by Adam Dawson
We spent the first 3 years knocking out our smaller debts and our undergraduate student loans. We now have a plan in place to tackle the rest of the debt – my graduate school loans, in the next 4 years, with the last payment scheduled for my 35th birthday in July 2017.
Here is a breakdown of our remaining debt.
| Adam Direct Loan #1 | $5343 |
| Adam Direct Loan #2 | $6734 |
| Adam Direct Loan #3 | $10,060 |
| Adam Direct Loan #4 | $10,702 |
| Citi Graduate Loan | $38,310 |
| Discover Student Loan | $40,884 |
| Total – July 2013 | $112,033 |
We use the snowball method, so we’ll more or less knock these out in the order listed. The Discover loan is at a much higher interest rate than the others so we may attack that one before the Citi one since the balances aren’t that much different.
You may be wondering why we paid off a couple larger balance loans prior to these small Direct Loans. The reason for that is because the Direct Loans were always presented as one large balance until they revamped their website recently. When we arrived at this loan in the payoff, I found out you could split them up into individual loans. and apply payments to each loan separately. I don’t know if splitting them will hurt or help the payoff schedule – but as we learned from Dave Ramsey (and found to be definitely true in our case), debt payoff is only a little bit about math and mostly about behavior/emotion. So at this point in our loooong 7-year journey, it feels nice to have a couple smaller debts to attack. Keeping us motivated.
Another factor is also at play here. I tend to keep a “SHTF” index in my head along with tracking the debt balances. I won’t spell out the acronym, but the idea is that if I lose my job suddenly, or I meet an untimely demise, or some other financial disaster happens, I am trying to arrange our finances so that we can recover quickly, and that Emily is taken care of if I am suddenly out of the picture. So we paid off our cars, and her debts first. My creditors will undoubtedly come after her if I exit, stage death, but she knows she’s not obligated to pay them. We own our cars, and if we have to defer student loan payments for a while due to job loss or some other factor, it will kill our credit, but we won’t be without transportation.
To make my goal of paying off grad school by my 35th birthday, a very aggressive payment schedule was needed. Basically, we need to consistently make our snowball payment, as well as an additional $7500 each year for the 7 year schedule. My last job paid a bonus in the spring time, so we’ve been keeping up with the $7500 by using my bonus + tax returns + one of the 2 “extra” paychecks each year. In my new job, I got a nice raise, and bonuses are paid quarterly. So instead of a big $7500 payment each year, we added $625 monthly from our increased salary, with the idea that we can finally keep the bonuses and extra checks for other needs like car repairs, house maintenance, and maybe even a vacation every now and then. Because I switched jobs early this year and we bought a house, we didn’t make this year’s $7500 payment. So for the next 6 to 9 months, these little bonus and paycheck extras will mostly be needed to get caught up on our schedule. Then we’ll need to plan how to use those little extras when we have them to ourselves again 🙂
Direct Loans may be the devil…. Just kidding (kind of). I thankfully only took out about $5,000 from them for college which will be paid off very soon! I’ve had so many issues with them, their website and needing a ‘pin’ number. I’ll be so glad to say goodbye to them forever!
I really liked your idea about paying of the car and such first incase something happens. I’ve never thought of it like that and I’m now reconsidering the order I pay things. If I die, my Salliemae loan will be forgiven, so it may be better
to pay off our credit cards first. Definitely something to think about!
Very smart of you to factor in how to manage all the payments if you die or the two of you suffer some sort of financial disaster. And paying off the cars makes sense in terms of being able to remain employed. You can’t pay your loans if you don’t have an income!
I took a similar approach when I bought my car a year and a half ago. I had enough cash to pay for the car outright, or I could get a loan at a super low rate and invest the cash. I opted for buying it outright. In the long run I would be ahead investing the money at a higher return than the loan IF I didn’t lose my job and could always make the payments. For me the peace of mind not having to worry about a car payment if I got laid off was worth the loss of investment earnings.
Good plan! Looking forward to seeing you execute it.
We’re paying off $11,000 in car debt and $40,000 in student loan debt while paying cash for my graduate school. Sometime these big numbers seem impossible, but having a plan helps.
wow. cash for grad school, i’m very impressed. great decision. go for it!
I am interested in your Direct Loan strategy. Are you saying that you can pay toward these loans individually? My statement comes through with three loans listed and then asks for one payment. I assume your statement is the same.
If you were to pay off one or two of the smaller loans, would that reduce your monthly payment requirement? I would love to do that … our monthly payment is awful.
Hi Susan! I don’t get a paper statement, only online at myedaccount.com or whatever. Yes, it requests one payment. I had 4 loans that were bundled into 2 “groups.” I could apply extra payments to a group, but couldn’t figure out how to apply extra payments to an individual loan. I called them and they told me I could re-group my loans so that I could have one loan in each group, so I did that. This changed my monthly payment only a slight amount (rounding errors), but it now allows me to pay off the loans individually. And YES, if I pay off one of the loans, my minimum payment drops by that loan’s payment amount.
So yes, I’d say just call their customer service and ask them how to do it. good luck!
Wow, you guys are an incredible inspiration to me! I have been reading this blog since the very first blogger, several years now, and only Beks talked about her student loans. I have a deep, dark secret to confess and reading your post has helped me with dealing with MY student loans. And the student loans that my father took out for me, had me sign the promissory note and he kept the money. Which I did not know until years later when my dad died and NYS Higher Education Loans tracked me down and requested payment, or else…Luckily, I had the money at the time from working many years in a fantastic well paying job and could pay those off and negotiate down the interest. (BTW – I wanted to “kill” my father for doing such a stupid thing, but alas…I just had to be angry, and then forgive him for whatever his reasons)
But then I did the stupid tax thing – a few years ago I pursued my dream of teaching and went to a post-bac education and then Masters degree program and took out, yikes, Direct Student Loans! Stupid, not jobs hiring teachers with the economy and no jobs period. I, too, have over $40,000 in student loan debt and I have been an ostrich with the head in the sand about this. Avoidance behavior.
So thank you for giving me the courage to get this stupid tax thing done and addressing the issue of student loans!
Wow, thank you for sharing this! I totally understand the ostrich behavior – as you’ll see when we start to talk about our budgeting. I’m so glad you’ve been encouraged to try to deal with the debt. The longer this goes for us, the more radically opposed I become to the whole practice of higher education finance and student loans. There are millions of people like you and us. But you can do it!
So now that it’s out in the open – what’s your plan?! Time to start moving forward!
Two questions: What are the four direct loans for? Then, is the fact that student loan interest can be deductible a factor in your loan repayment plan? Anyway, good job, am a new fan of Blogging Away Debt
The Direct Loans were student loans I took for my graduate school. The interest is deductible, but trust me that I pay way more interest than I can deduct! 🙂
Looks like you have a very solid plan in place that’s working! I also agree with the smart move on paying off those cars/consumer debt first.
I’m interested to know what your job is and if it was truly worth $100K + in student loans. That amount is just staggering to me unless you studied to become a doctor, rocket scientist, etc. I don’t mean to sound harsh, but when someone spends that much on an education, do they ever think about how long it will take to pay back and how long it will be before they can enjoy the benefits of a high-paying career?
Cathy,
great questions. The truth is, I was 24 when I started thinking about business school. 25 when I applied. So even if I thought about the loan burden, I was too young and stupid to fully appreciate it – also remember that this was 2007/2008 time frame. Free love! Money for everyone! 2% interest! It was a different world back then. But no, I don’t think I fully appreciated the burden. I see articles almost daily talking about young people delaying adult decisions like marriage, children, buying houses, due to student loans.
On the other hand, I more than doubled my income by going to business school. Some of my colleagues didn’t have the same jump, but the ROI for me was certainly there. I currently work in what I’ll call a management/professional job at a technology company. I make what I’d say is a “good” income. But the student loans certainly reduce our standard of living.
It sounds like it was a decent decision with that much of a jump in salary. I didn’t mean to sound judgmental, just curious if it was worth it in the end. Even if it does take you 5 years to pay off, you’ll still be in a better position than most 35 yo’s these days. Hang in there and keep following a plan that works for you.
Your numbers look okay, but I have to admit, I’m thinking your payoff plan is too slow. With both of you working full time and no kids, how come its going to take you 4 years? Even without seeing your budget and without knowing your salaries, I’m thinking you can knock this out in 2 years. You stated you doubled your salary by getting your Masters, so I know you aren’t making 20K a year.
I need to see how your budget looks before I’m convinced you can’t do this any faster. If you take no trips and cut like crazy I bet you can be rid of it in 24 months.
We have 5 kids, make just over 70K and have paid off nearly 45K in 2 years. I know it can be done.
Not trying to be a downer – you have obviously made great progress – it just looks like you’re dragging your feet a bit.
WOW Emily saying she would not want to be in your shoes seemed like a slam but maybe not meant to be. I however totally am there with you and like you know that “our” situation is full of things money just cant buy :o) Kudos to you and your 5 little ones!!!..we too make roughly what you do and have 6 kids..tackling debt is hard but I will admit and bet you would too that I’d rather be with my 6 kids anytime! My kids may not have all the latest and greatest but they know what’s important…family and love— something no amount of money can buy!
I do admire anyone who wants to get out of debt and we are slowing climbing out after several job losses and 2 adoptions from China including one who is SN…its hard but I am determined! But it dos seem like if they have no kids and are both making what they seem to indicate it should be done sooner . However like Emily said priorites come into play perhaps they eat out often or take trips..something those of us with families may opt to not do. Kudos to everyone here for trying!
Emily and I talked about this – it definitely was not a slam. We’re amazed at what you’re (both) doing.
I figured it probably wasn’t :o) I am amazed at home many would not trade places with us though LOL! I cant imagine being anywhere else :o) I do enjoy your blog and refer to it when I need motivation! In Dec we will have the final car paid off …that will be an awesome xmas present :o) Have not started to tackle the Direct Loans we took out to help our one daughter in college (sadly she is an education major ..sure hoping job situation changes when she is done in 1.5 yrs!) She will have between 20K-30K herself and then we will have some as well we took out to help her..I am hoping to start paying toward that after Dec with money that will be there when car is paid in full :o)
Wow! I would not trade you places! Good job paying off your debt that quickly on that salary! It seems like we might have different priorities 🙂
No worries – I didn’t take it as a slam. In the same sense, I would never, ever want to go back to being without my kids let alone my hubby. I do not miss my career at all (and I had a very lucrative one). I love being home. Penny pinching and saving is like a game for me – I enjoy the challenge.