Which student loan(s) should I pay off next? (Vote!)

I know, I know. I’m supposed to be focused on saving. Listen, I told you who I am at the very top of this blog: “Climbing out of $130,000.00 of student loan debt, one obsessive post at a time.” It’s not my fault if you didn’t listen…er read. (Note: It took me many years to learn the life lesson that you need to listen to people when they tell you who they are and not who you imagine or want them to be).

So I haven’t changed my immediate goal. My immediate goal is still increasing my emergency fund to $5000.00 by the end of the year, which represents about three (3) months worth of fixed expenses, INCLUDING my minimum student loan payments. (Note: Some of my student loans, such as my university loans discussed below, can be very easily deferred due to hardship, which would allow this money to stretch a bit further). However, the process for saving is pretty simple. There is no real strategy required and on the first of the month (and on the biweekly pay cycle for my side gig), I just need to transfer money into my savings account. Pretty simple. Pretty boring.

So, my mental energy has instead turned to which student loan(s) should I pay off next? This turn in mental energy is helping me to stay motivated while saving and probably results from the fact that my income has increased since taking on the part-time job and will increase a bit again on October 1st. I will discuss these increases later this month in an income update when I will have a month’s worth of paychecks from the part-time gig and my October pay stub. Unless I move this increase to savings (like retirement savings…but that is another post) I could very well reach my $5000.00 goal early and could possibly return to debt repayment this year. I know!

I have decided that in 2021, I would like to pay off at least $20,000.00 in student loans. This would bring me to the mid 90s and probably allow me to qualify for a traditional refinance. So my question should actually be, which two student loans should I pay off next?

University Student Loans

I broke down my student loan debt pretty extensively in the aptly titled post, “The Breakdown.” But a Cliff notes version is: my university loans are held by my Alma mater (they are the lender and the servicer) and while they have terrible FIXED interest rates, the university is very generous with its deferment/hardship policies, which are periods in which no interest accrues. These loans are also forgiven in the instance of death or permanent disability.

So if you review my most recent debt update, you can see that these four loans have a mix of interest rates. Using this NerdWallet Weighted Average Interest Rate for Student Loan Consolidation calculator, I determined that collectively, my four university student loans represent the following:

Yuk. Generous repayment terms aside, that interest rate is atrocious and that monthly payment is nothing to sneeze at.

Private Student Loan 3

I hate this loan. It’s one of those loans that I have already paid back far more than the original balance, the interest rate is atrocious and the balance is gross.

Private Student Loan 3-$11,628.07$153.826.670%

Even in this environment of pretty low interest rates, the variable interest rate on this loan is still 6.670%. At peak times, this interest rate has been over 9%. Ugh. It is serviced by the same student loan servicer as Private Student Loan 4. I have exhausted the hardship/deferment/forbearance on this loan which means it sticks around in the event I lose my job or suffer other financial hardship.

Private Student Loan 4

This is the first private student loan I ever took out. It is serviced by the same servicer as Private Student Loan 3. It was prior to the 2008 recession and has a decent interest rate but a very significant minimum payment. In fact, outside of my rent payment, this is the largest payment I make each month. As of my student loan update on September 1st:

Private Student Loan 4-$10,854.06$245.403.875%

While this loan has a variable interest rate, the rate has never quite reached 6%. Using the Dave Ramsey method of paying off debts smallest to largest OR the avalanche method of paying of highest interest to lowest interest rate debts, this loan wouldn’t be on my radar. However, the minimum payment on this student loan represents a significant amount of cash-flow each month and if I were able to knock-it-out, it would really help me gain some traction on my debt repayment.

So, what should I actually do?

Blogiversary: Year 1

Excuse me while I put on a bit of Tony! Toni! Toné! and host a very low key celebration of my first blogiversary. This is a rough moment in many ways but I owe it to future Ms. Afro Penny, as well as to the sacrifices made by immediate past Ms. Afro Penny, to celebrate this milestone in debt repayment and keep chugging along.

I started this blog a year ago, on July 4th 2019 with the intention of documenting my student loan debt repayment journey. In my first debt post I shared that my current debt stood at: -$133,259.74; and, I set a payoff date December 9, 2025. So, a year later, am I any closer to my goals?

As of July 1, 2020, my debt stands at -$119,119.98. That is a reduction of $14,139.76. Yay! Not bad. Not…great. If I continued at a similar rate of repayment for the rest of my desired payoff term, I would not make my goal.

While it is my usual pattern to do a deep dive into the numbers and create new and elaborate plans for what the upcoming year will bring, I’m just not mentally there at this moment. Instead I will outline my list of five very moderate goals. 

Second Year Goals

1) Move my blog from Blogger to another platform and improve the overall appearance and readability.

2)  Post at least twice per month including a student loan balance update post on or about the first of the month.

3) Establish an alternative income stream bringing in at least $500.00 more each month.

4) Reduce student loan debt below $100,000.00.

5) Refinance student loans at more favorable interest rates.

That is it. I could be a lot more elaborate with my goals and do a much deeper dive as to the feasibility of any of these goals, and perhaps I will, but for the moment, this is it.
 

I hope this extended weekend finds you and your loved ones safe.

I know, I know…the last revision of 2020 Financial Goals

So last night I wrote my ah-ha post. The ah-ha moment is still true and I’m not taking anything back. However, this morning, while still obsessing over my debt, I found this awesome, free, ad-free, no sign-up How soon could I pay off my debts? calculator. This was obviously the absolute worst thing for a debt obsessive person like me to find. However, in the era of COVID-19 and Saturdays spent at home, it could obviously have been a lot worse.

The calculator is no-muss, no fuss and is great for someone with a lot of individuals lines of debt because it allows you to enter up to 20 creditors. To calculate a repayment plan, it ask for: the creditor, the balance, the minimum payment, the actual payment, and the interest rate. Additionally, you can enter how much additional you plan to pay each month and any on-time payments you expect to make (like a bonus or tax refund). Again, the absolute best and worst thing for a debt obsessive person to find. After entering in this information it spits out what your repayment would look like using a roll-over method of repayment (also referred to as the “snowball”), and you can have it compute the results based on paying the debts in 1) lowest to highest balance, 2) highest to lowest interest rate, or 3) shortest to longest payoff period.

Other cool things: It also tells you how much you would have saved over the same period of time as your original payment plan if you invested the amount you would have paid (you can also adjust the interest rate and below I adjusted it to a very modest 2% savings rate). AND, while I have only included the tables below, it also produces a very awesome debt payoff calendar for each creditor so it shows you which month you will pay off each creditor.

Note: These payment plans assume a January 2021 start since I still plan to pay of PSL 1 and then save for a used car through the end of this year unless my income increases significantly. This means, the debt balance and repayment plan does not include PSL1 or my car lease/car payment but does include estimated minimum payments on my federal student loans which will resume in January 2021.

1) Lowest to Highest Balance

2) Highest to Lowest Interest Rate

3) Shortest to Longest Payoff Period

Unsurprisingly, the “Highest to Lowest” interest rate resulted in the greatest amount of savings in terms of both money and time saved. However, whereas with the “Lowest to Highest Balance” and “Shortest to Longest Payoff Period” eliminate creditors/loans in the very first month and then consistently every couple of months, it takes 11 months before the first debt is eliminated under the “Highest to Lowest” interest rate payoff plan. Ugh.

And just for fun, I calculated what my repayment plan would look like if I increased the extra payment each month up to $1500.00. For the sake of space here, I will only include the updated “Highest to Lowest Interest Rate” and “Lowest to Highest Balance” below.

1) Highest to Lowest Interest Rate

2) Lowest to Highest Balance

While the “Highest to Lowest Interest Rate” still results in the greatest amount of savings between the two methods, paying $1500.00 more each month still shaves off more than a year of repayment than if I am only paying an extra $1000.00 each month regardless of which method I choose…

I will admit to being torn. While I very much would like to stick to the most mathematically efficient way to pay off debt, I will admit that the “Lowest to Highest Balance” method does hold some appeal at this current moment when it has been almost a year since I had the psychological reinforcement of paying off a debt, and I still have three more months until I payoff the next one…

So…thoughts? Am I entirely nuts for finally for finally wanting to swallow the Ramsey kool-aid and go “Lowest to Highest Balance?”

The Ah-ha Moment – Revised 2020 Financial Goals

Yesterday, I received both the federal stimulus check (deposit) for $1200.00 and a $300.00 reimbursement check (deposit) from my employer. While I had already written a post about what I would do with the money when I received it (Note: I expected to receive it much, much later), as I sat there looking at my unusually flush mid-month bank balance, I began to obsessively review my debt repayment plan to make sure I was making the “right” decision. After some hemming and hawing, I put the entire $1500.00 towards Private Student Loan 1 (PSL1). With this payment, the Citi portion of PSL should be paid off of June 1st and the Discover portion of PSL1 should be paid off on August 1st.

While I sat on my couch filling out an application for a side-gig, I began to think about how my goals would need to be readjusted given that I wouldn’t be able to make the kind of money I had expected to make this summer from academic enrichment activities since University B, and the surrounding public school districts, announced that they would be cancelling in-person activities for the summer. As I began to do this, I also began to think about the upcoming months, through the end of the year, and what I could successfully achieve with respect to debt repayment. At some point, I was reminded that my car lease is ends in early January and that I need to either buy the lease out now ($12, 176.18), buy the lease at the end of the lease period in early January ($10, 282.50), or return the car at the end of the lease period and buy another vehicle.

Initially, I began Googling “Auto Loan Calculator” tools to figure out how much the car payment would be if I took out a loan for the amount of my vehicle. Of course it only made sense to buy my car at the end of my lease because it is a 2018 and will only have 32,000 miles on it and you can’t purchase a late model vehicle, with so few miles, for that price. However, at some point, while I was doing all of these calculations, I just stopped for a minute. I thought about exactly what I was doing. And then I went on the following internal rant to myself: 

No, YOU can’t purchase a late model vehicle, with so few miles, at that price because YOU can’t afford it. If you could afford it, you would be able to pay cash. But YOU can’t afford it. Which is why you are looking up auto loan calculators. You might as well be looking up $12,000.00 in additional debt calculators.

This was my ah-ha moment. The moment I realized that I will never be rid of debt if I always allow myself to justify borrowing money and if I don’t look at borrowing as adding debt to my already massive total. So, I came up with the following revised financial goals for the remainder of the year, assuming my income does not change:

1) Pay off PSL 1 on August 1st
2) Pay off University Student Loans 3 ($847.42) & 4 ($663.35) on September 1st Updated: Next day

3) Push the $60.00 minimum payments from USL3&4 to PSL3 Updated: Next day

4) Save $ to purchase a used vehicle at the end of the year (~$3,500.00)

I decided to payoff USL3&4 because their minimum payments are large in proportion to their balances. For example, PSL2 which has a balance $7,854.39, only has a minimum payment of $93.30 a month. Additionally, more of the current minimum payment for PSL3 goes to interest than to principal and as I would be pausing additional debt payments for the remainder of the year, I wanted to still be making some progress.  Updated: The very day after I wrote this…I know, I know.

I know that was a lot but…thoughts?

I really just want to end the debt cycle once and for all. That was an important moment and decision for me.

2020 Financial Goals

Image result for Happy New Year

It should come as a shock to absolutely no one that a self-professed procrastinator is getting her “2020 Financial Goals” post done in the waning minutes of New Year’s Day…

2020 Financial Goals

I have decided to be very concrete about my goals for this year.

1) Pay off Private Student Loan 1 ($8,600.00 remaining as of 1/1/2020) by the end of the promotional period.

This was originally a Discover Student Loan with an interest rate of 9.74% that I balance transferred to two separate credit cards using a 0% interest with a 3% balance transfer fee promotional offer. I blogged about the process here and the psychological reasons propelling me here.

2) Pay off  Private Student Loan 3 – The current balance on this loan as of 1/1/2020 is $8,001.38.

Paying off both of these debts by the end of the year is a bit aggressive. However, it also seems achievable given that I reduced my debt by more than $16,000.00 in 2019. If I am able to pay off both of these student loans, I will be down to three loan servicers and somehow that also seems like an achievement. I will also consider applying for a refinance at the end of the year. While I was unsuccessful the first time I applied, I believe my DTI (debt-to-income) will be much better and give me a better chance of being approved.

3) Start a small business AND generate an additional $500.00/month in income.

For some time I have been considering and writing about getting a side job. While I did find something in early September, ultimately, it wasn’t the best use of my time or gas and I only accepted one assignment. The more I have thought about it and researched, the more I am convinced that what I really need is my own business. I have a couple of ideas that I have been researching and discussing with some folks already in the business and while I am not planning to dive in, I would like to get something going by March.

And that’s really it. It may not seem like much but if I could successfully hit any and/or all of these goals, I will end this year in a significantly better financial position that I am in now.

And while it isn’t financial, I realized one of the reasons I didn’t write as much here is that I was ashamed when I wasn’t making as much progress as I wanted. In 2020, I’m gonna let that ish go, and…

2020 Blogging Goal: One (1) student loan balance post a month AND one update post a month.

I am committing to writing two blog posts a month. While that might not seem like much, it will help keep me accountable and force me to acknowledge when I’m not where I need to be and perhaps work through what needs to change.

Private Student Loan 1 and Revised, Revised Goals

So in a recent post, I shared that I used the balance transfer method to transfer my Private Student Loan 1 balance to two of my credit cards, using a 0% interest for 12 months, balance transfer offer. I initiated that process this past Saturday and as of this morning, Wednesday, August 7th, I have transferred the funds in full to my student loan lender (I intentionally did not use the words “paid off” here as I didn’t payoff anything, I just reorganized my debt).

Private Loan 1 Balance (Paid to Student Loan Lender): -$9,817,69
Discover Card Balance: -$3,450.50
Citi Card Balance: -$6,695.00
Private Loan 1 Balance (After transfer to credit cards): -$10,145.50

If you read my post, you know that $295.50 of the balance increase resulted from the balance transfer fees. However, if you subtract $295.50 from the new balance, you would notice that there is still a small difference of $32.31. That difference was an overestimation on my part. Unfortunately, unlike a lot of lenders which allow you to get a payoff estimate, my student loan lender did not and I didn’t do the math. Ugh.

In any instance, I will make very little progress on this loan this month because I used the leftover from my August 1st salary (which wasn’t a full salary because I didn’t start at the beginning of the month) to finish cash flowing my moving/settling expenses (seriously, moving from literally one side of the country to another is not cheap). While it is disappointing that I won’t make much more progress on my student loans this month than the minimums, I knew this was a possibility and I’m grateful not to have had to go into debt or touched my emergency fund (look C, I can find a bright-side too!). So onto the revised, revised goals…

August 2019 Goal – My goal this month is to cover the cost of the balance transfer fees and, add the difference mentioned above, so that my balance on September 1st is the same or lower than the balance on August 1st. On September 1st, when I get my first full paycheck from my new job, I should be able to make the first really significant dent in this loan. My goal in August is also to find my first/initial side hustle. 

When checking my accounts this morning (I told you, I do this almost obsessively), I noticed that despite being a 0% for 12 months, 3% balance transfer fee offer, Citi said my offer end on 6/1/2020 (see below). While I have zero plans to have this debt lingering around that long, it did make me think more about how I should pay these two debts. While I initially thought I might pay the minimum on Citi and chuck everything at Discover, the smaller balance of the two, now I am not so sure. While Discover does have the smaller balance, their balance transfer doesn’t expire until 8/16/2020, two months later (again, even though I have every intention of having this paid off well before then, a buffer is always good).

CE

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Revised 2019 Private Student Loan 1 Goal – Payoff my Citi balance ($6,695.00). While it would be much easier to list the smaller debt as the goal, that wouldn’t really push me. I want something that is going to push me to hustle and sacrifice. It’s literally going to take everything I have and then some but I really want this for myself.

Okay. This should be the last post this week, I promise.


-$133,259.74: December 9, 2025

As of today, July 4, 2019, my total debt is -$133,259.74. I know. I know. It would be great if that amount reflected tangible assets that could be readily sold, but it doesn’t. It’s student loan debt. In some later post, I will take the time to give you a brief history of my lack of direction, stupidity, and an explanation as to what constitutes this total amount. But this is not that post.

This is the post where I briefly set expectations as to how frequently I will post (if I eventually gain readers and this becomes a blog, as opposed to an online diary, I want folks to understand how, when, and why I will post so that they aren’t wasting their time checking back intermittently). I just accepted a new role, in a new state, that I begin on Monday (more on that later). Unfortunately, this employer pays monthly (yes, I currently work in higher education) so it is my expectation, at least at the outset before I get an additional job/hustle, that I will make a debt payment once a month. So, minimally, I will post once a month. As my income increases, and it will, as a result of another job or other opportunities, I expect to make additional posts. I may also occasionally post about the challenges of dating in debt, my feelings about my debt, etc. However, I will do my best to keep those post very limited in number and really make sure this blog remains a place where I can hold myself accountable for reducing my debt and where folks may, eventually, be able to get the same inspiration I have gained from so many others on their debt repayment journeys.

As I stated above, the title of this post contains my current debt total as of today’s date. It also includes my projected debt free date. That debt free date has not been calculated based on my loan payoff dates. It is just shy of my 40th birthday. While I will go into more detail about it later (probably in the next post), I have had debt since I was 18 years old and signed my first federal student loan. I have carried my student loan debt through the end of my teens, all of my twenties, and into my thirties. I refuse to carry debt into the next decade of my life. By December 9, 2025, the last day of my 39th year of life, I will be debt free.