Wednesday, July 11, 2018

Goal #1: Pay Off My Student Loans

I could consider myself lucky that my only debt is my ~$17,000 student loan. I'm careful with credit cards and never carry a balance. I don't take out loans. I don't have car payments (or a car). I don't have a mortgage (or a house). And my student loans could have been a lot worse if I didn't have that partial fee waiver due to my dad being a veteran. Even if it did disqualify me from accepting scholarships and grants. If I'm careful with my spending, I can pay this thing off relatively soon.

When I first graduated, I was making the minimum payment for a couple of years despite being unemployed for most of that time. Then I wised up and applied for an Income Driven Repayment Plan. Since I was unemployed (after working a seasonal job), my minimum payment dropped from $200 to $0. That's what I've been paying for the past three years: zero. I haven't been unemployed for three years. In fact, I've been working for most of this period, but my income has kept me at the $0 payment.

That might change in September though. I've just resubmitted the forms for the IDRP, and now it's a matter of waiting to see what my new minimum payment will be. My income did increase last year, since I was at my current job for the entire year, rather than split between my old even worse paying job ($10.50/hr, random hours) and my current one ($14.42/hr, 25 hrs/week). My payment might stay at $0, or it might go up. I'm fairly certain that if it doesn't go up this year, it will next year since now I'm making $14.85/hr and working 40 hours per week.

Either way, this loan has been sitting unpaid for years but it's still accruing interest! Yikes! At the time, I thought I had it good by saving myself $200 per month. But I've been adding an additional who knows how much in interest by paying nothing (I told you guys I had no finance knowledge prior to this month). I need to start paying something on it in order to save myself a chunk of that interest! That money could be going toward my early retirement fund!

Depending on the results of my IDRP application, I have two plans of action. They may not be the most efficient plans, but I'm working with limited means here.

Plan #1: Make more than the minimum payment.
Obviously, this is if my payment gets raised above $0 (I know I can still make payments if it stays at $0, but that's where Plan #2 comes in.). What I'll pay will depend on what the payment is and how much I'm saving. I'm not using concrete numbers here, because I don't have them yet. I'll update that in a future post when I actually put a plan into action. But in addition to making more than the minimum payment, I'll be scheduling automatic payments, since that saves me 5% off the principal. If I can also put the payments on my Rewards Visa (and pay it off immediately!), I'll get another 1% cash back, so why not?

Plan #2: Save, save, save! Then throw large chunks of money at it!
If my minimum payment stays at $0, I'll just save as much as I can each month and then make larger payments based on what I'm saving later. Again, I'll put the payments on my Rewards Visa to get that 1% return. But now I'm missing out on that 5% savings from automatic payments.

This is where I struggle a bit. Plan #1 and #2 are essentially the same since I'd be paying more than I'm required to. It's just a matter of when I'm paying. I either pay monthly and consistently pay it down, and save 5%. Or I keep paying nothing until I save enough to pay down a large portion of the overall loan. Once I have the actual numbers, I'll run some calculations to see what makes the most sense.

I could even make a $6000 payment right now, since I have it in my savings. I feel like that would be the most efficient plan, but it's also the most scary. I'd have no savings! And it would take me around 15 months, spending none of my take home pay, to earn it back! Although you could argue that I have no savings anyway, since my debt far outweighs what I have in my bank account. But I feel more secure keeping my savings in tact. At least for now.

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