Author Topic: Loan Slaying Plan?  (Read 2799 times)

narwhale

  • Guest
Loan Slaying Plan?
« on: August 23, 2013, 09:03:59 PM »
Greetings Mustachians!

My wife and I have for some time been looking to pay off of our student loans. Unfortunately I had a medical emergency which meant I was not able to work for 6+ months, but we are finally in a place to start making some headway.

We have two months living expenses in an emergency fund (6k for two months- we live in an expensive area with rent and loans taking up close to $2000 of that) and are looking to put $2,000 to $2800 extra towards our loans each month (depending on our income). We have roughly $40k in student loans and another $5k car loan.

My biggest question relates to our non-emergency fund savings. We have roughly 14k in that account (non-investment) that is not doing much for us. It dawned on me this evening: should we take out $7k-8k and slay some of our loans right off the bat before moving into the monthly $2k+ extra? I feel comfortable with our emergency fund, and we have fairly good job security, but I am hesitant to move that much over to loans. Perhaps this is a symptom of our history with not being able to work?

Thoughts?


imustachemystash

  • Bristles
  • ***
  • Posts: 413
  • Age: 38
  • Location: Seattle
Re: Loan Slaying Plan?
« Reply #1 on: August 23, 2013, 10:16:36 PM »
I would pay off the $5,000 car loan for sure.  That will free up that payment and you can snowball it into your student loan payment.

gooki

  • Handlebar Stache
  • *****
  • Posts: 2376
  • Location: NZ
Re: Loan Slaying Plan?
« Reply #2 on: August 23, 2013, 10:19:12 PM »
Fuck yes, use the current cash to pay down your debt.

narwhale

  • Guest
Re: Loan Slaying Plan?
« Reply #3 on: August 24, 2013, 06:44:53 AM »
Thanks for the responses.

Our loan on the car is a fairly good rate as compared to those set student loan rates, so I am hesitant to pay down that first and then go from there. I would much prefer to pay off some of our smaller loan increments- 1.5k, 2k, 1.6k and go from there? How should I be comparing loans?


EK

  • Pencil Stache
  • ****
  • Posts: 733
  • Age: 32
  • Location: Fredericksburg, VA
    • Happily Enough
Re: Loan Slaying Plan?
« Reply #4 on: August 24, 2013, 07:01:33 AM »
Some people find it motivating to use the snowball method of paying off the smallest amount loans first and working up to the biggest one.  Mathematically though you're best off paying them off starting with highest interest and working down to lowest interest.  But if you're going to lose steam doing it that way and give up on it, then the snowball method can still be valuable if it keeps you excited enough to follow through.

Definitely use your extra cash to pay down the loans!

tomsang

  • Handlebar Stache
  • *****
  • Posts: 1085
Re: Loan Slaying Plan?
« Reply #5 on: August 24, 2013, 08:28:36 AM »
It is all about the math. What are your rates on your loans? If they are low then invest if they are above 6% or so then payoff.

Once you have debt, you should focus on the best way to become FI. Keeping 1.99% loans and investing in Vanguard will most likely cut time off your FI.
Good luck!!

narwhale

  • Guest
Re: Loan Slaying Plan?
« Reply #6 on: August 24, 2013, 09:50:47 AM »
They range from 4.55 to 6.55. The latter I am more inclined to pay off first, even though they might be a bit larger (1k-2k larger) than others. Still learning about investing and have around 20k already in, just trying to focus on loans first, I don't like the idea of having outstanding money owed, though I agree that it is about the math when comparing to investments.

Prairie Gal

  • Handlebar Stache
  • *****
  • Posts: 1348
  • Location: Somewhere, out there ...
Re: Loan Slaying Plan?
« Reply #7 on: August 24, 2013, 03:57:14 PM »
Your inclinations are absolutely correct! Pay off the loans with the 6.55% interest rate first. They are a guaranteed return.