Hi everyone,
I am seeking the feedback of the group on the priority of repayment of my various debts. I recently paid off a credit card debt and wish to apply the funds formerly allocated to pay off the card to the payment of another debt. I would like to get the feedback of the forum on which loan to double down on. Here is my scenario:
• I am married with 2 children, ages 18 months and 7 years. Both are in daycare.
• I make $60,000 per year working for a nonprofit.
• My wife makes $70,000 per year. She has a $400,000 mortgage on our house.
• We handle our finances pretty separately.
• I owe about $26,500 in Federal Direct Student Loans. I pay 5.75%. The debts are not dischargeable in bankruptcy so I am motivated to pay those down quickly. If I switch to a different payment plan (requiring $70 per month in additional monthly payments), in 2024 I could probably get $1,000 or so of the loan discharged.*
• I owe $6,300 on a credit card at 3% fixed interest.
• I owe $4,500 on ACS private student loans. The rate is 3% variable. I am pretty sure I cannot discharge these loans in bankruptcy.
• I owe $1,100 on a savers loan to DW. The rate is 4% variable.
I can see different reasons to prioritize the various loans:
• Paying off the spouse loan early would be a good faith gesture to DW. It is also the smallest loan and would allow a sense of momentum through a relatively rapid payoff.
• Paying down the federal loans student lines me up for loan forgiveness. It also gets rid of my only debts that I cannot discharge in bankruptcy. (This is not a goal of ours. However, our finances are shaky so this is worth considering).
• Paying down the private student loans would be relatively quick and build momentum to pay down other loans. They likely would be a problem if we faced bankruptcy.
So what do you all recommend? Thanks! Happy holidays!
*I am eligible for the Public Service Loan Forgiveness Program