Student loans

**Ramose** · 11-04-2012, 04:14 PM

Originally posted by Dthreap View Post

Loan A - $2,918.31 - 3.4%
Loan B - $1,360.02 - 6.8%
Loan C - $3,411.18 - 4.5%
Loan D - $2,146.04 - 6.8%

Monthly Income (Average) - $1532
Monthly Expenses (Car insurance, phone bill and gas) - $456
Student loan payment - $108

Pay the loans in this order B,D,C,A.

$1532 - $456 = $1076 - $108 = $968

What happens to this money? Is it all used for debt repayments?

Do you have any savings at the moment?

Also, you said average income. Does it fluctuate much?

**Wino** · 11-04-2012, 08:53 PM

There are at least five methods for debt repayment:

Option 1: Dave Ramsey method, also known as "debt snowball." Pay off the lowest balance first and ignore interest rates. All loans except the one in the process of being paid off are paid with minimum monthly payments. This method is best for those with little will power, math skills, or real understanding of finances because it is very easy to follow and gives an immediate boost every time a bill is paid off. Your order under this method: BDAC

Option 2: Math Nerd's method, also known as "debt avalanche." Pay off the loan with the highest interest rate first. If two or more loans have the same interest rate, pay off the one with the lowest balance before the one with the higher balance. All other loans receive minimum payments. This method is mathematically the best method, but it requires you to stay with the plan even though it may be a long time before you see any progress. Your order under this method: BDCA

Option 3: Emotional method, also known as "debt tsunami." Pay off the balance of the lender you either hate the most or like the most first. All other debts receive minimum payments. If you owe, for example, your mother some money, you probably would want to pay her off before the other lenders. Likewise, if you owe Chase Credit money and you just want to pay them off so you can cut up their credit card, then burn it, then post these pictures on Facebook with a caption similar to "A little less EVIL in my life", then you might want to use this method. This method is best if you have multiple lenders and care more about who is repaid or who you can "fire" as your bank or lender more than you care about the mathematics or other considerations. Your order doesn't apply to either of these, but I think you might want to volunteer some rent to your folks, which would be an ongoing "loan payment."

Option 4: Hybrid method, aka "Wino method." Pay off non-revolving (non credit card type) loans first, determining the order from either of methods 1 or 2 above. With this method, you choose any loan (car, mortgage, home improvement, etc) and pay it off as much as possible as all other payments stay at a minimum. After you finish these, you go after credit card/revolving debts, again in the order set by method 1 or 2 above. This method is for folks who must keep or just want to keep their credit cards, and will still be using them while they still have a balance after making a payment at the end of the month. In my case, I ran up considerable credit card debt as "retail therapy," so could not pay them off and my job would not allow me to cut up the cards, so I went for the loans first, and credit cards last. Once again, this method does not apply to you.

Option 5: Typical method, also known as "financial black hole." Pay minimums on everything. Go out and get several credit cards from banks and from stores. Buy a bunch of useless crap that you don't really need. Buy a new car, an ATV, and take scuba lessons in Aruba. Develop a taste for only name brand clothes and shoes, and only buy designer sun glasses. Make your debt load so huge you end up needing to borrow from friends and family, and wonder why you run out of money even though you're making $100K per year. This method is used by the majority of Americans who then blame the banks and stores for putting them into this credit overload situation. I hope this method doesn't apply to you, but sadly it will be the method used by the majority of your peers.

Either of the first two methods will work for you. Your loan amounts are so small, that the monetary difference between the methods is nearly non-existent. Method 2 should work and it is mathematically the best way to pay them off.

**YLTL_Dan** · 11-05-2012, 09:16 AM

Great idea to live at home while you pay off your debt and start saving. However, I wanted to offer some advice about buying vs renting. Owning a home can be very expensive (maintenance, insurance, property taxes, etc) and there are many advantages to renting when you are young. It offers flexibility if you decide to move cities or change jobs, you get a "taste" of where you want to live and where you don't, and it allows you to live independently. I wouldn't look at renting as throwing your money away because you could say the same thing about buying when only ~30% of your payment is going towards principal in the beginning of the loan!

**Dthreap** · 11-05-2012, 02:13 PM

Originally posted by Ramose View Post

Pay the loans in this order B,D,C,A.

$1532 - $456 = $1076 - $108 = $968

What happens to this money? Is it all used for debt repayments?

Do you have any savings at the moment?

Also, you said average income. Does it fluctuate much?

The $968 just goes into my checking account. Normally it would be close to $632 but I've decided that I will start taking a lunch to work opposed to eating out at an average of $12 a day.

At the moment I do not have any savings because I used what I had while in school to stay a float.

What I meant by average income was that I have two jobs. One is Mon - Fri and is always 40 hours. The other is my weekend job and the hours vary slightly but I never have less than $180 every two weeks. So for the weekend job I just put it in as $360 a month granted at times it could be slightly more.

Wino
Ramose said B,D,C,A which would be the "Math Nerd's" method which is what I have been doing, so I feel that so far I am on the right path.

Also I would never go with option #5 I hate owing and would never want the stress of a huge amount of debt. I hate owing so much when I graduated high school and bought a newer reliable car for college I took a year off between high school and college to pay off what I owed on my car and to get money put aside so I had a cushion during school.

YLTL_Dan
I realize everything that you're saying and greatly appreciate it. It's just something that lingers in the back of my mind.

**Ramose** · 11-06-2012, 03:46 AM

Originally posted by Dthreap View Post

The $968 just goes into my checking account. Normally it would be close to $632 but I've decided that I will start taking a lunch to work opposed to eating out at an average of $12 a day.

At the moment I do not have any savings because I used what I had while in school to stay a float.

What I meant by average income was that I have two jobs. One is Mon - Fri and is always 40 hours. The other is my weekend job and the hours vary slightly but I never have less than $180 every two weeks. So for the weekend job I just put it in as $360 a month granted at times it could be slightly more.

See if you can open a savings account with a higher interest rate than your current one, at the very least it helps you separate your spending money from your saving money. Try to keep some savings even while paying your debt. Usually we recommend that you have 3-6 months of expenses saved, in your case just one month of expenses is a good enough start. The savings helps you if you were suddenly to lose your income, without savings you will go straight back into debt, and usually at a higher interest rate.

You've made a good start on saving more money by bringing lunch, $12 per day is almost $4500 per year! If you want to save even more, you should take a good look at your budget and look for more things you can cut.

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Student loans

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