Debt Pay Off Update – December 2012

debt pay off Follow Me on Pinterest I’ve been considering writing this for a long time but I have finally decided to go ahead and open up to you all with the progress on our debt pay off plans.

I originally wrote Our Debt Pay Down Strategy to explain where my girlfriend and I are in terms of debt. Currently we only owe for her student loans and the townhouse mortgage.

We aren’t married yet so we keep our finances separate but I intend to help her pay her student loans down in a major way. We plan on paying off her student loans as fast as we can.

However, we aren’t going to go into crazy insane debt payoff mode where we only eat rice and beans, never go out to eat and cancel our cable. We’ll be taking a more balanced approach. We also do not plan to pay our mortgage off prior to its due date, but that may change later down the road.

Student Loan Debt Update

Currently there are six groups of student loans that have balances on them.

Private Student Loan 1 – 8.125% Variable Interest Rate

The current balance on this student loan is $9,423.88. This is the student loan we are working on paying off first because it is the highest interest rate debt and is also a variable rate. It originally was well over $20,000 when my girlfriend began paying this down after college about a year and a half ago.

Federal Student Loan 1 – 6.8% Fixed Interest Rate

The current balance on this student loan  is $7,942.43. This a strong contender to be the second student loan we pay off since has the second highest interest rate.

Federal Student Loan 2 – 6.8% Fixed Interest Rate

The current balance on this student loan is $7,464.42. This is a also a strong contender to be the second student loan we pay off for the same reason as above.

Federal Student Loan 3 – 6.8% Fixed Interest Rate

The current balance on this student loan is $4,106.38. This is the strongest contender to be the second student loan we pay off because it has the second highest interest rate AND the lowest balance. On top of that, we hate the bank this loan is through so it gives us even more reason to pay it off.

Private Student Loan 2 – 5.75% Variable Interest Rate

The current balance on this student loan is $22,959.72… ouch! This is the highest balance loan but it has a lower interest rate for now. Unless interest rates start rising we’ll wait to pay this loan off until the federal loans are paid off.

Private Student Loan 3 – 4.75% Variable Interest Rate

The current balance on this student loan is $8,368.70. This is the lowest interest rate loan and, unless interest rates rise, this will likely be the last loan to be paid off.

Total Student Loan Balance – $60,265.53

You may be wondering how I’m helping to pay the student loans down if we keep our finance separate. Great question. I am actually saving money in both a savings and investment account. Then, when we combine our finances after we get married, I’ll be able to help her pay!

Part of the money I have set aside I have already discussed in my article about how I Almost Made an Emotional Investing Decision. I am in the process of moving this, along with the money in my savings account, into a more appropriate investment for my time frame.

In total I have saved $22,380.49 to contribute toward this goal. This money is 100% going to be used for the student loan pay off when we get married. It won’t be used for anything else until then.

I am also working on some other side projects that will hopefully generate some money to pay toward the loans. In addition, I am considering transferring money left over from my monthly budget toward the student loan pay off.

We have a long way to go but if everything goes according to a pretty aggressive plan we hope to have the student loans all paid of by the end of 2013! That only leaves us a little tiny bit more than a year… Aggressive, but completely possible!

Do you have any debt you’re trying to pay off? Do you have a goal for when you want it paid off by?

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About Lance Cothern

Lance Cothern, a Certified Public Accountant (CPA) licensed in the Commonwealth of Virginia, is the founder of Money Manifesto. You can read more about him here or connect with him on Facebook, Twitter, Google+ or Pinterest.

Comments

  1. We ended up going backwards financially when we got married as the wedding was just so expensive.

    I think it’s great that you are developing a plan to pay off your debt. My wife and I are trying to pay off our $350,000 mortgage at the moment. Things are going well at the moment, but at the start it seemed like we were never going to get there. Having a plan is helping us, plus tracking our progress really helped to keep us motivated.

    You can view my progress on my blog if you are interested :)
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  2. Dude. I’m very inspired by your goal to get everything paid off by next year. I’m also happy to see how positive you seem about everything.

    There are so many others who have huge amounts of student debt that have no plan. They set no goals, and just think that they’ll pay it off some distant time in the future. Not you guys!

    Good call on starting with paying off the loan with the variable rate too. Looking forward to seeing your progress bro!
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  3. We’re in the midst of paying off the $88K of debt that we accumulated buying foreclosed real estate the past couple of years.

    We made paying down the debt our focus this summer and have been attacking it ever since. So far $30K paid off since June, so we expect to fully kill the $38K loan by January, and then attack the remaining $50K loan.

    There’s an outside chance we might be able to kill the $50K loan by August, which would also be ridiculous. Ridiculously awesome. =)
    Mrs. Pop @ Planting Our Pennies recently posted..What Am I Gonna Do With A Gun Rack?My Profile

    • Any reason you’re attacking the real estate debt? If it is at a high or variable rate I’d understand but if it is low and fixed it might not make a ton of sense.

  4. Good luck! I think this is a great goal. As you know, we are really working on tackling my student loans, and then saving for a new house!
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  5. That is awesome that you are helping her to pay off her loans. Marriage is a partnership and I think it is great when couples treat it as such. Great job!
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  6. I echo Holly, that’s awesome you’re helping your girlfriend pay off her loans…and so vigilantly at that. That high variable rate one made me cringe, so I can understand why you want it gone. Thankfully, the only debt we have left is our mortgage and are doing nothing fancy to pay it off early yet.
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  7. jay @ effumoney says:

    @Lance – Have you considered loaning the money to your girlfriend so she can pay the debts off now and save a huge amount of interest. You would have to set up an official loan you can use a service like LendFriend, you would also need to charge the IRS Applicable Federal Rates (AFR) rate which is substantially below market. If you don’t charge the IRS minimum rate then the loan is considered a gift. You can word the loan documents to adjust the higher rate upwards if there is a relationship status change (if you break up).

    Once married you can forgive the debt as a gift as there is no limit to how much you can gift your spouse.

    With $22,380.49 you could pay off the variable 8.125% and most of the 3 loans at 6.8% which is a huge savings, the longer it is until you get married the more interest you will save. That sure beats whatever you are earning on the savings currently, the small amount of interest your girlfriend pays on the loan you make her goes to you, which keeps it in the family. Then she can concentrate on the remaining loans.

    This could make a huge difference in your debt reduction plan; it will also take the most advantage of the assets you currently have that are underperforming.

    If you have any questions on how to setup a family or friends loan shoot me an email and I can walk you through it.
    jay @ effumoney recently posted..Closed End Mutual Funds… huh?My Profile

  8. Man, $60k in 12 months, that is an AWESOME goal! We’ve paid down some serious debt (with some help from inheritance), but for a big chunk of it, we saved and scrimped and contracted our lifestyle to hit our goals. You’re going to LOVE being debt free, and at such a young age (not sure how old you are).

    So do you have a timeline for the townhouse as well?
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  9. I’d love to pay down my mortgage, but the rate is so low that every time I have extra cash I instead end up throwing it into the brokerage account instead. I’d rather leverage the bank’s money as long as I have the funds to pay down the note whenever I choose, right?
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  10. Kind of a personal question here (so feel free not to answer) because I’m a bit perplexed… I definitely think you’re smart to keep your money separate until you’re married. But I’m sort of confused why your girlfriend is still your girlfriend and not your fiancee or wife? It seems you’re making and implementing important financial decisions knowing (?) that you will get married, so why aren’t you engaged? I just know that my husband I got engaged as fast as possible after we decided that we wanted to be married. There was a bit of a waiting period for life events, but not too long (i.e. the waiting period plus our engagement was still well under 1 year). It seems that marriage means something more to you than just living together so I would think you’d be motivated to get there. Unless you’re not sure about getting married, in which case it’s prudent to wait, but why make all these elaborate plans for your money if that’s the case? Ugh, I know I’m being really nosy!

    My husband using his savings to pay off my student loans after we got married, too, but I’m not sure how he would have used the money if I hadn’t had debt or we hadn’t gotten married.

    • I guess I just don’t ever want to get divorced and I’m a guy so I feel no reason to rush. So many people rush into it and I don’t want to be one of those people.

  11. Lance, all this post did was make me want to hug my kids and double their college savings! That is such an unreal amount of debt! But I think you’ve laid a good strategy and are keeping a great attitude about chipping away at it.
    My Money Design recently posted..Retirement Saving Starts Now! Where to BeginMy Profile

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