Author Topic: Dealing with the debt  (Read 1497 times)

PayingForTheDiploma

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Dealing with the debt
« on: May 14, 2018, 10:05:12 AM »
Hello everyone, first time in the forum, but the blogs been a regular staple since discovering it less than a year ago.
I finished grad school recently and have paid off the 2 smaller loans with higher interest rates. Now I'm looking at my 2 larger ones. There's one at 13k and one at 22k, same interest rate.
I did some math and realized that with my current salary (Yay entry level! But in the field I'm passionate baiit and that's what matters), I can have the 13k paid off by October of 2019.
Thats still a little slow to me, so here's what I'm thinking.
They're both 10 year loans. I can refinance the 22k with Navient and keep the federal loan benefits, but stretch it to 20 years. By doing that, I'd be able to shift more of the money to the 13k loan, pay it off faster, and then pay off the 22k loan within the next 2 years after that.
Any reasons I shouldn't do it like that?

nereo

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Re: Dealing with the debt
« Reply #1 on: May 14, 2018, 10:29:13 AM »
It's a good strategy, as long as you stick to the plan.

Among the things that could go wrong
  • freed from a higher interest payment, you waiver and don't pay down the loan as fast
  • you *might* take a temporary hit on your credit score as in the short-term your loans will (on paper) take longer to discharge
  • Navient is a private company, and IME they are more aggressive at collecting should you default.

That's about the only things I'd worry about. Also, check with SoFi - you might be able to get better rates than what Navient is currently offering.

All in all, good for you for making debt-elimination a priority. October 2019 might seem a long way off, but in a lifetime of wealth accumulation it will be a minor blip.

ShoulderThingThatGoesUp

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Re: Dealing with the debt
« Reply #2 on: May 14, 2018, 10:34:11 AM »
Would you actually get a lower rate? Stretching your term to 20 years seems pointless if your goal is to pay it off sooner.

PayingForTheDiploma

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Re: Dealing with the debt
« Reply #3 on: May 14, 2018, 10:41:36 AM »
It's a good strategy, as long as you stick to the plan.

Among the things that could go wrong
  • freed from a higher interest payment, you waiver and don't pay down the loan as fast
  • you *might* take a temporary hit on your credit score as in the short-term your loans will (on paper) take longer to discharge
  • Navient is a private company, and IME they are more aggressive at collecting should you default.
Debt Payoff is a priority and I'm locked in at my job without fear of paycuts or termination, so I'm comfortable with all that. Thanks for the help!
That's about the only things I'd worry about. Also, check with SoFi - you might be able to get better rates than what Navient is currently offering.

All in all, good for you for making debt-elimination a priority. October 2019 might seem a long way off, but in a lifetime of wealth accumulation it will be a minor blip.

PayingForTheDiploma

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Re: Dealing with the debt
« Reply #4 on: May 14, 2018, 10:42:55 AM »
Would you actually get a lower rate? Stretching your term to 20 years seems pointless if your goal is to pay it off sooner.
I'm not worried about the rate. The longer term would lower the monthly obligation, allowing me to put that difference towards the 13k loan to pay it off faster and then swinging that payment to the 22k loan.

patchyfacialhair

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Re: Dealing with the debt
« Reply #5 on: May 14, 2018, 10:51:29 AM »
Would it save you money in terms of interest paid? I get that "you don't care about the rate(s)" but that's important in determining if this is worthwhile.

If it would save you money in terms of total interest paid going forward, then sure, do it. If not, then don't.

nereo

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Re: Dealing with the debt
« Reply #6 on: May 14, 2018, 11:03:41 AM »
Would you actually get a lower rate? Stretching your term to 20 years seems pointless if your goal is to pay it off sooner.
I'm not worried about the rate. The longer term would lower the monthly obligation, allowing me to put that difference towards the 13k loan to pay it off faster and then swinging that payment to the 22k loan.

To put numbers to it, I think what the OP is proposing is this:
Assuming a 6.5% rate on a balance of $22,000 (roughly what most SLs are currently)
A 10yr note would have monthly payments of $249.81
A 20yr note would have monthly payments of $164.03

If the OP wanted to put $500 towards that note  the OP would pay the note off in 4 years 4 months for a total cost of $25,198.55 regardless of whether it was a 10yr or 20yr note.

The OP gets no "advantage" if it was just this one note.  But s/he has two notes, including a smaller $13k note.  In this case, he/she is going to put more of the initial overpyament towards the $13k note, allowing the OP to discharge this loan a few montht faster.

AT least, that's how I am understanding this.  It's basically a version of the snowball method.

robartsd

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Re: Dealing with the debt
« Reply #7 on: May 14, 2018, 11:18:07 AM »
Would you actually get a lower rate? Stretching your term to 20 years seems pointless if your goal is to pay it off sooner.
I'm not worried about the rate. The longer term would lower the monthly obligation, allowing me to put that difference towards the 13k loan to pay it off faster and then swinging that payment to the 22k loan.
This would get your monthly obligation down now (a little now, much more after the 13k loan is paid off). If you don't incur any additional costs with the refinanced loan (same rate or better, no fees) I don't see a reason not to do it (allows you to pay off the 13k loan a little sooner for psychological benefit and adds flexibility). Unless you actually reduce costs (lower interest rate) it won't help you pay off your student loans any sooner overall. If you can get a lower rate, it would be better to refinance both loans at the lower rate to get to to fully paid off even sooner.

ShoulderThingThatGoesUp

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Re: Dealing with the debt
« Reply #8 on: May 14, 2018, 11:48:59 AM »
Would you actually get a lower rate? Stretching your term to 20 years seems pointless if your goal is to pay it off sooner.
I'm not worried about the rate. The longer term would lower the monthly obligation, allowing me to put that difference towards the 13k loan to pay it off faster and then swinging that payment to the 22k loan.

That doesnít get you paid off any faster. The only reason to do this is if the current monthly obligation is at the edge of what you can manage, but as you seem tone planning to pay it all down aggressively I donít expect thatís the case.

PayingForTheDiploma

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Re: Dealing with the debt
« Reply #9 on: May 14, 2018, 11:55:13 AM »
Thanks for all the input! I ran some basic numbers and it really wouldn't make  a big difference, I'd able to pay off the smaller loan a month earlier, and that doesn't seem worth the hassle of refinancing and dealing with Navient more than I have to.
Thank you all for the help!