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I would pay off the $1800 note first just to get it over with.
Then pay off the car loan since a car is a depreciating asset.
Then work on the $70k student loan @ variable rate. Then the mortgage last, since it's fixed at a very low rate.
You don't say how much you have left over each month to pay extra. I know it would be nice to pay down the $70k variable rate loan, but if you don't have $2000+ extra/mo, it's almost futile. Paying and extra $100/mo for 6 months and having a $69.4k balance vs $70.0k when/if the rate increases really won't help you out much, you know? But having a $58k balance vs $70k would help....if you had an extra $2k per month to pay down. Make sense?
Actually, they did say. They said they have around $500 a month extra to pay toward whichever bill. I agree that the more you can pay, the better, obviously, but paying some extra isn't really futile. Pay what you can when you can, is better than doing nothing at all, especially since they said they are already investing and have an emergency fund.
If the normal payment is around $500/month (totally picking that out of the air, based on a 15 year, 4% fixed loan for your amount), paying an additional $500/month would pay it off more than twice as fast. I think that is not futile.
Actually, they did say. They said they have around $500 a month extra to pay toward whichever bill. I agree that the more you can pay, the better, obviously, but paying some extra isn't really futile. Pay what you can when you can, is better than doing nothing at all, especially since they said they are already investing and have an emergency fund.
If the normal payment is around $500/month (totally picking that out of the air, based on a 15 year, 4% fixed loan for your amount), paying an additional $500/month would pay it off more than twice as fast. I think that is not futile.
Thanks, I missed that post.
I didn't mean paying it down at all was futile. I just meant if the rate does rise in the near future (say in 6 months), having paid $500 x 6 months won't really change much for OP.
Assuming 17.5 years left on loan, currently monthly payment would be $500 on the $76k private loan.
In 6 months time, new balance would be $71.5k if they pay $500/mo extra towards the loan vs $74.5 if they only paid the monthly payment (figuring only $300 of payment is going to pay down principal). If the interest rate changes 6 months from now to 5%, the monthly payment will adjust to $542 if OP only pays the current payment vs $520 if OP pays the extra $500/mo. A measly $20 difference.
That's what I meant by futile. If OP only pays down the $76k loan, in 6 months time, OP will STILL have to pay on the smaller loan, the mortgage, and the car loan.
If OP diverts $500/mo to the small loan, OP can knock it out in 4 months time and then have the car balance down to $5,500 or so- something OP could easily pay off 6 months later with a combination of monthly payment + $500/mo extra.
So......1 year from now- assuming rates change- OP could EITHER: 1. Have paid off car & small loan completely, and have a manageable $42 higher student loan which OP can then begin to throw $6k+ extra a year at paying down.
OR
2. Still have the small loan, the car loan, and be paying a $20 higher student loan payment each month.
The end financial result will be similar regardless of path #1 or #2, but the emotional burden lift from paying 2 of 4 debts off COMPLETELY in one year's time cannot be measured.
Smallest to largest. Once you get rid of one, you will have extra cash to get after the next.
why though? highest interest rate to lowest interest rate provides the greatest return on investment for those dollars. if your smallest loan is 1% and your largest loan was 15%, would you still pay smallest to largest?
that's for people who need "Gratification" of payoff to keep continuing the payoff.
highest interest rate (adjusted for tax benefits) first, followed by next highest interest rate, and so on.
why though? highest interest rate to lowest interest rate provides the greatest return on investment for those dollars. if your smallest loan is 1% and your largest loan was 15%, would you still pay smallest to largest?
that's for people who need "Gratification" of payoff to keep continuing the payoff.
highest interest rate (adjusted for tax benefits) first, followed by next highest interest rate, and so on.
Would you really give that advice when one loan is $1,800 and the other is $76,000? Just pay of the little guy and be done with it. One less thing to keep track of every month.
Would you really give that advice when one loan is $1,800 and the other is $76,000? Just pay of the little guy and be done with it. One less thing to keep track of every month.
like i said originally to the OP, if he's the type of person who needs the gratification of paying off a loan, then yeah...go for the small one first. but i would always pay off the highest interest rate first, for the maximum benefit of use of my money. i currently have one of my private student loans for around $7,000 at 3.5%. the rest of my private student loans are at 3.0%. my federal loans are 1.675%. i could easily pay off the one federal loan of $650 this month if i wanted to...but directing money there would result in a 2% (almost) lower return on my money than if i put it on the $7,000 loan. and in the end, all my student loans together result in $350/month coming out of my checking. i don't care if that's 10 payments, 3 payments (which it is, because of how i have the loans grouped), or 1 payment. it's insane to pay off lower cost debt first, unless you mentally need the gratification to keep doing the extra payments.
it largely has to do with personality, but to me, it makes no sense to pay off lower cost debt simply because it's a lower balance. his $76,000 in private loans is likely multiple loans. he didn't take out 1 $76,000 loan. he took out a few over a couple years. he may have them all through one lender, who combines his payments into 1 payment, or he might have 8 different payments that add up to his total amount for all his private loans.
so yes, i would give that advice. to me, it's either the car loan (highest cost debt), or the private student loan (next highest cost debt, but slightly added stress due to it being variable).
Pay off the car loan first. Given the tax deductions granted by your mortgage and student loans, you car loan has the highest rate. Ignore the actual balances.
I would pay off in this order:
And can you consolidate your private loans? Or how much could you get on an equity line on your home? If your student loan rates begin to rise, you could transfer that debt to an equity line on your house to fix the interest rate.
1. Car
2. Home
3. Private Student
4. Federal Student
Download this excel spreadsheet. It is great for thinking though this issue.
Would you really give that advice when one loan is $1,800 and the other is $76,000? Just pay of the little guy and be done with it. One less thing to keep track of every month.
that doesnt make much sense. you start high interested rate first no matter how much bigger it may be than a smaller loan.
I was just going to suggest trying it all different ways in a calculator to see which way you save the most money. In case you don't have a spreadsheet program for that Excel file, bankrate.com has an online debt reduction calculator here:
In normal times, I'd probably throw the money at the mortgage and severely reduce the term of it. But when the economy went to hell and it seemed NO one's job was safe, I changed my goal to reducing monthly payments and increasing savings as fast as possible (in case of job loss). After I had enough saved to meet my monthly obligations for at least a year, then I went back to paying down debt in the order that'll save me the most in interest costs. Only two debts left now and they're not that big. I would be worried about that variable rate loan though. I hate variables.
that doesnt make much sense. you start high interested rate first no matter how much bigger it may be than a smaller loan.
I agree. I can't believe all the posts implying it is better to knock off several low interest loans than it is to knock of one high interest loan.
In fact, if the rate(s) is low enough such as the mortgage - don't accelerate the payments at all. Invest the money. Perhaps refinance the mortgage if possible. My 15 year fixed is 3.675% (I love writing that) no way would I pay that down.
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