Thursday, January 30, 2014

I'm Torn

I'm torn.  There are a variety of methods to paying off debt (the Debt Snowball and the Debt Avalanche - I'll definitely cover these in more detail in another post), but where do I even start?

If I want to take a bold first step, I could start by paying off Private Loan 1 ($11,523.96 at 5% interest) and Private Loan 2 ($10,139.89 @ 4.43% interest) in monthly lump sum payments as soon as next month (a total of $21,663.85 over the next two months), but then my available cash + emergency fund would be down to about $8,452.  That's less than 3 months of living expenses for me.  It took me a long freaking time and a lot of hard work to save that cash up!!!  If I use the cash to pay these loans off, would less than $8,500 be enough to cover me for a while if I lose my job or an emergency came up (like unexpected medical expenses)?

The emotional high of paying off two private loans in full would be an amazing first step and might motivate me even more to tackle my huge student loan debt.  But after giving up that much cash, I fear that I will feel a bit empty (and not just in my bank account).  On the one hand, I worry that I'll pay that much money and feel like I'm back at the starting point, trying to work hard and save money.  On the other hand, starting strong and paying off these two loans could be a good motivator and would free up an additional $246.00 per month in student loan payments so I could save even more money and start attacking the other loans full force.  That's definitely one way to make a dent in my monthly expenses.

In terms of savings in interest, I used the handy tool at to find out how much money I would save over the life of the loan in interest if I pay off these loans in full:

  • Private Loan 1: $2,189.42 (paid off in Feb. 2021)
  • Private Loan 2: $3,480.53 (paid off in Dec. 2027)
That's a total interest savings of $5,669.95 over the life of these loans.

The thing that reassures me is that I am starting a freelance job on the side of my regular job in February, which could help me pad my cushion emergency fund more and give me some of the added security I need while I'm getting rid of this debt.  And hey, bringing down the Debt Monster to $152,621.03 sounds a whole lot nicer than being $174,284.88 in the hole.  It's a risky route, but maybe I just need to have a little more confidence and faith in myself that no matter what the circumstances, I am ready to face the challenge.  I am fortunate to have lined up some freelance income through September and if all else fails, I trust that I could always find work and cut expenses to make ends meet.

I haven't decided yet what my first major step will be, but I will definitely let you all know!  

1 comment:

  1. I’m sure you’ll be able to choose the right method for you in no time. Snowballing your payments is always a good method, just so you wouldn't be inconvenienced by having to pay bigger and bigger every month, and instead have a steady amount set aside from your monthly budget for debt payment. :D

    Portia Douglas @ Bankruptcy Happens