Amateur Mustachian Seeking A Debt-Free Life

[TheRealDeal]

Long time reader, first time posting.

I work harder each and every day to embrace the Mustachian lifestyle, but find too many things in my way.  Right now, it's the ridiculous pile of student loan debt (between my wife and I).  I'm here to seek the advice of fellow Mustachians for an opinion on how best to wield the unwieldly, specifically in the area of personal loans. 

To pay off the debt, my plan is to take out a personal loan in the amount of the other loans, but with a smaller interest rate than my current effective loan rate.  This will allow me to make more progress towards paying the principal down every month.  Adding in a dash of Mustachianism to my spending (or not-spending), I anticipate riding the rails of no debt within 5 years.  Here's the skinny:

Total approximate monthly income: $2,500 (fluctuates by $150 either way)
Residence: Minneapolis suburb
Total Student Loan Debt: $92,000 (several loans)

Each month I make a total student loan payment of $1,200 ($500 interest, $700 principal).

My plan is to take out a $92,000 personal loan with an interest rate less than 6% (regardless of the term), and roundhouse kick the shit out of it with every freakin dime I can muster every month until it's eradicated.  I anticipate the new loan would generate only $460 per month at first, and dwindle significantly with every payment I make.  I've never done anything like this, and want to make sure I'm not being erratic or foolish.  Can anyone offer an opinion who has experience with this?  Or offer an alternative solution to doing away with this debt? 

I appreciate it.  Keep up the good work!

[Zamboni]

I haven't done what you are suggesting, nor do I know how easy or difficult to be to take out such a large personal loan, but I want to compliment you are your zeal for wiping out the debt. Good luck with it!

[MDM]

Having debt 3X your annual income is a tough hill to climb.  Kudos on making plans rather than giving up. 

Dropping the interest rate will help a little, while increasing your income so you can repay faster will help a lot.  What are the prospects between the two of you for doing that?

Meanwhile, contributing just enough to a Roth IRA so the saver's credit reduces your total federal income tax to $0 will be the highest ROI investment you can make.

[Playing with Fire UK]

Good luck with your plan.

If it is difficult taking out a large personal loan can you refinance as a student loan (is SoFi the one that mmm recommended?)? Also, if you are eligible for 0% credit cards could you use these to reduce the interest you pay on the loan (either transfer the balance or spend on the 0% card, pay the same into the loan and then pay the card off before the 0% offer expires).

If you want a second opinion on reducing your costs you can post up a case study (or  more detail of your monthly spending).

[thd7t]

Are the terms of all of your loans currently the same?  Is $1200 your minimum payment or are you paying extra?  You may have more optimal ways to look at paying down the loans. 

Refinancing student loans will probably be a better way to go than a Personal Loan, but I can't really guess at the terms you'd get.

[AccidentalMiser]

All that stuff that everyone else just said.  Do that.

My question is why your income isn't higher and what you're doing about the incoming side of the equation.  On $2500/month, you are going to have a tough time making all this work out.

[MgoSam]

I don't have any specific advice, but wanted to chime in to say that I think you've got your mind on the right path. One thing to keep in mind (this is something that I must remind myself) is that change doesn't happen overnight, but as a progression over time. There may be many hiccups along the way, but how we react to each thing helps dictate the type of person we are. Welcome to the site, and I hope you continue forward.

Also, I live in St. Paul, glad to see another Mustachian in the twin cities. There are several of us on here and occasionally meet up. Here is a link to it's page.

http://forum.mrmoneymustache.com/meetups-and-social-events/twin-cities/250/

[Check2400]

I anticipate the new loan would generate only $460 per month at first, and dwindle significantly with every payment I make.

Just checking on this statement:  If you consolidate your loans, and then make additional payments on the lump sump payment, the principal is reduced at the end of the loan lifespan, and does not readjust with every additional pay down you make.  Maybe your personal loan is different, and I think there are some military loans that do this, but my understanding is this:

Assume a $100,000 loan, and you pay down $6000 a year (forget about interest and years and all that for now).  That is $500 a month.  If you get a $6,000 tax refund the first month of your loan and put it to the principal, you owe $94,000 and will not have to pay the last year's payments. 

But, the loan does not re-calculate to make a new monthly loan payment amount based off the new principal amount automatically, you'll have to refinance to have that happen.  So you'll still be paying $500 a month, just for one year less.  You will not all of a sudden only have to pay $476 (or whatever number it would now be) because you have a different principal amount.

If that is what you are thinking, then you are wanting to keep your loans segregated and pay them off one at a time--the famed "snowball" method.  I like this, and having just killed off my student loans, it helps because the hardest pay-off is the first pay-off, but the first pay off is when you're still basking in the glow of your newly found mustachianism.  Some people say attack highest interest rate first, I say attack smallest first (especially at your take home income) in order to get some payment relief and sooner gratification/reinforcement. 

But maybe you're simply saying that your new loan would pay off $460 a month, and increase monthly as you get further along the principal/interest timeline making the principal, and not the loan payment, dwindle.