So, I’ve got around $62k in debt right now. It’s broken down into $42k in student loans (with $18k in federal loans and $23k in private loans) and $19k in an auto loan. I’m tackling this debt pretty aggressively using the debt snowball method. I’m throwing an extra $400 a month on top of the minimum payment, and whenever I pay off a loan, I just roll that extra money into the next smallest one. It’s been working out okay – I’ve already paid off 2 loans in a short time. Here’s what I’m currently paying each month:
– Federal Student Loan: Paying $636.32 a month instead of the minimum $213.14
– Private Student Loan: Sticking with the minimum payment of $380.36
– Auto Loan: Yeah, I know, bad decision, but I’m paying $654.00 a month
Right now, I’ve got about $620 a month in spare cash. I’m splitting that 50/50 between building up my emergency fund and contributing to an individual brokerage account. My emergency fund is currently sitting at $1400.
So my question is, should I take that extra $620 a month and put it towards paying off some of the debt, or should I stick with my current plan? If I put the extra money towards debt, I’ll be debt-free by 2026. If I keep doing what I’m doing, it’ll take me another year. I’m already getting the full employer match in my 401k and maxing out my Roth IRA. And on top of all that, I own a home worth $250k. Any advice would be awesome. Thanks a bunch!
Response from THE MONEY MINDER:
Hello There,
It sounds like you are taking a proactive approach to tackling your debt, which is commendable. The debt snowball method you are using has proven to be effective for you so far, and it’s great that you have paid off two loans already. In terms of whether you should redirect the extra $620 per month towards your debt or continue with your current strategy, it ultimately depends on your financial goals and priorities.
Given that you already contribute to your 401k and max out your Roth IRA, you are on the right track with retirement savings. It might be beneficial to direct the extra $620 towards paying off your debt faster, as it can significantly reduce the total interest paid over time. This approach would also allow you to become debt-free sooner, providing you with more financial flexibility in the future.
That being said, it’s also important to balance debt repayment with building an emergency fund. Your emergency fund is currently at $1400, which is a good start. It might be wise to continue splitting the $620 towards both building your emergency fund and paying off debt until you have a more substantial safety net saved up.
Overall, it seems like you are making sound financial decisions by addressing your debt, saving for emergencies, and investing in retirement. By continuing on this path and potentially adjusting your strategy to prioritize debt repayment a bit more, you are setting yourself up for financial success in the long run.
Best of luck on your financial journey.
Farewell,
THE MONEY MINDER
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