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 am in the process of moving, 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?
Lance Cothern, CPA holds a CPA license in Indiana. He’s a personal finance, debt and credit expert that writes professionally for top-tier publications including U.S. News & World Report, Forbes, Investopedia, Credit Karma, Business Insider and more.
Additionally, his expertise has been featured on Yahoo, MSN, USA Today, Reader’s Digest, The Huffington Post, Fast Company, Kiplinger, Reuters, CNBC and more.
Lance is the founder of Money Manifesto. He started writing about money and helping people solve their financial problems in 2012. You can read more about him and find links to his other work and media mentions here.
My Money Design
Wednesday 12th of December 2012
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.
Lance
Wednesday 12th of December 2012
Hug and save! Glad I could inspire!
Emily @ evolvingPF
Wednesday 12th of December 2012
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.
Lance
Wednesday 12th of December 2012
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.
AverageJoe
Wednesday 12th of December 2012
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?
Lance
Wednesday 12th of December 2012
You know the way straight to my heart Joe...
Jacob @ iheartbudgets
Wednesday 12th of December 2012
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?
Lance
Wednesday 12th of December 2012
Yes, my timeline for the house is another 28.5 years :)
jay @ effumoney
Wednesday 12th of December 2012
@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.
Lance
Wednesday 12th of December 2012
Jay I am totally going to have to look into this... thanks for all of the info!