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Home > Reader Questions > Should I Pay Down My Private Student Loans or Just the Minimums? – Anthony

Should I Pay Down My Private Student Loans or Just the Minimums? – Anthony

I am a recent college graduate with $80k in student debt. I attended a private college in Santa Barbara, CA, thinking they would provide the best education, an awesome alumni network, and a solid leg-up above the competition. True, I am working for $32K a year while my counterparts are struggling to work at Borders, however I have a lot of debt to deal with.

Here are my approximate debts:
-$45k are two unsubsidized private student loan under Sallie Mae at interest rates at 6.88 and 5.25 percent.
-$25k are multiple debts with differing interest rates under 7 percent.
-$10k is interest free (low-income)

I am enrolling in the local community college to learn more about business and finance for $140 to defer my loans, however my unsubsidized loans will continue building interest.

Should I begin aggressively paying down my loans, living almost paycheck to paycheck except for 10 percent savings, or pay the minimum until I find a better paying position?

Anthony

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Should I Pay Down My Private Student Loans or Just the Minimums?   Anthony
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Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Steve Rhode

    James,

    FYI, lowest rates for unsecured consolidation loans are right now at just about 7% through LendingClub.com.

  • James

    Hi Anthony

    Congratulations on the job! Its truly is a rough job environment right now. As I don’t know everything about your financial condition (spending habits or all your financial needs), I’ll do my best to tell you what options I see are available.

    - Try to get lower rates with debt consolidation – Its perfect that you have a stable job now. After building solid relations with your employer, you can ask for a letter from your boss stating your job stability with the company in order to receive a lower rate on a consolidation loan. This may not work 100%, but hell its worth a shot.
    - Pay off the highest interest loan – Its a simple idea, but critical to paying less for the amount you owe.
    - The only reason that I see you would want to pay the minimums is if you are trying to build an emergency fund. At least 6 months of pay should be your emergency fund is what the book says, but if you have strong family relationships a minimum of one month would be a start.

    The way it is Anthony is that the law of compounding, that works so well with investments, works just as well against you with debt. The more you pay off the principle of your debt on your 7% loan would be a hypothetical 7% gain on that extra principal paid. Thus, paying off less debt in the total life of that loan.

    I hope this gave you some insight. Good luck!

    - James
    Financial Planning Student

  • James

    Hi Anthony

    Congratulations on the job! Its truly is a rough job environment right now. As I don’t know everything about your financial condition (spending habits or all your financial needs), I’ll do my best to tell you what options I see are available.

    - Try to get lower rates with debt consolidation – Its perfect that you have a stable job now. After building solid relations with your employer, you can ask for a letter from your boss stating your job stability with the company in order to receive a lower rate on a consolidation loan. This may not work 100%, but hell its worth a shot.
    - Pay off the highest interest loan – Its a simple idea, but critical to paying less for the amount you owe.
    - The only reason that I see you would want to pay the minimums is if you are trying to build an emergency fund. At least 6 months of pay should be your emergency fund is what the book says, but if you have strong family relationships a minimum of one month would be a start.

    The way it is Anthony is that the law of compounding, that works so well with investments, works just as well against you with debt. The more you pay off the principle of your debt on your 7% loan would be a hypothetical 7% gain on that extra principal paid. Thus, paying off less debt in the total life of that loan.

    I hope this gave you some insight. Good luck!

    - James
    Financial Planning Student

    • http://GetOutOfDebt.org Steve Rhode

      James,

      FYI, lowest rates for unsecured consolidation loans are right now at just about 7% through LendingClub.com.

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