For anybody who isn't convinced about the wisdom of paying down the highest interest loans first, I present, my story:
November, 2012: Four student loans totaling ~$109,100. The highest interest rate loan was 8.25% (!!) and the lowest was $6.55%.
I also had about $6k of credit card debt accumulated over three years of law school in NYC.
The "most aggressive" automated plan offered by Great Lakes was a 10 year plan, so I signed up for that. It involved paying $1284/month, which I initially thought was pretty respectable. But then I started thinking about how much interest I'd be paying over the life of those loans. It came to something like
$40,000. I had only borrowed about $96k for law school, but the capitalized interest bumped what I owed a lot, so I was already on the hook for more than I had borrowed. Yuck.
In Jan, my fiancee showed me this website:
http://www.whatsthecost.com/snowball.aspxIt is amazing. I am mildly obsessed with it. It provides a clear illustration of how the "highest rate first" method works. By bringing down the weighted average interest rate, you can significantly increase the amount each payment contributes to reducing principal, which means you are done faster, and each payment you make works harder than the one before it. You decrease the amount you pay in interest every month. It's like magic. I love it. Mazzinator, I highly recommend checking it out. The other perk is that you can see how much sooner you'll be done if you bump up your payments even a little bit, which I find has motivated me to challenge myself: "Can I try another $400? Yeah, let's do it!" Like I said, i'm a little obsessed. I like to run different calculations when I am having a rough day at work and it helps me feel like the job is worth it.
I got serious around the same time as you did, Katie. I started by polishing off that credit card debt (some of which was at an appalling 18%) and then started tackling the loans in February. I put the two 6.55% loans on the lowest allowed payment plan, which totally freaked me out. I was barely staying ahead of the interest charges. But within five months, I had paid my first, $13,500 loan at 8.25% off
in full! Then, I turned to the second one - originally $29,061 at 7.65%. I've been working on it since June. The reason the it's called a snowball is that it picks up speed and power as it rolls downhill. My payments are going further and further every month.
I'm incredibly proud to say that I have paid just a few dollars shy of
$30,000 since November, 2012 (about $26k of the $30k has happened since February 1st.) and about 85% of that has gone to reducing my total principal.
I now owe
$83,461, down from $109,085, or a total reduction of
$25,624 in 9 months. I know I can do even better than this.
Katie, I am blown away by what an incredible job you are doing with your loans. I just read through your post history as you reduced them by about $10k in 6 months. Just amazing. Bravo. To all of the amazing posters on this thread, congratulations. I'm so impressed by your determination and follow through.
