I currently have $80k in debt.
$40k in Student loans ($35k 4.375%) ($5K 5.00%)
– Roughly $280 a month
$25k Army Career Starter Loan through NFCU (2.99%)
– $370 a month
$14k Used auto loan through NFCU (5.49%)
– $300 a month
So total around $950 a month will be going towards loans.
Typically I would put extra $50 towards each but someone said that the extra $50 I put towards each should just go into one to pay one loan off faster and pay the minimum on the others until one loan is fully paid off. So instead just pay an extra $150 towards one and the minimum on the rest. What do you guys think is the best way to handle this debt?
There are two commonly suggested methods. First is to put all the extra towards the smallest loans first, so you can get rid of them faster, then putting the entire minimum/extra of that loan towards the next smallest. This is the most satisfying as progress is pretty fast and visible. This is called “Snowball”.
The other option is to put all the extra toward the loan with the highest interest, then do the same when that’s paid off (all the minimum and extra towards the next highest loan). This is the most economical as you’re paying less interest, but might be harder to feel the progress. This is called “Avalanche”.
Either way, yes you should focus on one debt at a time while paying the minimum on the rest.
follow the flow chart in the prime directive
Considering the interest rates and amounts of each, I personally would put all extra towards the 5k loan first. It’s the smallest loan so you’ll feel some satisfaction and motivation when you pay it off, and it’s one of the highest interest. Then go by interest rate and put the extra towards the 14k loan, then the student loans, and finally the 25k loan.
I got downvoted on another thread yesterday for saying this (hahaha), but with the possibility (or even likelihood) of some student loan forgiveness in the next few years, I wouldn’t pay a dime more on that than you have to. I’m ambivalent to the topic, personally, but if I had *any* loan that the lender was considering changing the terms on in my favor, I wouldn’t do anything more than the minimum in the interim and would focus on addressing other debt.
Since you have a variety of loans and rates, a tool like https://undebt.it could help model out scenarios how your extra payments would factor over time. Also helps you calculate when the debts would be paid off which can be helpful in realizing the payments have a end date (assuming no new debts)
If you are able to I’d put more than an extra $50 towards each (as much as you can afford). Paying off a debt with 5.5% interest will save you a lot more than putting the money in a bank account.
Personally I’d pay the debt with the highest interest rate first. This happens to be your smallest debt to, so put it all in on the car!
The car loan has the highest interest rate, so prioritize paying that off first, while making the minimum payments on the other two.
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