by Adam Dawson
We spent the first 3 years knocking out our smaller debts and our undergraduate student loans. We now have a plan in place to tackle the rest of the debt – my graduate school loans, in the next 4 years, with the last payment scheduled for my 35th birthday in July 2017.
Here is a breakdown of our remaining debt.
| Adam Direct Loan #1 | $5343 |
| Adam Direct Loan #2 | $6734 |
| Adam Direct Loan #3 | $10,060 |
| Adam Direct Loan #4 | $10,702 |
| Citi Graduate Loan | $38,310 |
| Discover Student Loan | $40,884 |
| Total – July 2013 | $112,033 |
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We use the snowball method, so we’ll more or less knock these out in the order listed. The Discover loan is at a much higher interest rate than the others so we may attack that one before the Citi one since the balances aren’t that much different.
You may be wondering why we paid off a couple larger balance loans prior to these small Direct Loans. The reason for that is because the Direct Loans were always presented as one large balance until they revamped their website recently. When we arrived at this loan in the payoff, I found out you could split them up into individual loans. and apply payments to each loan separately. I don’t know if splitting them will hurt or help the payoff schedule – but as we learned from Dave Ramsey (and found to be definitely true in our case), debt payoff is only a little bit about math and mostly about behavior/emotion. So at this point in our loooong 7-year journey, it feels nice to have a couple smaller debts to attack. Keeping us motivated.
Another factor is also at play here. I tend to keep a “SHTF” index in my head along with tracking the debt balances. I won’t spell out the acronym, but the idea is that if I lose my job suddenly, or I meet an untimely demise, or some other financial disaster happens, I am trying to arrange our finances so that we can recover quickly, and that Emily is taken care of if I am suddenly out of the picture. So we paid off our cars, and her debts first. My creditors will undoubtedly come after her if I exit, stage death, but she knows she’s not obligated to pay them. We own our cars, and if we have to defer student loan payments for a while due to job loss or some other factor, it will kill our credit, but we won’t be without transportation.
To make my goal of paying off grad school by my 35th birthday, a very aggressive payment schedule was needed. Basically, we need to consistently make our snowball payment, as well as an additional $7500 each year for the 7 year schedule. My last job paid a bonus in the spring time, so we’ve been keeping up with the $7500 by using my bonus + tax returns + one of the 2 “extra” paychecks each year. In my new job, I got a nice raise, and bonuses are paid quarterly. So instead of a big $7500 payment each year, we added $625 monthly from our increased salary, with the idea that we can finally keep the bonuses and extra checks for other needs like car repairs, house maintenance, and maybe even a vacation every now and then. Because I switched jobs early this year and we bought a house, we didn’t make this year’s $7500 payment. So for the next 6 to 9 months, these little bonus and paycheck extras will mostly be needed to get caught up on our schedule. Then we’ll need to plan how to use those little extras when we have them to ourselves again 🙂
