The True Costs of College: How I Plan to Pay Off $20,000 in 3 Years

thetruecostsofcollege

Last post I mentioned at the end that my plan is to pay off at least HALF of my student loan debt by 2017. Why 2017? Well, that is my target date for returning to graduate school to earn my PhD. Of course, opportunities may arise and my plans may change, but by end of 2017 I want half my student loan debt gone.

My student loan debt weighs on me heavily. Student loan debt isn’t bad debt to have. Creditors look at it as good debt and the investment in my education was well worth it. But, it makes me nervous. There are so many other things that I want to pursue in life and I feel like my student loan debt holds me back like a ball and chain.

If I continue to pay my loans monthly on the standard 10-year plan, I will pay all my loans off by the end of 2023. That’s about 9 years from today. I’ll be 36 by then. Yikes! My ultimate goal is to pay them off by 2020… three years earlier. Most people will probably debate me on this choice, but I do not want to have children until my student loans are paid off in full. Now, children are definitely not in my 5 year plan, and the outlook in the 10 year plan is so-so. Children are expensive and if I choose to have one then I want to make sure that I can afford the lifestyle that my future child deserves and I will be able to afford a portion of their future education.

Anyway, back to my plan of attack. Here is my student loan debt summary from my first post, The True Costs of College: My Student Loan Debt Story:

Undergrad Loans

Year Original Amount Current Amount – 3/3/14
Year 1 – 1st Semester  $          1,312.00  $                        745.88
Year 1 – 2nd Semester  $          1,312.00  $                        745.37
Year 2 – Full Year  $          3,500.00  $                     2,854.02
Year 3 – Full Year  $          5,500.00  $                     4,825.22
Year 4 – 1st Semester  $          2,750.00  $                     2,480.00
Year 1 – Gate Loan  $          1,300.00  $                               –  
Year 3 – Private Loan  $          5,000.00  $                               –  
Year 1 – Perkins  $          2,000.00  $                               –  
Total  $        22,674.00  $                    11,650.49

Grad Loans

Semester Original Amount Current Amount – 3/3/14
Summer 2010  $          1,714.00  $                     1,716.06
Fall 2010  $          3,351.00  $                     3,354.83
Spring 2011  $          3,435.00  $                     3,438.93
Summer 2011  $             368.00  $                               –  
Fall 2011  $          4,004.00  $                     4,008.63
Spring 2012  $          4,128.00  $                     4,132.98
Fall 2012  $          4,429.00  $                     4,669.01
Total  $        21,429.00  $                    21,320.44

Total Debt

$      44,103.00

Remaining Balance

$      32,970.93

As you can see, I am nearly half way to paying off my undergrad student loans. My main goal is pay off half my student loans by 2017. Let’s break them down into small goals:

  • I want to pay off my entire undergraduate student loans before my return to grad school (remaining balance is about $11,000).
  • I will continue to pay the minimum on my Nelnet (grad loans) each month resulting in over $3400 in payments each year. In 3 years that should reduce those loans by about $10,000.

In the next 3 years I am looking to pay off about $20,000 of my total current student loan debt. That’s a big number! Yikes! How am I going to do this? There are several ways I can go about paying off my loans.

  • Snowball Debt Reduction – This plan is recommended by Dave Ramsey. He suggests paying off the smallest debt first to gain momentum. You first start by paying the minimum on all your debts except for the lowest debt where you contribute extra to pay that debt off first. Once that debt is paid off, you use the money you used to pay off the first debt to pay off the second lowest debt. This method continues until you are debt free!
  • Avalanche Debt Reduction – This plan is the opposite of the snowball effect. You pay off the debt with the highest interest rate first because you’ll save money in the long run. Put your debts in line from highest to lowest interest rate and begin paying off the highest interest rate debt first while paying the minimums on the remaining debts. Once the first debt is paid off, use that money to pay off the next highest interest rate debt until you’re debt free!
  • Debt Tsunami – This method was proposed by Man vs. Debt. This plan recommends you to pay off your debt in order of emotional impact. Same idea as above, but you pay your debt off based on your own ranking system. You can read more about it here: http://manvsdebt.com/debt-tsunami-the-ultimate-method-for-paying-off-debt/.
My Plan of Attack

I’ve played around with multiple plans of attack to see what best fits my needs. With a Google search I found an awesome debt reduction spreadsheet that you can download from Vertex42.com. I HIGHLY recommend it. It’s simple to use and you can play around with different debt reduction methods. The only downfall I found was you can only enter up to 10 debts. I entered all my loan balances with interest rates and let the spreadsheet work its magic. I changed the options from snowball to avalanche to custom to see what the interest rates over time would be. They all came within about $200 of each other. Before this spreadsheet I was drawn more towards the Snowball method because I am not a patient person. I want to see a return on my investment now and not years down the road (although I’m learning that in personal finance you have to be patient sometimes, especially with retirement investments).

A Glimpse at my Debt Reduction Spreadsheet
A Glimpse at my Debt Reduction Spreadsheet

With the snowball method I would pay about $7151 in interest, with the avalanche method I would pay about $6961 and with a custom ranking I would pay about $7076. I have decided to go with a custom ranking similar to the debt tsunami method because my focus is on paying off my SallieMae (undergrad loans).

I identified at least $100 a month I can use to pay off my student loans in addition to my normal monthly payments. My goal is to attack my $745 SallieMae loans first, with a target payoff date of September 2014 and January 2015 respectively. Then I will hit up my other undergrad loans from lowest to highest. My father has offered to give me additional money to put towards my student loans when we sell our family camp. I have no idea when or how much that might be, but when it happens I plan on applying it to my highest SallieMae loan.

This is my plan for now. Things may change, but I’m happy with plan going forward. I’m motivated to get this weight off my shoulders!

How are you paying off your student loans? Are you paying any additional money each month to pay them off faster? What method do you utilize?

In case you missed it:

The True Costs of College: My Student Loan Debt Story

The True Costs of College: Repayment Plans and My Story

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