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I have approximately $22,000 in student loans at a 6.55% interest rate. With my current budget, I can afford to pay up to $900 a month in student loan payments, but I would not save any money as a result. I know the usual response is to pay back the loans as soon as possible. However, my work gives me money to help pay for student loans. After taxes, I receive $250 a month to put toward student loans (this amount is calculated into the $900). I can take part in this program for up to 5 years.
I am not the best with numbers and would like to find the best method to pay off my loans. How can I maximize my work's repayment program, yet not accrue tons of interest by elongating my loan payment timeframe? Are there any recommendations on excel spreadsheets to do the calculations? Any advice is welcome. Thank you!
I would certainly try to take advantage of your work program as much as possible. That sounds like a great benefit!
I'm in a similar situation with student loans (in terms of debt and interest rate) so if I'm not mistaken that $250 should almost entirely be close to covering the full minimum payment. If you're certain you'll be working there for 5 years then I would calculate the amount to put in that would result in a 5 year paydown. As a rough guess assuming it's a traditional 10 yr loan it should be less than double your minimum payment amount. At $900/mo you're probably more on track for a 2-3 yr paydown that would not take full advantage of your work benefit.
Ballparking it say if the minimum is say $290 and you put in $600 (including the $250 from work) you should be guaranteed to pay it off within 5 yrs. Without doing any fancy calculations realistically you can probably put in a bit less than this and be OK since you should benefit from reduced interest along the way. Continuing my example assuming your minimum was $290 than I bet even if you put in about $500 ($250 personal contribution) it would be paid off within 5 yrs, or very close to it. I would do that and not bother with an excel sheet personally and you can always make adjustments toward the end to make it close in 5 yrs
You definitely don't want to pay it down faster than the 5 yrs because then you are throwing away free money essentially (since the amount they will pay outweighs the interest on the loan) You could take the extra money and invest for retirement or save, etc
I have approximately $22,000 in student loans at a 6.55% interest rate. With my current budget, I can afford to pay up to $900 a month in student loan payments, but I would not save any money as a result. I know the usual response is to pay back the loans as soon as possible. However, my work gives me money to help pay for student loans. After taxes, I receive $250 a month to put toward student loans (this amount is calculated into the $900). I can take part in this program for up to 5 years.
I am not the best with numbers and would like to find the best method to pay off my loans. How can I maximize my work's repayment program, yet not accrue tons of interest by elongating my loan payment timeframe? Are there any recommendations on excel spreadsheets to do the calculations? Any advice is welcome. Thank you!
Slice that payment in half. You need to be saving money too. You can't pay for emergency expenses with savings from student loans. Save at least half of that 900 a month.
I have approximately $22,000 in student loans at a 6.55% interest rate. With my current budget, I can afford to pay up to $900 a month in student loan payments, but I would not save any money as a result. I know the usual response is to pay back the loans as soon as possible. However, my work gives me money to help pay for student loans. After taxes, I receive $250 a month to put toward student loans (this amount is calculated into the $900). I can take part in this program for up to 5 years.
I am not the best with numbers and would like to find the best method to pay off my loans. How can I maximize my work's repayment program, yet not accrue tons of interest by elongating my loan payment timeframe? Are there any recommendations on excel spreadsheets to do the calculations? Any advice is welcome. Thank you!
As long as the work benefit is more than the interest cost of the loans, keep the loans and hoard your cash, since the effective interest rate is negative. When you leave the job, or when the 5 year period ends, you may be able to just pay the loans off in one fell swoop. You'll come out ahead this way.
22000 * 0.0655 = 1441 (annual interest)
250 * 12 = 3000 (annual benefit)
3000 > 1441
Don't pay anything more than the minimum as long as you can get the benefit. Stockpile cash.
Yes it is a personal preference but personally I would not move forward until that monkey is off my back. I would save a small amount for emergencies(1K-2K)and then just destroy that debt ASAP. You don't want that on your books when you are unemployed (yes this could happen).
As long as the work benefit is more than the interest cost of the loans, keep the loans and hoard your cash, since the effective interest rate is negative. When you leave the job, or when the 5 year period ends, you may be able to just pay the loans off in one fell swoop. You'll come out ahead this way.
22000 * 0.0655 = 1441 (annual interest)
250 * 12 = 3000 (annual benefit)
3000 > 1441
Don't pay anything more than the minimum as long as you can get the benefit. Stockpile cash.
This also doesn't take into consideration the tax benefit with the student loan interest deduction. Assuming your job is stable, take advantage of the $250 benefit and save the extra money for emergencies. The risk with this approach is if you lose your job. However, if you lose your job you can get deferments on the student loans, but your other bills will still have to be paid. Basically, you would have paid down a loan that you wouldn't have to worry about if you lose your job at the cost of not having any emergency funds saved up. If you spend all your spare money on loans at the cost of not having emergency savings then you:
Lose out on the tax deduction
Lose out on the $250 monthly work benefit
Put yourself in a very poor position if you lose your job
Personally, I'd pay the monthly minimum or $250, whichever is greater, save the rest in a savings account with a decent return. Once you have a solid 3-6 months of emergency savings or the 5 year work benefit runs out, then you can increase the payments to get out of debt, or alternatively start saving in a retirement account. 6.5% is not horrible, you can reasonably get a better return by investing, although that does have some major risks as well.
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