Our Debt Pay Down Strategy

Debt is no fun. I think everyone can agree with that! Before we get into our strategy of paying our debt down I feel like you need to know what our debt consists of. My girlfriend and I have over $100,000 in debt but honestly I’d say we’re pretty lucky. We aren’t married yet but will be eventually so that is why everything is listed as her debt or my debt. When we eventually do get married it will become our debt and it won’t be a she pays hers I pay mine deal. We’ll be working against it together!

What We Owe

My girlfriend currently owes a little under $64,000. This balance is all in student loans. She has some fixed rate loans (all at 6.8%) and some private variable rate student loans (anywhere from 4.75% to 8.25%). I, on the other hand, owe a little more than $62,000 on a 4.625% fixed rate 30 year mortgage and a little over $4,000 on a 0.9% fixed rate car loan that will be paid off in less than a year.

How We Plan to Pay Off Our Debt

Student Loans

Right now since we aren’t married my girlfriend pays down her debt and I pay down mine. Currently my girlfriend is aggressively throwing every extra penny at her debt. She has a budget that allows for some fun money and all of our normal necessary expenses but any overtime and extra money she gets goes toward her loans. While this gets frusterating for her at times it is working as evidenced by paying off over $15,000 in just one year!

While I am not currently assisting her in paying down her student loans I am saving money to put a large lump sum down once we get married. Every paycheck I have money transferred into a student loan payoff account that will eventually be used once we are married to help her pay her loans down. I will then continue assisting her with these payments every paycheck to get rid of her student loans as fast as possible. It will be a great feeling for both of us when they are finally gone!

We want to pay them off as fast as possible so we’ll be paying off the loan with the highest interest rate (8.25%) first. However then we have a sticky situation facing us. Two of the larger loans are at lower interest rates (4.75% and 5.75%) but they are variable rates which means once rates start going up they are going to get more expensive than the fixed rate loans fast. I think we’ll probably attack the variable loans first before going back and paying off the fixed 6.8% loans.

The Mortgage

As of right now I intend to pay off the 30 year mortgage over the full term of the loan. This is probably a controversial decision in the personal finance community but I have my reasons. Over the next 30 years I am certain interest rates will be going up. While I wish I had the interest rates of today (about a percent lower than my 4.625%), refinancing would kill me in terms of closing costs. After we get out of this economic funk we’re in now I don’t think I’ll ever see interest rates on mortgages anywhere near as low as what I have now. As such I’m going to keep my fixed interest rate loan for the full term.

Another reason why I am doing this is because in recent history over most periods of time there has always been at least some factor of inflation which slowly erodes the buying power of your money. The dollars I use to finish off paying my mortgage 25 years from now will be worth much less than any extra money I put into my loan now. On top of that I lose the opportunity to use the extra payments for other endeavors that could provide me a better return than my interest rate.

Car Loan

I owe a few more payments on my 0.9% fixed auto loan but I have the cash in the bank to pay it off today if I wanted to. In fact I could have bought the car with cash but decided against it. Right now the plan is to finish paying it off according to the schedule but part of me just wants to pay it off today. Regardless this loan will be gone in less than a year!

So there you have it! Our debt situation and how we plan on paying it off. How much debt do you have and how do you plan on paying yours off?

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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.


  1. Awesome job, Lance! I know you will succeed.

    Might I suggest something? Until you get married, you might consider investing your savings into something like preference shares, which don’t go up or down by much, but pay dividends of around 8% per year. (If you want specifics, contact me.)

    Just a thought…

  2. I like that you bought the car with a loan instead of cash. With an interest rate that low, why not?? Student debt sucks but we have a similar situation…just gotta keep paying that sucker down.

  3. I agree with DC it was great to buy the car with a loan with an interest rate that low. We have a 30 yr mortgage too but with rates this low it is a nominal payment and I would rather put my excess money towards other debt… Great job by your gf paying off that much. We are just beginning to tackle our student loans….daunting it is!!!

  4. We’re now down to a little under $200K in debt, most of which is tied to the 3 properties we bought over the last 3 years. But since the loans have all different terms, interest rates, and personal involvements (one loan is from Mr PoP’s parents), our pay down strategy might be a little different from other peoples. We wrote about it a couple months ago here (http://www.plantingourpennies.com/2012/06/25/prioritizing-debt/) if you’re interested. The goal is to have pretty much everything but the mortgage on our house paid off by Aug 2014, so that would be about $100K in debt in 26 months (we laid out the plan in June!).

  5. Lance, you and I are on the same page about our debts. Although I want to get this done before I retire, I am really in no rush to pay off my mortgage or car loan since both have interest rates so low! Why not invest the money and try for an 8% versus paying off your debt at a 4 to 1% return? That’s how I look at it…

    I really feel for you with all that student loan debt. Keep on chipping away!

  6. I think it’s really sweet you are already planning to contribute to your GF’s student loan debt. Great post!

  7. A little over 100k for both of us combined and we have plans to get everything down as fast as we can. Granted it’s slow going right now, but we expect that to pick up soon.

    And yes, with interest rates like you have, I’d say go on your course as you are. Those are some great rates and you can use the money for other nifty things!

  8. It looks like you have a plan! You may want to look into refinancing where they pay the closing costs. I recently saw an advertisement for a mortgage of 2.75 and they pay the closing costs.

    • I’d love for them to pay closing costs but with my balance being so small I can’t imagine a bank taking that big of a hit for the little bit of interest they would get.

  9. I wonder if there’s a way to change her variable rate loans into consolidated fixed rate loans while interest rates are still low? That might help you prioritize with more reliable information.

    • We looked into consolidation but they are private loans which limits options. On top of that the only place we found that would consolidate wanted to consolidate to a variable interest rate that was higher than the majority of the balance of her variable loans. If anyone knows of any options we’d be happy to hear em!

  10. You’ve got a sound plan. I paid off my debt almost four years ago. My plan was simple: pay off my car loan, then pay off my student loan. I had a good income at the time, so I lived on about half of my take-home pay and threw what was left at the debt. Even though my student loan interest rate was less than 2%, I just wanted to get out of debt as quick as possible.

    • Don’t blame you for wanting to get it out of the way but if that rate was fixed I think I’d pay that loan off as slow as possible. Gotta do what works for you though.

  11. Dude,

    I am so glad to hear you say that you plan on attacking the debt TOGETHER! For some reason, the trendy thing on PF blogs lately has been to say that the married individuals are responsible for their own incurred debt. To me, that doesn’t seem like a great way to start/grow a marraige. In fact, it seems like a great way to cause relationship problems (That is your debt not mine…). Congrats on deciding to be a team, which is really what marraige is all about.

    Also, I’d agree with krantcents. Look into a refi. You may be able to wrap your closing costs into the cost of your loan. Run the numbers and see if it works out for you.

    It looks like you are doing pretty well. Yeah, debt sucks, but you have a plan to tackle it. Also, it appears that your consumer debt is pretty low (car only), so while there is no good debt, at least your debts are mainly mortgage and student loan.

    Good job and good luck!

    • I’ll have to look into my refi options but I don’t think they are going to save me much due to the low balance on my mortgage. If I had a $200,000 mortgage it’d be a different story!

  12. I think you have a great plan for getting rid of the debts. The only debts we have are mortgages and I’m paying that down a bit, but not very aggressively for the same reason.

  13. Despite all those debts it sounds like you’ve got it all under control. The part I question is building up a lump sum in a separate account to help with your girlfriend’s debt. It seems that doing so would just build up extra interest on her loans in the meantime. I guess it is a little tricky when not yet married. I have no problem with you taking your time with the low interest loans though. To me it makes more sense to pay off the high interest loans first and then shift to investing.

  14. Having a plan is better than wondering aimlessly through the debt! I don’t know if I’d agree with the 30-year mortgage, but hey…that’s your call. Regardless of inflation and the value of the dollar down the road I couldn’t ignore the $17,000 you’d save by changing to a 15-year loan (the $17k net includes the increased mortgage payment you’d pay over the next 15 years). Adding to that there would be 15 years that you wouldn’t have a $300/month mortgage payment which you could then invest.

    It’s a lot of math and certainly a bunch of factors, but I’m pretty sure the 15-year would make the most sense.

    • 15 year is a great option and I wish I would have looked more into it before I got the mortgage but we opted against it in order to pay down my girlfriend’s student loans ASAP!

  15. Unless you have the same balance of investments as you do a mortgage balance, you’re losing money. If you do have $62,000 in investments making more than 5%, then I’d say stick to your strategy as you’ll come out ahead in the long run.

    And I’ll echo what everyone else has said: you’re golden because you have a plan already. That puts you ahead of 99% of people who have that kind of debt.

    • I think I’ll come out ahead in the long run but different people have different opinions, assumptions variables etc. This is what works for us.

  16. Sounds like a good plan and good luck with it.

  17. It sounds like you’ve got a pretty decent and well thought out plan here! And I definitely like your approach – GF pays hers, you pay yours – to the debt. I think your plan for the mortgage is a good one, even though I’m a PF blogger too. But paying off the student loans is definitely more important and the housing market has no where to go but up (we hope!). Paying off debt is a long journey, and one that takes a ton of work. But in the end it’s totally worth it!

  18. Can I be envious of your $62k mortgage. Mine is still more than 3x that.
    I think it’s great that you’ve got a plan. Just remember that if circumstances change, it’s okay to change the plan.
    I understand the desire to get rid of the variable rate loans, but I would always pay down whichever loan has the highest interest rate at the moment. It forces you to pay attention to the variable rate loans, but also lets you money have the most power it can.

    • Haha yes definitely you can be envious! We lucked out though. It is a 2 bed 1.5 bath around 1200 sq ft 3 blocks from the gulf of mexico beaches! As far as the loans one of the variable loans is like $26k so that is a pretty massive chunk. We have the 8.25% loan to get paid off first though and we’ll make our next decision after that one is gone!

  19. Sounds like you have a good plan. I agree with your mortgage strategy. Why not take a tax deduction and let your money work for you as well!! Good luck with the plan, hope you and your gfriend get the debt slammed fast.

    • Unfortunately I don’t get the tax deduction from it as I don’t have enough to itemize but the interest rates are soooo low historically.

  20. I think a plan is integral to success of any kind. A plan helps guide you through the steps you need to take.

    As far as debt goes we only have our mortgage which we do already have on an accelerated pay off plan. However at the moment we are concentrating on some other savings first before we ramp up more on our mortgage. I think you have a solid well thought out plan that should work. Good luck.

  21. I like your plan – sounds pretty good.
    Hope you make it through, because debt snowballing-repayment becomes exhausting at times.

    Reformed From Debt

  22. That’s a whole boatload of debt (but you already know that) but it’s not insurmountable by any means. Looks like you guys have a great plan, but one thing I would look into would be consolidation of your girlfriends student loans. Ive heard of consolidation rates being in the 3% neighborhood, and if she can consolidates all of them and maybe get a rate a touch higher than the 4% rate she has on one of the variables now, she’d be still ahead over time by taking out those 7% interest loans.
    Good luck, and remember, stick to the plan and also remember life will get in the way, so be prepared to deal with it

    • If you can point me in the direction of somewhere where we can consolidate private or government loans at a fixed rate PLEASE DO SO!!! We couldn’t find anything…

  23. Ornella @ Moneylicious says:

    It looks like you have a plan that works for you and your GF. Good luck…it looks solid!

  24. We paid off over $100,000, but it took 8 years. You are way more serious than we were, and once we got serious it seemed to happen very fast. I think your mortgage idea is spot on.

  25. Federal government is printing money now so interest rates are low. But, sooner or later, it’s going to backfire. I agree that if you have low interest rate, invest your money to generate safe 5-6% instead of paying off your mortgage.

  26. I believe there’s a psychological advantage of paying down mortgage before term. When your goal is more aggressive you’ll automatically either try to increase income or reduce spending to keep up with repayment needs.

  27. People coming out of school now really have terrible student loan rates. I have been out of school for 12 years now, but was able to consolidate at a low rate. So while it might freak out anyone who reads this, I am kind of like you on the mortgage and not in a hurry to pay it off. I think it’s great that you have a plan. So many people don’t

  28. I think it’s smart you two are talking about debt before you’re married and have a pay off plan. So many couples don’t talk about money and I think they’re crazy!

  29. When I got out of school I got on this thing that I wouldn’t take on new debt until the old debt was gone. So I didn’t buy a house or save for a downpayment til the student loans were gone…but that was 16 years ago and I only had $22K in loan debt back then. Seems small in comparison to today’s amounts. I also lived in a small apartment with a roommate so my costs were very low, so it was very easy to funnel a lot of cash towards that debt in the early days.

    I’m 100% debt free now..including our home. It took 15 years to do it, but the day finally arrived. It is an awesome feeling to finally feel like we’re ahead of the curve instead of playing catch up.

    • Congrats! That is no small feat at all and must be a great feeling. We plan on keeping our mortgage but once the student loans are gone we’ll be very happy!

  30. Veronica Hill says:

    I’m have about 6k debt and it’s all being paid off month to month without me ever looking at it. Lance, good luck with your loans, I’m sure you can pay them off!

  31. Debt Free Teen says:

    I have a plan to stay debt free through college but I wonder what will happen if I date and eventually want to marry someone with Debt. I’m sure I will be willing to pay off her debt if she is the right one for me.

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