Saving Vs. Paying Down Debt? (Temp. Rate Reduction On Student Loans)

**dczech09** · 05-20-2014, 06:52 PM

$70,000 at a 3% rate and a locked in $377 per month payment will take 250 months to pay-off! And that is assuming that the rate stays the same and does not change for 20 years.

Not a good deal if you ask me. That 3% rate is nice, but the caveat of $377 per month or they can take away the rate? Not cool.

Even at the 9.25% rate, paying $700 per month (less than two times the smaller payment) would only take 190 months. Still not good, but it is better than that current deal.

What is your income? How much "discretionary income" do you have after paying the minimum payments and taking care of your household? Any other debts?

A $70,000 student loan debt is no laughing matter unless you make WELL into the six figs.

I would probably take the student loan rate deal temporarily, make the $377 payments, and kill of the federal student loans in the process. Once the federal student loans are gone, the I would increase the payment on those private loans and ATTACK THEM WITH A VENGEANCE! All of this is of course dependent on your overall financial situation... but at face value, this is what I would recommend.

The majority of your loans are private, so income-based repayment, underserved areas, and other federal programs are out of the question. Regardless, your best bet is to get busy paying these off!

The more you can throw at the loans, the faster they will go down and less the interest rate will matter in the long-run.

**Jamila75** · 05-21-2014, 09:52 AM

Hello Brandon,
To be honest 80K in student loans is a lot, and this calls for a good strategy for attacking it. This will mean you will have to cut cost on some of your monthly expenses and not forgetting sacrifices that you will have to make. Perhaps start attacking your principle amount, and in fact starting with the small loan amount can make you feel you are making progress in paying it off.

I am glad that you are doing some work on the sides like freelancing to help you with the payments.My advice is keep on looking for more opportunities to help you make more money like writing eBooks and selling on Amazon, selling stuff online like Amazon, ebay and you can easily pull in a few grands a month depending on your niche.

Debt is never a good thing especially when it comes to health or emotional well-being of an individual.And getting out of debt should be your priority now , and I wish you all the best.

**Permanent Temp** · 05-21-2014, 10:18 AM

Well a 401K loan is never a good idea. And if I could get a 401K I would still contribute the min to get a match just to not let that free money go to waste.

How much is 3K to you? As in how many months of expenses will that cover? A 3-6 month emergency fund is a good thing for you as in your previous post you noted you live on your own and moving back to your parents house isn't really an option.

How much time do you have left on the interest reduction? I would pay off your federal students loans in that time you have left on the interest reduction or pay them off as much as you can. I just got into a position where I am able to start paying off my student loans more aggressively myself all mine are federal but I have been paying an extra $10 on them this whole time. It's not much but its helped now I'm trying to pay up more.

Ready for Zero and Tuition.io are good places to track your student loans balances and figure out how long they will take to pay off. And Smarterbucks is something I just heard off and I'm trying to use. A personal finance blogger got an extra $10 toward her loans that way. It's not much but every bit helps!! Also I think Sallie Mae has some credit cards that let you use rewards toward paying off student loans, but you'd have to be responsible with credit in order for this to help.

Basically get all your stuff together. If you haven't already figure out your monthly expenses and from that figure out how long 3K would help you. From there try to reduce your monthly expenses as much as possible (brown bag lunch etc).

Keep your 401K contributions to get the match but under no circumstances should you take a loan from it. Start paying off as much as you can toward your federal student loans during your temp reduction rate. If you manage to pay those off then make an aggressive workable plan to pay off your other student loans, snowball, avalanche, snowflake etc.

I think you also stated you had an income increase. Is it possible for you to live like you did on your previous income and throw all the extra money toward student loans?

Since you do have freelance money is it also possible for you to just throw that money to debt now? As you know 70K is a big number. The quicker you can make that number shrink the better off you will be! It might be a sacrifice now but if you are realistic and kind to yourself throughout the process you can do it and have a fantastic debt free life ahead of you.

**Brandon216** · 05-21-2014, 01:07 PM

Wow thank you all so much for taking the time to respond with such fantastic advice! I truly appreciate it as I begin to seriously take on this debt.

Originally posted by dczech09 View Post

What is your income? How much "discretionary income" do you have after paying the minimum payments and taking care of your household? Any other debts?

Net monthly income ranges between $2200-$2700 depending on freelance work. With the nba season ending soon it should be realistically about $2200 monthly. No other debts. And I recently moved in with my gf to cut living expenses. Discretionary income is roughly $500 or so after paying all bills & loans.

Originally posted by Permanent Temp View Post

How much is 3K to you? As in how many months of expenses will that cover?

$3K would be about a month & a half of salary to me.

Originally posted by Permanent Temp View Post

How much time do you have left on the interest reduction?

12 months as long as all payments are deducted from my account with no problems. Interest rates are said to rise 1% each year should I remain eligible for the program.

Originally posted by Permanent Temp View Post

Is it possible for you to live like you did on your previous income and throw all the extra money toward student loans? Since you do have freelance money is it also possible for you to just throw that money to debt now?

Absolutely. I've been living a minimalist lifestyle sacrificing and even moved in with my gf to help cut costs. That and my freelance contributed a great deal to me having any savings at all. I will absolutely look into all the resources you shared!

Side from having an emergency savings it sounds like everyone is recommending I throw everything I can at the federal loans for now.

**dczech09** · 05-21-2014, 04:40 PM

Originally posted by Brandon216 View Post

Side from having an emergency savings it sounds like everyone is recommending I throw everything I can at the federal loans for now.

I would absolutely take the 3% deal "temporarily" and throw everything that you can at the federal loans. Clean those up!

Once that is done, you can evaluate your private loans and figure out a game plan. A lot could happen in the time that it will take to clean up the federal loans. Maybe you find new work and more income?!

To touch on the 401k loan - I would avoid it. A 401k loan is "financial dynamite" and should only be used in extreme circumstances such as STOPPING bankruptcy or foreclosure. Even in those cases, it is completely circumstantial.

Right now, you are not in a position to be contributing to your 401k. In most situations, I would advise investing in the 401k while paying off debt, but your debt is so large in comparison to your income... You should spend some time cleaning up some of that debt (especially the federal loan) before you consider contributing to your 401k.

I could not be any more of an advocate for saving for retirement (I teach classes on it)! But for the time being, those loans have you in a tough spot. And the only way out of the corner is to give it all you've got!

**fifocoralsea** · 05-22-2014, 09:54 AM

paying off debt

Paying off debt is absolutely more important than saving first due to interest rates.

**Weird Tolkienish Figure** · 05-22-2014, 11:04 AM

Originally posted by Brandon216 View Post

Hello All!
So I have about $80,000 in student loan debt... yeah... I know. About $71K in private loans, and $9K in federal. For the past 4 years, up until about 2 months ago I was paying between 8% and 9.25% on the private loans. the balance never moved even though I paid roughly $24,000 (the minimum - $500-$600 a month. Sallie Mae recently reduced the interest to 3% on all the loans to allow me to make payments. A 12 month Rate Reduction program (could potentially be longer than 1 year, I've heard of people being on this plan for over 4 years but there's no guarantee that next year they raise my interest again) -

My debt breakdown currently is

$70K - 3% interest ($377 minimum/set monthly payment - if you pay more you could be removed from the program)(private -possibly temporary reduction)

$9K - 5.5% Interest (federal - fixed rate)

Over the past few months doing freelance work and living frugally and thanks in part to the interest break I've been able to save $3,000 cash.

I'm presently trying to figure out my best plan of action for paying down my student loan debt. Should I continue to save assuming that Sallie Mae could raise my interest again and I could ust the savings at that point to pay down the debt coupled with maybe a 401K loan? (because lets face it 9.25% on an $80K loan is a life sentence for a middle class single guy)

Should I throw as much as I can at the federal loans, assuming they've now become biggest interest loans? Use the Ramsey approach?

Or should I just do nothing and continue saving? Maybe invest the savings into a down payment for a home down the road since I have no real assets to my name beyond my car and since I currently rent. Just wanted to bounce ideas. thank you for your consideration.

Cliff Notes:
*$80 K debt

*$3K cash

*On an interest reduction that's allowed me to save the cash.

*What should I do?

for more information on my rate reduction plan google student loan sherpa sallie mae rate reduction -

If they were federal, I'd say pay the minimum and save and get on a plan. However with private loans from scumbag sallie mae I'd say pay them off as quickly as possible, aim to pay double the minimum as a start if possible.

**Mdarius** · 06-28-2014, 01:06 AM

I'm not a guru, but I'm almost at the end of being in debt for over 20 years. A few lessons learned:
1. having no emergency fund results in more debt. No cash and your car breaks down? Debt. Medical? Debt. Lose income? Debt, debt, debt.
2. Paying off high balances is painfully slow. It's discouraging. It's easy to lose focus and...what happens? You acquire more debt! DON'T DO IT!
3. 0% - 3% balance transfers can be a good thing...IF you don't put too much cash riding on that pony. You HAVE to pay it off by the end of the grace period or you just compounded the problem. Be aware of transfer fees and make sure you are saving more in interest than you are paying in fees.
4. Make a spreadsheet of debt payoff and your budget and look at it, maintain it, all the time. If you slip and have to steal from your debt payoff for some emergency, record it, figure out how to not do it again, and recalculate your payoff. Play with different scenarios on paper to see how it plays out. You may be surprised. I'd send you mine as an example, but you'd get lost in it. It works for me, create one that works for you.
5. DON'T spread your extra payments around. Put them on one debt until it's dead. Then move on to the next one.
6. Be realistic. You are going to go out to dinner. You are going to take that trip to the coast. DON'T use debt, or your emergency fund for it. Be creative. There are more (legal) ways to make money than you are trying. Use your skills and develop new ones.
7. Don't be afraid to live in a van down by the river for 6 months in order to save money. Well, if it's a decent van...maybe that translates into the parents basement for you.
8. Never stop trying and always keep your integrity in tact.
9. Never miss a payment. This will buy you good graces from a lot of companies if something does go wrong.
10. Believe in blessings.
11. Be charitable.
12. All cars and houses are money pits. Don't let anyone tell you differently. Plan for it. (Girlfriends maybe are...nevermind, that just crossed a line.)
13. Recognize that your debt payments ARE discretionary income. You used your discretion to acquire the debt and now you are paying for that choice...for a long time. It's a sobering realization.
14. Find a mentor.
15. All good lists have fewer than 11 points. There are probably a few in here that are worth what you paid for them...nothing.

Good luck!

Saving Vs. Paying Down Debt? (Temp. Rate Reduction On Student Loans)