Debt Management

[ashown]

I have been reading this forum for a long time; but didn't get the answer of my specific questions. So, here I am with my first post.

I am sure you have come across questions like these several time; however, any help/direction (to threads) you can offer will be appreciable.

I am trying to figure out how to pay off these debts at higher 'efficiency' possible. We have following debts and can spare some extra money per month (~$350) to pay them off faster. Which debt should we divert our extra money to?
Loan 1 $2929.33 2.35%
Loan 2 $3905.78 2.35%
Loan 3 $7432.46 6.80%
Loan 4 $7432.46 6.80%
Loan 5 $6467.50 6.00%
Loan 6 $194800.00 4.13%

First five are student loans for my wife and last one is our mortgage.
I am sure several people think that investing money in market is the best choice and we will get the best returns with compound interest. However, we are looking for paying off these debts sooner. Thanks in advance for your help.

[Weird Tolkienish Figure]

I have been reading this forum for a long time; but didn't get the answer of my specific questions. So, here I am with my first post.

I am sure you have come across questions like these several time; however, any help/direction (to threads) you can offer will be appreciable.

I am trying to figure out how to pay off these debts at higher 'efficiency' possible. We have following debts and can spare some extra money per month (~$350) to pay them off faster. Which debt should we divert our extra money to?
Loan 1 $2929.33 2.35%
Loan 2 $3905.78 2.35%
Loan 3 $7432.46 6.80%
Loan 4 $7432.46 6.80%
Loan 5 $6467.50 6.00%
Loan 6 $194800.00 4.13%

First five are student loans for my wife and last one is our mortgage.
I am sure several people think that investing money in market is the best choice and we will get the best returns with compound interest. However, we are looking for paying off these debts sooner. Thanks in advance for your help.

Mathematically it makes sense to pay off the highest interest loans first. On the other hand student loan debt is non-dischargable in bankruptcy. So there's that.

Oftentimes people find it's psychologically best to pay off the lowest balance loans first, as you are "accomplishing something" when you get rid of a loan.

I think it's personal preference really.

[alarson566]

I would say definitely pay off loans 3, 4, and 5 before considering buying any stocks as an investment. You'd be hard pressed to get a better return over time than 6.8% (or, in my opinion, even 6%). Once those are paid off and you're only looking at the 4% and 2% loands it might be time to start thinking about other investments.

[Goldy]

I agree with the above post. If it were me I would start with loan 3 and hit that one as hard as I could until it was paid off in about 18 months. Then I'd move everything to loan 4, then 5 and pay those off. At that point I would reassess the situation and probably make sure I was saving enough for retirement before I started to work on the other loans or mortgage.

[wemakehome]

A debt management plan (DMP) is a formal agreement between a debtor and a creditor that addresses the terms of an outstanding debt.This commonly refers to a personal finance process of individuals addressing high consumer debt. Debt Management Plans help reduce outstanding, unsecured debts over time to help the debtor regain control of finances. The process can secure a lower overall interest rate, longer repayment terms, or an overall reduction in the debt itself.

A debt management plan (DMP) helps you to manage your debts and pay them off at a more affordable rate by making reduced monthly payments. DMPs from StepChange Debt Charity are fee-free.A Debt Management Program involves your unsecured debt, which may include your credit card bills, line of credit, unsecured loans – or any other debt that doesn’t require collateral. To setup a Debt Management Program you will need to have a credit counselling appointment with one of our certified credit counsellors.

[williamsnancy]

You might want to enroll in a debt settlement program.

[MaximizeMyEarnings]

Paying off Debt

While I do agree with the other readers that paying off the highest interest debts first will save money, I feel that paying off debt is more psychological than anything else. That's why I agree with Dave Ramsey's method of paying the MINIMUM balance on all of your debts, except for your smallest loan. Pay as much as you can (apply the entire $350 extra that you have each month) toward the small debt. When that debt is paid off, take the payment that you were applying the smallest debt and apply it toward the next smallest debt. This is the snowball effect of paying off debt and it works wonders for your psychi. There's nothing like seeing the results to give you the motivation you need to continue your journey to get out of debt!

[krantcents]

I agree with others, pay the highest interest rate first.

[TBH]

You've already received this advice, but your two main options are:

1. Pay off highest interest debt first
* pay off highest interest student loan
* then hit the next highest interest student loans
* when you've paid off all the student loans over 6%, think about diverting your extra money to build a bigger emergency fund or save more for retirement
* then pay off lower interest student loans
* then if you're in great shape for retirement savings and emergency fund savings you can stat paying down your mortgage a little faster

OR

2. Pay off smallest debt first (dave ramsey snowball method)
* pay off smallest student loan
* then the next smallest
* and so on

I think if it were me I'd probably pay off the smallest loan first just to have one less payment to worry about, and then maybe I'd tackle the higher-interest student loans after that. But some early success will help you stay the course, and it will also allow you to free up more money sooner to throw at the other loans.

[dczech09]

You might want to enroll in a debt settlement program.

How would this help the insured? Debt settlement would not help as it does not sound like the OP is behind on payments (just looking for the best way to pay off debts.

Debt management does not help either. Debt management companies do not do anything that consumers cannot do on their own. And they charge ridiculous fees, and many have HORRIBLE reputations.

Debt management is handled by the individual.

A debt management plan (DMP) is a formal agreement between a debtor and a creditor that addresses the terms of an outstanding debt.This commonly refers to a personal finance process of individuals addressing high consumer debt. Debt Management Plans help reduce outstanding, unsecured debts over time to help the debtor regain control of finances. The process can secure a lower overall interest rate, longer repayment terms, or an overall reduction in the debt itself.

A debt management plan (DMP) helps you to manage your debts and pay them off at a more affordable rate by making reduced monthly payments. DMPs from StepChange Debt Charity are fee-free.A Debt Management Program involves your unsecured debt, which may include your credit card bills, line of credit, unsecured loans – or any other debt that doesn’t require collateral. To setup a Debt Management Program you will need to have a credit counselling appointment with one of our certified credit counsellors.

SPAM!

Loan 1 $2929.33 2.35%
Loan 2 $3905.78 2.35%
Loan 3 $7432.46 6.80%
Loan 4 $7432.46 6.80%
Loan 5 $6467.50 6.00%
Loan 6 $194800.00 4.13%

The interest rates do vary and the balances vary too. You cannot go wrong with either the debt snowball or the debt avalanche.

Get on a written budget and pay the minimums on all debts.

Any additional money that you can muster should be thrown at a debt until it is gone. Once it is gone, move on to the next, and so on.

What is the order to pay off the debts? In this situation, I would say pay them off in the order they are listed. Focus on 1 and 2 first just because they have the smallest balances. Once they are paid off, that will free up cash to attack the other debts.