- Joined
- Jan 20, 2011
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I have been trying to figure something out that I hope you guys have an answer to. The biggest issue is the interest in paying the student loans out as fast as possible. I am currently on the PAYE but am thinking of switching to the Save program because it says that if I just pay the minimum the unpaid interest is canceled.
My hopes is that I pay the minimum payment for each individual loan and then focus my money on paying 1 loan at a time. I just want to make sure that idea actually works, because as of now I have to pay the minimum plus all the interest that grew for the month for each loan so that none of the student loans go up and keep growing as I am focusing on paying off one at a time. Does that make sense?
Well here is my thought process. The way I am tackling the student loans is using the snowball method.
These numbers are just examples to make the math easier.
Student Loan 1 = $20,000 at 6% -> $100/month of interest
Student Loan 2 = $30,000 at 6% -> $150/month
Student Loan 3 = $40,000 at 6% -> $200/month
Student Loan 4 = $50,000 at 6% -> $250/month
These makes it $700/month of interest that is accruing. So if I budget, for example, $2,000/month for student loans. I pay the interest for each one of these loans and that will insure that none of the loans are building up interest. I have stopped the bleeding. Honestly, the minimum payment doesn't matter because I need to make sure the balance of the loans do not get larger because at that point I will be wasting money. That leaves $1,300 left for the principle, which I then place it all on student loan 1. I do that every month till the first one is finished and move on to the second and third, etc.
The question than goes to the SAVE program. If the "minimum" payment for each of the loans is smaller than the monthly interest than the remaining interest is then subsidized. So for example:
Student Loan 1 = $20,000 at 6% -> $100/month (minimum payment due is $50)
Student Loan 2 = $30,000 at 6% -> $150/month (minimum payment due is $100)
Student Loan 3 = $40,000 at 6% -> $200/month (minimum payment due is $150)
Student Loan 4 = $50,000 at 6% -> $250/month (minimum payment due is $200)
Total monthly interest is $700 but I paid the minimum of $500. All the remaining unpaid interest of $200 is subsidized. I now have $1,500 left to throw into student loan 1, instead of the $1,300. What I am trying to find out is if this will work because that will save money on interest which will than allow to pay off the debt faster. Not only will this give more money to use for the debt but it will prevent the loans from getting larger.
I know that refinancing with a private company will be the best way to lower the interest rates but I have 12 different student loan payments and I don't want to consolidate all of them because it defeats the benefits of the snowball. Plus, having that backup benefit that if something ever does happen to me which causes my income to drop, the income base payments will shine and that I can fall back on the loan forgiveness. Not to mention that if I die the loans die with me.
My hopes is that I pay the minimum payment for each individual loan and then focus my money on paying 1 loan at a time. I just want to make sure that idea actually works, because as of now I have to pay the minimum plus all the interest that grew for the month for each loan so that none of the student loans go up and keep growing as I am focusing on paying off one at a time. Does that make sense?
Well here is my thought process. The way I am tackling the student loans is using the snowball method.
These numbers are just examples to make the math easier.
Student Loan 1 = $20,000 at 6% -> $100/month of interest
Student Loan 2 = $30,000 at 6% -> $150/month
Student Loan 3 = $40,000 at 6% -> $200/month
Student Loan 4 = $50,000 at 6% -> $250/month
These makes it $700/month of interest that is accruing. So if I budget, for example, $2,000/month for student loans. I pay the interest for each one of these loans and that will insure that none of the loans are building up interest. I have stopped the bleeding. Honestly, the minimum payment doesn't matter because I need to make sure the balance of the loans do not get larger because at that point I will be wasting money. That leaves $1,300 left for the principle, which I then place it all on student loan 1. I do that every month till the first one is finished and move on to the second and third, etc.
The question than goes to the SAVE program. If the "minimum" payment for each of the loans is smaller than the monthly interest than the remaining interest is then subsidized. So for example:
Student Loan 1 = $20,000 at 6% -> $100/month (minimum payment due is $50)
Student Loan 2 = $30,000 at 6% -> $150/month (minimum payment due is $100)
Student Loan 3 = $40,000 at 6% -> $200/month (minimum payment due is $150)
Student Loan 4 = $50,000 at 6% -> $250/month (minimum payment due is $200)
Total monthly interest is $700 but I paid the minimum of $500. All the remaining unpaid interest of $200 is subsidized. I now have $1,500 left to throw into student loan 1, instead of the $1,300. What I am trying to find out is if this will work because that will save money on interest which will than allow to pay off the debt faster. Not only will this give more money to use for the debt but it will prevent the loans from getting larger.
I know that refinancing with a private company will be the best way to lower the interest rates but I have 12 different student loan payments and I don't want to consolidate all of them because it defeats the benefits of the snowball. Plus, having that backup benefit that if something ever does happen to me which causes my income to drop, the income base payments will shine and that I can fall back on the loan forgiveness. Not to mention that if I die the loans die with me.
