January when I'll only have the lower-rate student loans to deal with. Maybe I can send less to each loan monthly and put the rest away?

          Once I'm done with the student loans I'd also like to increase my contribution to my 401k since right now I only do the minimum (3%-my co. doesn't offer matching), I'm only 29 but still I know its important so I'll increase it as soon as I lower my debt and have a nice savings to fall back on.

          Thanks again! And SavingCash thanks for the spreadsheet, looks very promising =)

          Oh by the way I called my credit card company and told them I was going to transfer my balance so they offered to give me a promotional rate of 5.99% for 9 months (vs. the 14.99% I currently have). This should help me out some especially since I plan to pay it off in less than 9 months.
          Last edited by lennygaudy; 03-16-2009, 11:19 AM.

          Comment


            #6
            I was actually thinking to mention that about the subsidized ones... They're not accruing interest, so don't bother paying them down right now. However, once they do start getting interest, get #6 paid off ASAP, and put #1 in line as well. Just remember -- pay off the highest interest debt first. For now, those two loans are essentially at 0% interest.

            An EF is a VERY good idea, even if you start out with only a small one. $1-$2k is enough to at least get you started, but you do want to slowly build it up to be sufficient for at least 6 months. I might say to set aside $50-$100/mo to an EF, at least to be building it. Once you knock out the CC and SL's 5, 6, and 7, increase your EF savings to maybe $200/mo, while you continue to pay off your lower-interest debts. Those are only rough figures though, you need to decide for yourself how much you want to go with each month.
            "Praestantia per minutus" ... "Acta non verba"

            Comment


              #7
              a) IKEA credit card $1,000 (0% until 8/09)
              b) Credit Card $12,000 (14.99%)
              c) Home Equity Line $49,000 (3.25% according to my last statement but that doesn't seem right so I have to call to confirm)

              d) Student loans (these are in deferment until 2012):

              1) $3,393.65 - Subsidized - 3.61%
              2) $4,183.38 - Unsubsidized - 3.61%
              3) $5,792.45 - Unsubsidized - 3.61%
              4) $6,371.72 - Unsubsidized - 3.61%
              5) $3,631.28 - Unsubsidized - 6.8%
              6) $2,222.16 - Subsidized - 6.8%
              7) $2,633.97 - Unsubsidized - 6.8%
              You have the right idea.

              get the 14% CC paid off ASAP, with the IKEA card right behind it.

              With $2000/mo going to debt and being debt free in about 6 months, I would concentrate on that goal.

              I would then start a broad plan in 6 months which included retirement saving as well as SL debt paydown on the 6+% interest loans only (pay the minimums on any loan under 4%).

              Comment


                #8
                lennygaudy, you might also take a look at DueMinder.com. It's similar to what SavingCash describes for the spreadsheet, but is online. You enter your balances & interest rates for each account, then it calculates the best payments based on a snowballing method (highest interest first, low balance first, or a custom plan if you choose). You can play what-if scenarios, and play around with your monthly commitment (the $2k per month you mentioned) to see how that affects the final debt-free date. It also sends payment reminders.

                Comment


                  #9
                  I would save the home equity line until after all of the unsubsidized loans are paid off.

                  Ikea and CC first!
                  Unsubsidized loans second
                  Home equity loan
                  Subsidized loans...keep as long as you are in school.

                  Set aside a small emergency fund of $1,000 to $2,000 so that you don't go back into cc debt. You are doing great!!
                  My other blog is Your Organized Friend.

                  Comment


                    #10
                    Thanks!

                    Just wanted to thank everyone for their wonderful suggestions and motivation! It feels good to know that I can actually accomplish this and to have a roadmap that shows me exactly how to get it done.

                    No more excuses! I already created a plan in dueminder and I'm going to stick with it. Early next year when I get my tax refund and bonus at work (hopefully) I will also throw that at my debt to speed up the path to debt freedom.

                    In the meantime I'll start building a modest EF and by this time next year I should be able to increase it substantially so I'll not only be virtually out of debt but I'll also have financial security. I'm excited and hopeful-thanks again!

                    My next two goals will be to look at the possibility of refinancing and the possibility of reducing my withholding so rather than a refund I can get my money upfront each paycheck.

                    Comment


                      #11
                      Glad to hear you have a plan! And all paid off in a year is motivation for sure.
                      My other blog is Your Organized Friend.

                      Comment


                        #12
                        Originally posted by lennygaudy View Post

                        a) IKEA credit card $1,000 (0% until 8/09)
                        b) Credit Card $12,000 (14.99%)

                        Ouch.. $12,000@14%???
                        Pay off Ikea before all that interest-deferred crap comes back around to bite you in the ass.

                        ^ These are the debts that I would concentrate on.

                        Comment


                          #13
                          Originally posted by swaymonae View Post
                          Ouch.. $12,000@14%???
                          I know it hurts just thinking about it. The good news is I called the credit card company yesterday and was able to get the interest down to 5.99%. They only gave me this promo rate for 9 months but that is enough since I plan to have it paid off by then. And IKEA will definitely be paid off before the interest kicks in.

                          Comment


                            #14
                            Originally posted by lennygaudy View Post
                            I The good news is I called the credit card company yesterday and was able to get the interest down to 5.99%. They only gave me this promo rate for 9 months but that is enough since I plan to have it paid off by then.
                            That is a great rate. I'm glad you thought to call them about it.
                            My other blog is Your Organized Friend.

                            Comment

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