student loan debt advice

[LuckyJB]

Today I decided to check out some of my student Loan debt. And I am stuck on how to approach the one I am paying $20.75 to.

Here it goes:

$3,201 2.65%
$2,104 6.80%
Paying $102 a month for these two

$5,995 3.60%
$9,954 3.60%
$4,623 4.40%
$6,570 4.40%
***Paying $20.75

$5,100 11.24% - no current payments. Just collecting interest.

Question #1: I spoke to a rep regarding the $20.75 and its on a pay as you earn plan. She mentioned that I pay $20.75 a month and if I have any extra money I can pay it towards the balance. She also mentioned that if I show on time payments of 20 years then they will FORGIVE the principle balance. I see how I can save more money keeping this long term or is it even worth having this debt for that long. Has anyone been in this situation or is or can provide insight on whats the best thing I should do?

11.24% is high and I have had this loan for a year now and its accumulated $500 in interest. I was going to try and roll it over into another lower interest loan but I think I decided to just pay lump sum payment in two and pay it off.

thoughts. advice is appreciated...

[james.hendrickson]

You have three choices when approaching this.

You can:

A) Pay off the highest interest debt first.

B) Pay off the lowest balance first, then move onto the next highest balance.

C) Do a hybrid approach

Pretty much all the personal finance debt literature boils down to these three choices.

Paying off the highest interest debt will get you out of debt the quickest, but you might get tired and give up.

Paying off the lowest balance first will give you a quick win, but you'll stay in debt longer.

Two questions for you to consider:

1. Are there ways you could raise some extra money to apply to the debt?

2. What can you comfortably cut out of your budget to increase the amount you can pay towards your debts?

3. Can you increase your income at all? Ask for a raise, etc.?

Your situation actually doesn't look all that bad. If you focus, you'll have your debts paid off in no time.

[disneysteve]

I'm not really sure what your question is, and you haven't really given us enough info to use to advise you how best to pay these loans.

Based purely on what you've posted, you should be putting every spare penny you can scrape up toward the 11.24% loan. That's a ridiculous rate and is costing you a bundle.

After that, focus on the 6.8% loan, then the 4.4% ones, and so on working your way down from highest to lowest interest.

Forget about the 20-year forgiveness thing. You borrowed this money and agreed to pay it back. As long as you have the means to do so, you should do it.

[YULACU]

PAYE allows for your balance to be forgiven after 20 years; however, the forgiven portion of the loan is considered income for tax purposes so there's a tax bomb at the end of that. Additionally, since PAYE is an income based repayment program, there's no guarantee that you will continue to qualify for low monthly payments. Your income will probably go up over the next 20 years and your monthly payments will increase as well. Increased monthly payments over 20 years will reduce the likelihood that there will be anything left to be forgiven in the first place.

I do advocate student loan forgiveness, but only if you are utilizing public service loan forgiveness coupled with an income based repayment plan. In that case your balance will be forgiven after 10 years tax free.

If public service isn't for you though, start attacking the loan with the highest interest rate first.

[LuckyJB]

Thanks for the insight. I think I am going to go with paying off the 11% in two lump sum payments. You're questions to consider are great. I have been cutting certain expenses as a start and I do have extra income monthly just from my normal checks. I should also be asking for a raise soon!

You have three choices when approaching this.

You can:

A) Pay off the highest interest debt first.

B) Pay off the lowest balance first, then move onto the next highest balance.

C) Do a hybrid approach

Pretty much all the personal finance debt literature boils down to these three choices.

Paying off the highest interest debt will get you out of debt the quickest, but you might get tired and give up.

Paying off the lowest balance first will give you a quick win, but you'll stay in debt longer.

Two questions for you to consider:

1. Are there ways you could raise some extra money to apply to the debt?

2. What can you comfortably cut out of your budget to increase the amount you can pay towards your debts?

3. Can you increase your income at all? Ask for a raise, etc.?

Your situation actually doesn't look all that bad. If you focus, you'll have your debts paid off in no time.

[crazydoglady]

Do you have the money right now to pay off the 11% loan? You mention two lump sum payments...
If your plan is to save and then pay it off later in 2 payments, I'd advise against that. Anything you can pay towards that now is helpful in reducing the accumulating interest. $20 here, $20 there, rather than waiting X number of weeks/months whatever and paying it off in a larger chunk.