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.
