I'm going to pay off my no interest loan first, of course...
September 1, 2011 10:47 AM Subscribe
Is it stupid to pay off my low interest private loan before my quite a bit higher government consolidated loans?
Hello there,
I got some awesome advice a while back about student loans here which probably saved me many thousands of dollars down the line. Looking for just a little more.
I have a Discover loan for approx $20k. By making a big payment before the end of my grace period (thanks mefi!) my payments on this loan went from $400ish per month to $141.34 with a 2.75% interest rate. (I paid off all the higher interest portion of this loan to get to that lower rate and then my payments were based on my remaining balance at the lower interest rate - pretty slick, if you are reading this and you are still in your grace period, beg whoever might give you some money now, because a lump now will save you so much more than a trickle later!)
Anyway, I also have two federal loans that I have consolidated into one. One is subsidized for $14,000 and one is non-subsidized for $16,000. My payment on this loan is $230.73. Both of these are at 6.375% interest.
I just started a new job and I'm making enough where I can definitely make more than the minimum payment. My parents have also offered to match some of my contribution (yes, they are pretty awesome).
My thought is that I'd like to have the private Discover loan payed off first, because if I want to go back to school or take some time off/a trip/etc, I could defer the federal loans, but not the private loans.
On the other hand, the interest is considerably different. Just describing the amount of money I have borrowed taxes my math abilities, so I'm not really sure the implications of paying off the lower interest loan first.
So, any thoughts of how I should attack this? If it's relevant, I have about $3k in the bank right now and no other savings of any kind. Which is no good either.
Thanks for your thoughts!
Hello there,
I got some awesome advice a while back about student loans here which probably saved me many thousands of dollars down the line. Looking for just a little more.
I have a Discover loan for approx $20k. By making a big payment before the end of my grace period (thanks mefi!) my payments on this loan went from $400ish per month to $141.34 with a 2.75% interest rate. (I paid off all the higher interest portion of this loan to get to that lower rate and then my payments were based on my remaining balance at the lower interest rate - pretty slick, if you are reading this and you are still in your grace period, beg whoever might give you some money now, because a lump now will save you so much more than a trickle later!)
Anyway, I also have two federal loans that I have consolidated into one. One is subsidized for $14,000 and one is non-subsidized for $16,000. My payment on this loan is $230.73. Both of these are at 6.375% interest.
I just started a new job and I'm making enough where I can definitely make more than the minimum payment. My parents have also offered to match some of my contribution (yes, they are pretty awesome).
My thought is that I'd like to have the private Discover loan payed off first, because if I want to go back to school or take some time off/a trip/etc, I could defer the federal loans, but not the private loans.
On the other hand, the interest is considerably different. Just describing the amount of money I have borrowed taxes my math abilities, so I'm not really sure the implications of paying off the lower interest loan first.
So, any thoughts of how I should attack this? If it's relevant, I have about $3k in the bank right now and no other savings of any kind. Which is no good either.
Thanks for your thoughts!
The traditional wisdom given for any debts is to pay off higher interest balances first, because interest is basically wasted money for the borrower, and you want to pay as little of it as possible.
However, I've recently heard about the Debt Snowball Method as another way to get out of debt, and given that you can defer federal loans, it may be a better idea for you to pay off the private loan first (since you can't defer it).
posted by tckma at 10:57 AM on September 1, 2011
However, I've recently heard about the Debt Snowball Method as another way to get out of debt, and given that you can defer federal loans, it may be a better idea for you to pay off the private loan first (since you can't defer it).
posted by tckma at 10:57 AM on September 1, 2011
While I agree that federal student loans have more deferral/forbearance options than private non-student loans, I would pay off the high interest fed loan first. It's a large difference in interest rates, meaning at a very basic level, that you will be able to pay off more of your debt principal before deciding to go back to school, travel, etc. than you would have if you paid off the Discover loan first. Also, while not an ideal option, if the Discover loan is a standard private loan, it should be dischargeable in bankruptcy while your federal loans generally are not.
posted by melissasaurus at 11:12 AM on September 1, 2011 [1 favorite]
posted by melissasaurus at 11:12 AM on September 1, 2011 [1 favorite]
Increase your lowest payment. Pay it off. Use that money on the higher payment debt.
posted by blue_beetle at 11:13 AM on September 1, 2011
posted by blue_beetle at 11:13 AM on September 1, 2011
Also, while not an ideal option, if the Discover loan is a standard private loan, it should be dischargeable in bankruptcy while your federal loans generally are not.
Private vs government has no distinction here, student loans are not dischargable.
posted by T.D. Strange at 11:22 AM on September 1, 2011 [1 favorite]
Private vs government has no distinction here, student loans are not dischargable.
posted by T.D. Strange at 11:22 AM on September 1, 2011 [1 favorite]
It's impossible to do the exact calculations without knowing how much extra money per month you could pay. Can you estimate?
posted by Tell Me No Lies at 1:01 PM on September 1, 2011
posted by Tell Me No Lies at 1:01 PM on September 1, 2011
Also, while not an ideal option, if the Discover loan is a standard private loan, it should be dischargeable in bankruptcy while your federal loans generally are not.
Private vs government has no distinction here, student loans are not dischargable.
Just to clarify, what I meant is that if the Discover loan is not a student loan, but rather a standard personal loan, it should not be subject to the same bankruptcy restrictions as public and private student loans. But, on re-reading the question, it appears that this loan was used to pay for qualified higher education expenses, so it would be subject to the restrictions. Didn't mean to confuse/mislead anyone.
posted by melissasaurus at 12:36 PM on September 2, 2011
Private vs government has no distinction here, student loans are not dischargable.
Just to clarify, what I meant is that if the Discover loan is not a student loan, but rather a standard personal loan, it should not be subject to the same bankruptcy restrictions as public and private student loans. But, on re-reading the question, it appears that this loan was used to pay for qualified higher education expenses, so it would be subject to the restrictions. Didn't mean to confuse/mislead anyone.
posted by melissasaurus at 12:36 PM on September 2, 2011
Response by poster: Someone sent me a mefimail regarding the trick I mentioned above about getting my loan payments down.
My Discover Loan had three different tiers of interest layered in it. There was $10k @ 8% interest and I think another $1k at 6% or something thereabouts, and then $30k at 2.75%. I think my payments were going to be around $500 a month on that loan, which was going to crush me.
I talked to the company that was managing the loan. The woman said that if I paid the $11k off before the end of my grace period, my loan payments would be calculated on the balance and interest of my remaining loan, not what I had originally taken out.
My parents had been mentioning that they would be inclined to help me a bit each month with my loans. I told them that rather than giving me a trickle over the next decade, if they could give me a lump up front, it would save me a lot of money and loan angst. So between the two of us we came up with $11k and made a lump payment.
This brought my payment down to the $141 a month I have now. It's a huge, huge difference in my life as far as how much money I have day to day.
Summary: Try to pay off as much of the high interest loans you have before your grace period, any money you can scrape together at this time is going to save you massively down the road.
posted by sully75 at 5:28 AM on September 3, 2011 [1 favorite]
My Discover Loan had three different tiers of interest layered in it. There was $10k @ 8% interest and I think another $1k at 6% or something thereabouts, and then $30k at 2.75%. I think my payments were going to be around $500 a month on that loan, which was going to crush me.
I talked to the company that was managing the loan. The woman said that if I paid the $11k off before the end of my grace period, my loan payments would be calculated on the balance and interest of my remaining loan, not what I had originally taken out.
My parents had been mentioning that they would be inclined to help me a bit each month with my loans. I told them that rather than giving me a trickle over the next decade, if they could give me a lump up front, it would save me a lot of money and loan angst. So between the two of us we came up with $11k and made a lump payment.
This brought my payment down to the $141 a month I have now. It's a huge, huge difference in my life as far as how much money I have day to day.
Summary: Try to pay off as much of the high interest loans you have before your grace period, any money you can scrape together at this time is going to save you massively down the road.
posted by sully75 at 5:28 AM on September 3, 2011 [1 favorite]
This thread is closed to new comments.
Pay the private loan more quickly, if you can.
posted by xingcat at 10:50 AM on September 1, 2011 [1 favorite]