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?

That time I almost signed a $1300.00 apartment lease but got another job instead

This post has been in the making for quite some time but it was only after a post over at Double Debt Single Woman (if you don’t already read her blog, you definitely should) that I finally sat down to write. Okay, that and the job thing…

Living in a not-so-great apartment, in a not-so-great area, sucks. And it probably kinda sucks in your twenties but at least then you have all of the excuses for why you live there. The, “I’m saving up…,” “This is my first place…,” “This is my starter home…,” “I’m a student…” excuses. In your thirties, you generally don’t have those excuses anymore (although, you might be a student). What you do have is, “I made poor financial choices.”* Hopefully it’s, “I made poor financial choices so this is what I have am willing to do to have a better financial future.” Hopefully it’s that. And on most days, you are able to remember that, and make peace with where you are, and look toward the future. But other days…other days it just sucks and it is all that you can do to resist the sweet, sweet rental and real-estate sirens.

Their call has always been there, softly singing in the background. You are usually able to resist them but then something happens, like your apartment building is suddenly dealing with a pest issue as a result of a filthy tenant moving out, or you have a roommate or landlord making your living arrangement a bit more precarious than it once was. And you think, “What could it hurt just to see what else is out there…” So you look. And your rent is only $682.00 with ALL utilities included so you look to see what else is out there around the same price point. Nada. So you ratchet up your range to $800.00 and maybe you’re suddenly looking at apartments in a bit nicer area. But as long as you’re willing to pay $800.00, $850.00 doesn’t seem that bad, and so on, and so on, and eventually you are in the $1000+ range. And at that point, if you are going to pay upwards of $1000.00, you might as well get what you really want and at least consider that gorgeous $1300.00 apartment, that is giving away a month’s rent, and in a super nice area, convenient to everything…by foot.

Yea, or so that’s how it went in my head. And, how I found myself sitting across from a leasing agent, completing an application for a $1300.00 apartment while justifying that it was really only ~$1200.00 per month because I would get a month’s rent free and that the value was really higher because the apartment rates had been temporarily reduced due to the pandemic.

However, as I was writing out that blog post in my mind, for how I was going to have to explain this choice to you all (or considering abandoning the blog altogether out of shame…just trying to keep it real) I decided to reach out to a frugal friend who I thought might be able to talk me off the ledge. And she did, but she ultimately left the decision up to me. At this point, I realized that I was too far gone for the gentle approach and knew I would need someone a bit harsher so I called another friend. He was much…harsher. He spent several minutes explaining to me (almost patronizingly) why it was a poor financial decision and why if I was going to make such a decision in my financial circumstances (he knows of the student loan debt but not even the full extent) that I should at least buy a home so then I had an asset. Once it was apparent that I understood what I had to do, but was just a bit sad, he was a bit more gentle with me and told me that if I really was unhappy with my apartment, that I could consider investing one months’ difference in rent on upgrades and repairs to my current apartment ($1300.00-$682.00 = $618.00). Yea.

But he is right. The goal shouldn’t just be to get by or  survive. If I am going to be able to climb out of my massive student loan debt before I am 40 (I’m currently 34), at my current income level, then cheap rent has to be a part of the equation. So it is worth it to invest up to $618.00 to make my apartment more habitable IF it means I am willing to stay here until my debt is gone. For now, this is the plan. It’s official. My lease ends on July 31st, so I will call the leasing office tomorrow to re-sign for a year.

In less shocking, or shocking but different, news…today I finally got a part time job. It’s an evening job and only for about three hours a night, five days a week. And the wage isn’t great. But it’s more than I’m bringing in now, there is a possibility for more hours assuming I want them, it doesn’t interfere with my day job, it won’t leave me exhausted, it doesn’t require additional contact with humans, and if it is something I like, I could eventually turn it into my own side business.

Being an adult a financially responsible adult sucks.

*I understand there are circumstances that create cycles of poverty that result in peopling living in fraught living conditions regardless of what choices they make. I am not speaking to this but about my relatively privileged experience.