Now that you’ve learned a little more about me and where my debt comes from, I figured I’d share my strategy on how I plan to pay these debts off as soon as I can and by paying the least amount of interest possible. First thing’s first, the infamous car loan.
I currently owe $8,576.55 on my car with a ridiculous interest rate of about 15.59%.
My Method of Repayment
Since my car note has the highest interest rate I plan to pay it off before all of my student loans to avoid paying thousands of dollars in interest over the course of my loan term.
I’m paying about $70 dollars extra each month in addition to the minimum payment. While this isn’t a crazy good amount every little bit counts and I’m already seeing a lot of progress by doing this.
I like that fact that my loan provider doesn’t charge interest on extra monthly payments after I’ve paid the minimum on my car note. I take advantage of this by making double payments whenever I receive any extra income like work bonuses. I’m determined to pay off my car quickly and never finance another vehicle again.
If I stick to my method and remain determined to reach this goal I should have my car paid off by early 2016! Once that is out of the way I plan to lower my auto insurance rate (since I will no longer be required to have a specific type of car insurance for a financed vehicle) and use the extra money to tack on to my student loan payments.
Now for these darn student loans. I’m lucky to have only taken Federal loans out during college with fairly low-interest rates. No Sallie Mae over here!
Type | Amount | Interest Rate |
---|---|---|
Subsidized (L1) | $8,345.00 | 3.4% |
Subsidized (L2) | $5,500.00 | 3.86% |
Subsidized (L3) | $3,500.00 | 4.5% |
Unsubsidized (L4) | $2,500.00 | 3.86% |
Unsubsidized (L5) | $1,000.00 | 6.8% |
Total: $20,845.00
The way my loans are set up make utilizing Dave Ramsey’s debt snowball method seem ideal. My loans with the lowest principal amount also have the highest interest rates so paying them off in the order would be a great and effective strategy right? Well for me there’s only one problem.
The monster loan as I call it, also known as L1, does have the lowest interest rate but if I leave it untouched it will earn around $283.73 each year interest alone. Compare that to L5, my loan with the highest interest rate, that if left untouched would earn me around $68 per year.
Related: Debt Mindset Series: Paying Off Student Loans For a Chance at a Better Life
My Method of Repayment
After talking to my loan provider and learning that my student loans are earning about $1.50 in interest each day, I knew I had to get somewhat aggressive with my repayment strategy. So with a minimum monthly payment of $140, I plan to pay extra to pay off the interest that generates each month so more money will go toward my principal balance.
I am starting with my two unsubsidized loans, L4 and L5. I should be able to pay off these rather quickly since I plan to take $1,000 from my tax return next year and put it toward my principal balance. Next, I plan to tackle the monster, L1 and save myself from having to pay some unnecessary interest. Then I will take care of L3 and L2.
Paying off almost $21,000 in Federal loans is definitely going to be an uphill battle but once I pay off my car that will free up even more money to help tackle these loans. If I stick to my budget, increase my income, and make each dollar I earn work for me, I should be able to banish these loans for good in 3 or 4 years.
Related: Reflections on Paying Off My Student Loans In Less Than 3 Years
Do you still have student loan debt or have you paid it off already? How did you pay it off or how are you currently paying it off?
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Michelle says
Good luck paying off your debt! That is definitely a monster interest rate on your car loan 🙁
Chonce says
Thanks Michelle! Yes that car note has to go and never ever again haha. That’s a main focus right now.
kay ~ lifestylevoices.com says
I know I’m not supposed to say this because it’s not really PF-worthy, but I really hope and pray you come into a giant windfall so you can just wipe all that debt away in one fell swoop! Please forgive me everyone, but I really want this for Chonce! 🙂
Chonce says
That would be awesome Kay! I do win a lot of raffles but other than that I’m not that lucky when it comes to running into money and other freebees 🙂 But if I stick to my plan the car loan will be gone in one more year (I bet it will fly by) then I’ll kiss the loans goodbye too
Sarah says
Yikes! I still have student loans that we painfully, slowly, paying off. Unfortunately there are other debts that are our priority before the loans get paid off, as they have the lowest interest rates.
Chonce says
Student loans generally have lower interest rates than other types of loans and it’s definitely smarter to pay off your high interest debt first in my opinion. Good luck Sarah!
Petrish @ Debt Free Martini says
I think you need to attack that car loan with all your might. You don’t need that in your life at all. The important step is having a plan and sticking to it. I wish you the best of luck.
Chonce says
Thank you Petrish. I’m really working hard to get rid of it, every little bit counts. The car loan is a first and last experience for me hopefully
Brooke @PFTwins says
Yeesh! That is a terrible interest rate on your car loan. I hope your work bonus and raise can go straight to this monster of a loan and knock it out.
Chonce says
That’s the plan. This car loan has to go!
Tennille says
It sounds like you have a great plan in place. My husband and I are fallowing the Dave Ramsey plan and have a goal of being debt free in 5 years (July 4, 2019).
Chonce says
That’s awesome! I find that just sticking to your plan, whatever it may be, no matter what will allow some great progress to kick in. Good luck on your debt repayment journey and I’m hoping we can inspire each other along they way 🙂
anumyoon says
Good luck with the car payment! I think that 70 dollars extra is a great plan because it allows you to be consistent with it in the long term. I wish you the best, Chonce!
Chonce says
Thank you! I’m trying to increase my extra payments on my car note so hopefully I can get rid of it once and for all this year. That’s the plan at least. Thanks for stopping by!
penniestooprosperity says
I am on the same journey to paying my student loan off (I would love to have the amount you have in student loan debt!). Good luck to you. Every little bit helps and following Dave Ramsey is a smart choice as well.
Chonce says
Thanks!
Shirria McCullough says
I have over 100K in student loan debt from seeking a Bachelor and Master Degree in SW! Although I could potentially match my loan debt in income, it would result in me working 80 hours or more per week and neglecting my family. Fortunately in NC, my student loan debt can be forgiven after 120 payments. Either way, I definitely feel the struggle. Good Luck!
Choncé says
It’s all about balance and doing what you can with what you have. Good luck to you as well and thanks for stopping by!
MB @ Millennial Boss says
Good luck! I only have $1,000 or so left in student loans from around $25k and I’m keeping it on purpose for my credit score (it’s my oldest account in my credit history and low interest rate so I don’t want to close it). I paid off the $24k by throwing alot of money at my loans when I lived at home, optimizing my taxes so I could get the greatest refund, and then working for a job with a bonus which is like a forced savings plan. Good luck! I also have a car loan so I feel your pain with that. Ugh!
Choncé says
That’s impressive how much student loan debt you’ve been able to pay off by changing your financial habits. Student loans will be a big focus fr me this year because I haven’t really been paying much attention to them.
Phoenix Amor says
maybe you already paid it off…but have you ever thought of refinancing your vehicle with a credit union for a lower rate?
Choncé says
I did pay if off already last year and I did think about that option. My husband financed his car with a credit union and got a much lower rate than mine plus his credit wasn’t as good as mine so I was super jealous. You live and you learn!