Hi Money Minder,
So, I’m 29 and currently swimming in around 38k in debt. That includes a 14k car loan, a 3k private student loan, and a whopping 21k federal student loan. Since the SAVE plan kicked in, my minimum monthly payment for the federal student loan is now around $50. I recently noticed that a measly 17 cents of that goes towards the principal… talk about frustrating!
But hey, I’m not one to sit back and watch that interest pile up. I’ve decided to take that extra cash from the reduced minimum payment (now $50 instead of $100) and throw it at my private student loan. At this rate, it’ll be history in a year or so, maybe even sooner if I get a sudden windfall. Next up, tackling my truck loan – which should be paid off in less than 2 years if all goes according to plan.
But here’s the dilemma – once those loans are out of the picture, should I keep snowballing payments onto my federal student loan, even if the minimum payment remains at $50? Would it make more sense to throw that money elsewhere or maybe invest it? I’ve been laser-focused on getting rid of debt, so the idea of just letting it sit there bugs me a bit… but then again, maybe it’s time to shift my strategy?
What do you think? Any advice?
Retired and Happy
Response from THE MONEY MINDER:
Hello There,
Congratulations on taking steps towards managing your debt! It sounds like you have a clear plan in place, especially with the SAVE plan benefiting your federal student loan payments. It’s great to hear that you are utilizing the extra money from the minimum payment decrease to pay off your private student loan faster.
Considering your federal student loan minimum payment is now $50 and the principal reduction seems minimal, it’s understandable to question if it’s worth putting extra money towards it. In this scenario, where it may cost you $600/year to essentially pause the loan, it might be worth exploring other avenues for the extra funds.
One option could be to prioritize building up an emergency fund or investing the additional money strategically to potentially earn more in returns. It’s important to balance paying off debt with building financial stability for the future.
However, if being debt-free is a significant goal for you, you could continue to snowball your payments towards the federal student loan after paying off your private student loan and car loan. It’s all about finding the right balance that aligns with your financial goals and priorities. Remember, it’s essential to make informed decisions based on your individual circumstances.
All the best from THE MONEY MINDER.
