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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Britlitgeek on May 30, 2014, 11:08:19 PM

Title: Prioritizing debt repayment
Post by: Britlitgeek on May 30, 2014, 11:08:19 PM
Ok, so here's the short version of my situation:

32 years old, finished grad school 2 years ago with $46k in loans; took 10 months to find a job post-school, which meant feeding and housing myself on credit cards and an extra $11k in debt for that. Consolidated credit card debt to get a much lower interest rate and have been funneling every spare penny into debt repayment for the last 8 months, so here's where I am:

Consolidation loan @ 14%=$9800
Student loans @ 6.8% (thanks for raising that RIGHT before I got out of school, Congress)
$13,300
11,600
9800
8250x2
Student loans @ 7.9%
4453
min consolidation payment=$271 & min student loan payment total=$234 (reduced payment forbearance to focus on paying down the consolidation loan--was supposed to still cover interest but the guy apparently lied or didn't know what he was doing.)

I work two jobs, neither of which pay fantastically (libraries are awesome but broke), my car is paid off, I live with a roommate, don't have cable, and have been doing a lot of the things MMM recommends for several years (kinda proud of that). I always manage to have something extra to toss at my loans (20-60/month, depending on how many hours I can fit in at my second job each month), and I've been putting it all into the consolidation loan because it's the highest interest rate.

Conundrum: I've noticed that since I've backed off on my student loans (still dropping an extra $10-20 on them for my own mental health) I've paid $1300 on them in the last 6 months and less than $20 of that has gone to the principal. I'm working my ass off and my loan balance is actually starting to creep UP and it makes me want to hurt someone. On the other hand, my consolidation loan is moving steadily downward, which is the consolation here.

So here's my question for people who are better at math than me: should I keep focusing on the consolidation loan with the higher interest rate or move my focus to the loan (s) that accrue the largest amount of interest each month? I have no idea how to figure out which of those is better. My goal is to pay the least total interest possible over the terms of my loans.
Title: Re: Prioritizing debt repayment
Post by: rmendpara on May 30, 2014, 11:39:27 PM
The only way your balance increases is if you are paying less than the minimum payment and are accruing interest/penalties.

Regardless, you have $57k in total debt. How much do you earn right now?

Can you post a detailed budget to show where your income is going now? That may help me/others be more specific.
Title: Re: Prioritizing debt repayment
Post by: pthomasson88 on May 31, 2014, 06:56:54 AM
I agree with rmendpara....pigs do get slaughtered, oh, and you need a budget (YNAB). If you are making all your min payments, I don't understand how a balance could be increasing.

First things first, have you cut your expenses as far as possible? In your debt crisis you have to really get serious about spending reduction.

For debt repayment, I prefer the "debt snowball" method of Dave Ramsey fame. I could give you a quick explanation but you have been to grad school so you no doubt can find puh-lenty of info about how to do that. I've used this method with great success.
Title: Re: Prioritizing debt repayment
Post by: arebelspy on June 06, 2014, 10:40:50 PM
Conundrum: I've noticed that since I've backed off on my student loans (still dropping an extra $10-20 on them for my own mental health) I've paid $1300 on them in the last 6 months and less than $20 of that has gone to the principal.

You need to figure out why that is the case - it shouldn't be, at all.

Find out what is going on with that loan, and why it would be increasing if you've been paying what you're supposed to and even a little extra.  Then you can determine what to prioritize.