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February 23, 2018

I paid $2,350 towards my student loans this month. This payment came with the added bonus of paying off my 6th loan in full. I now have 3 loans remaining. My new balance is $9,286.91. Stay tuned for more!

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Student Loan Attack Plan

Like countless other college graduates, I have the burden of student loans bearing down on me. I have my Bachelors and Masters Degree in which I completed in the Spring of 2016. I’m responsible for paying back just over $35,000 and will have a monthly payment of $300/month for approximately 19 years. That’s a whopping $68,000 I will have paid before I’m finally debt free at the ripe old age of 45, which is about average I am fortunate as I know others are in a much worse position. We’ll be offering classes in the future that will help our readers create custom attack plans for any situation to take down their debt.

To provide some context, I’m not able to pay off a couple thousand dollars a month like my friend. I own a house, have two vehicle payments, and my first child to arrive in June this year. My wife and I are both school teachers so combined we make approximately $90,000/year before taxes.
To be clear, I’m an advocate for most people to college. Look for a post on this later. If it were not for these student loans, neither my wife nor I would’ve been able to receive a degree. And if it were not for our degrees, we would not be able to buy cars, houses, or afford children!

Here’s my game plan:

Once we began earning a consistent income, we did the smart thing and set a budget. But when we created our budget, we didn’t live within our means, we lived below our means. So we’ve been accumulating a surplus of roughly $500 every month that is going directly into savings. I recommend having 3-6 months’ worth of expenses in your emergency savings before you can start using your extra cash. (Note: the minimum payment for all debts is included in monthly expenses.) After our savings reaches our preferred amount, it’s time to go toe to toe with my loans…

I have two options that have roughly the same total payoff amount, but one is much simpler than the other.

Half of my loans are federal and the other half is privatized. There are a total of six loans with all different interest rates. Strategy #1 would be to make the minimum payment plus my aforementioned excess of $500 every month. It’s often important to pay the loans with the highest interest rates first, but not always, in order to minimize the dreaded accruement. Strategy #2 is to refinance and take out a personal loan from a bank to pay off all of my student loans and have a single loan with a simple interest rate. There are two big catches with this, however. You have to have a good credit score to get a low rate and you will no longer be able to write off the interest on your federal taxes.

Making payments in the current system is difficult because I have to log in, mail, or call two different agencies and specify the fluctuating amount for all six loans every month. With a personal loan, I will be billed the exact same amount every month and can leave it on auto pay.

We have decided to take out a personal loan for $35,000 at 11% for a monthly payment of $761/month for five years. The total payoff will only be approximately $46,000! I will save over $22,000 and be debt free 14 years sooner than if I just made the minimum payments! You will have to do the math to find out which strategy is best for you, but we’ll talk more on that later. Here’s the good kind of principle to live by: If you sacrifice now and live below your means to pay off debt, it can save you thousands and thousands in the long run.

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CB

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This May Be The Most Important Article On Debt Elimination You’ll Ever Read

Start Eliminating Your Debt, Now!

Debt. The other 4 letter word. Here at The Money Dojo, debt is a dirty word, and we’re dedicated to its swift and complete eradication. I’ve mentioned in previous posts that I consider myself a disciple of Dave Ramsey. Particularly, his methods for debt elimination. Now, Dave writes entire books on this topic, but I can break it down for you in a few simple steps. Like most of the things we discuss here at the Dojo, the methods we use are simple, but they require commitment in order to be successful.

 

  1. List It: Make a list of all your current sources of debt. Write them down in order from smallest remaining principal to largest.

  2. Make a Budget: Create a budget. I briefly touched on this topic here, but will expound on it even further in the future. To pay more than the minimum on your monthly payments, you’ll have to get the most out of every dollar.

  3. Pay Extra: In your budget, put any “extra” money you have once all the bills and essentials are accounted for, and add it to the payment you normally make on your SMALLEST current debt. This will both reduce the time it will take to pay off the debt, and save you money on interest in the long run.

  4. Keep the Ball Rolling: Once you pay off your first debt, go back to your original list (step 1) and put a big red line through it. Congratulations! You’ve reached a big milestone in your financial journey. Now, add the entire payment from the debt you just paid off to the next debt on the list.

  5. Repeat: Repeat step 4 until every debt on your list has been eliminated.

There are several different schools of thought on debt elimination. You’ll notice that I didn’t mention interest rate a single time in my post. The reason we’re starting on the smallest principal as opposed to the highest interest rate, is because getting a quick victory is important. 90% of the challenge of getting out of debt is just the belief that it’s possible. Once you cross that first debt source off the list, you’ll be enticed to keep going, and in turn create a healthy financial habit.

Be sure to subscribe to our greenbelts newsletter so you get all of our insight here at The Money Dojo!