by Ashley
Did you catch the big news that we are credit card debt-free????
A couple of commenters asked the same question: What’s Next?
I have struggled with this and gone back-and-forth with the various options about a dozen times.
Even though I had committed to a plan of action, I really secretly wish I could target the car next and have no more “consumer” debts (though still plenty of student loans and other debts). But after talking to the husband, I think we’ve made some decisions.
First, we are not going to focus on the car yet. It’s just too scary. My student loan deferment ends in February and I don’t want to get stuck in a situation where our minimum obligations are so high that we can’t make them (which would force me to go into forbearance on my loans or get a deferment extension…neither of which I would like to do). Also, there is a huge difference in interest rates. My highest APR debt right now is for 2 of my student loans (at 8.5% and 8.25% respectively), versus the car that is only at 2.49% after I refinanced. We are still going to make the car priority over the student loans, in general (and will have it paid off well before the student loans are paid in full), but I want to knock out these two high-interest student loans to lower my monthly payment so, once deferment ends, we’ll be looking at a more reasonable payment. Additionally, the car loan is still pretty large (over $22,000) compared to the two smaller student loans (about $5,000 each), so I think I’ll benefit from the psychological “boost” of paying off another couple of smaller debts more quickly than I’d be able to pay off the car.
Second, husband wants to bump the license fees up our priority list. This is one of our lower “APR” debts (no actual APR, but small service fees that amount to 2.7% each transaction). I definitely support this and wanting to put that part of our lives behind us (more information in this post). It’s time to close that door.
Just FYI – I plan to do another debt update on Monday to give you more specifics on where we stand with everything (last debt update here).
Given all this, the new plan of action is as follows:
- License fees (goal date = August 2014)
- Sallie Mae 8.25% student loan (goal date = October 2014)
- Sallie Mae 8.5% student loan (goal date = December 2014)
- Car loan (now through PenFed; goal date = January 2016)
- Remaining student loans (will reassess in January 2015 to determine goal date)
- Remaining medial bills (will reassess in January 2015 to determine goal date).
If you read my old “plan of action” post (or even if you didn’t), you may be wondering why I have the 8.25% student loan prioritized above the 8.5% student loan (given that the two loans are comparably priced – about $5,000 each).
The reason is that the 8.25% student loan is a rare loan that is NOT in deferment. That means I’ve been making minimum payments toward it this whole time. I want to knock it out first so I can snowball those payments toward the next loan. If I were to focus on the higher interest loan first, its about the same amount so would be knocked out in about the same period of time, but I like the idea of having that monthly payment be added to my debt snowball (whereas, there is no current monthly payment on the 8.5% loan, so nothing to add to the snowball).
So that’s what I’m thinking in terms of our current plan of action, and an answer to the question “What’s next?”
However, I should caution that this is obviously subject to change. It seems that we keep changing our minds as things change (like when I prioritized my Bank of America credit card above the higher interest student loan, so I could have the psychological benefit of being credit card debt-free). So, we’ll see what happens but I feel pretty good about this plan.
What do you think? Would you change up the order of repayment?
Again – I’ll have a full debt update on Monday with fresh numbers but if you want rough estimates of debts you can check out this post from about a month ago.
Hi, I’m Ashley! Arizonan on paper, Texan at heart. Lover of running, blogging, and all things cheeeeese. Freshly 40, married mother of two, working in academia. Trying to finally (finally!) pay off that ridiculous 6-digit student loan debt!
Sounds good to me for now. I like your approach to re-evaluate the plan of action as time goes by.
I agree with your decisions and the way you prioritized the debts. Wiping the slate clean financially of the license fees should be a huge psychological boost. Wishing you continued success. You guys are laser focused. Awesome job.
Ashley, I think your new plan sounds GREAT. I like the idea of putting the license fees behind you which will be a big psychological boost to you and your husband, and tackling the 8.5 and 8.25 student loans over the car is also well reasoned and a great approach! Honestly, looking at your revised goal dates it is amazing how far you’ve come in only a few months! It’s been exhilarating to watch your journey to being debt free and I have been very impressed and challenged by your thoughtful and thorough posts. KEEP UP THE GOOD WORK we are all cheering you on 🙂
You are a woman with a plan! It all sounds great. Getting rid of those danged license fees will be a relief, I am sure. I really like the way that you focus on snowballing once a debt is paid. (As opposed to “Now, I have a little extra money to spend!”) You must be so encouraged about your progress. I love reading about it.
Since we live on so little while paying off debt, I’m trying to split it up. Put some toward a snowball and a little toward living expenses ie: a little more grocery money, a little more money put away for my EF, a little more for gas, a little more for household expenses, etc.
At 2.49% I definitely would not be concerned about the car loan. What you may want to do is track the value of the car on Kelley Blue Book, so you know how many payments you have until you aren’t underwater on the loan. Others may correct me if I’m wrong, but I’m not sure if an underwater loan would be paid in full if the car were totaled in a car accident.
I actually had this situation many years ago. The payout was for the value of the car (NOT the loan amount). We had about a year worth of making payments for a car we no longer owned (due to being totaled). So, yes, you are correct about that.
Seems a reasonable prioritization to me. Credit card was the worst in my opinion so, that was a job very well done. I can imagine how you will feel at the end of the year. Keeping my fingers crossed for you and the other bloggers so that good luck be with you all the way!
Great plan – and I love that you remain flexible as circumstances change – awesome!!!
The staying flexible on plans is key. Just reference your blog mates to see why.
Great great job on attacking your debt! I still wish y’all had a line graph showing each of your progress. I get lost on the numbers all the time.
Re-evaluating as needed is a great idea. I have a plan in mind for what order I want to tackle my debts, but as things change (interes rates that aren’t permanent or balances go up or down more quickly) I always look over my plan to see if I want to make some changes. So far, I haven’t really made any, but that’s not to say I won’t somewhere along the way. I’m so glad you’re CC debt free!! I can’t wait to announce the same, but it will be a long, hard road until then.
I felt just like you do after paying off my credit card… but now that I have no student loan or credit card debt, it makes me wonder if I should focus solely on getting rid of the car at the expense of building up big savings (which I have none of). Many congrats on paying off all the cards! I too would go for the student loans… not only are they higher interest, but they’re also the lower balance. Win win. My car loan is also through PenFed! High five.
I really think you have your repayment plan in the right order. It will make both of you a lot happier to have the license stuff gone and done asap. 🙂 Then you can really start tackling those student debts.
We just paid off a couple of debts and I’m excited to be able to start throwing that payment money toward student loans also. 🙂
I’m sorry if you’ve answered this before, but you seem very concerned by your student loan payments. If some of your loans are Staffords, have you looked into Income Based Repayment? You can keep over-paying as much as you want but the total due per month would be more manageable. You’d be surprised who qualifies. My family makes decent money but we still get a break because of how large our debt is compared to our income.
I am familiar with it, but haven’t personally looked into it at this point. It is my understanding that once that gets set up the repayment begins immediately, and I’m trying to avoid that until February so I can get some more traction on my other debts. I do plan to talk to someone about it once we get to that point, but I was worried that we wouldn’t qualify based on our combined household income (I would probably qualify based on my income, but think its based on the tax filings and we file married filing jointly, so husband’s income would be included). It’s certainly still worth talking to someone to see, and I do plan to do that in the future.
You would be surprised. For a family of four, the income cap for the program is around 100k. There’s a calculator and info here: http://www.ibrinfo.org/what.vp.html
It may give you piece of mind to know what your minimums will be.