Snowballing debt ?

[farfalla2011]

I've been doing the snowballing method to pay off debt for a while. I finally got out of all credit card debt last year and now I'm finally going to work on my student loans.

My question is - if you have multiple loans with the same rate, but different balances, what order do you pay them in order to pay the least amount in interest? Smallest balance to largest? Largest to smallest? Or does it not matter?

To put numbers to this - I have 8 student loans ranging from 5.6%-6.8%.

3 at 6.8% ($2800, $3500, $6900)
3 at 6.0% ($460, $460, $1600)
2 at 5.6% ($2500, $5000)

[megs193]

I would typically put all my extra money towards the loan with the highest interest rate. If I had 3 loans with the same interest rate I would put the money towards the loan with the smallest balance. If I were you I would consider paying off the 2 loans at 6% with a 460 balance. The balance is low enough that you should be able to pay it off pretty quickly and the interest rate is not that much lower than your highest interest rate. After that I would put all the extra money to the $2,800 loan at 6.8%.

[megs193]

How much extra money per month do yo have to put towards debt?

[aspentosh]

May 18, 2012 10:10:42 GMT -5 megs193 said:

I would typically put all my extra money towards the loan with the highest interest rate. If I had 3 loans with the same interest rate I would put the money towards the loan with the smallest balance. If I were you I would consider paying off the 2 loans at 6% with a 460 balance. The balance is low enough that you should be able to pay it off pretty quickly and the interest rate is not that much lower than your highest interest rate. After that I would put all the extra money to the $2,800 loan at 6.8%.

This exactly.

[juris11]

In general I agree with paying the highest interest rate, but if there is a smaller loan where I could pay off that balance quickly, I would do so. The reasoning being that that frees up more money quicker to put on the rest of the debt, since you won't have that monthly payment anymore.

[farfalla2011]

It tends to vary month to month, I'm trying to pay at least $300 extra per month towards the loans. I'm currently on an IBR (until Feb) so my minimum is only paying interest. I also plan on throwing bonuses towards them as they come as well.

I know I'm going to be at this a while, so I'm not going super crazy with budget cuts to repay them.

However, I do have some things that are going to be changing in the next 2-4 months that will allow me to throw about $800 a month towards them instead.

[farfalla2011]

I should also add, I'm not making 8 different payments a month...its all one payment (Sallie Mae).

[Roc A Bee]

I'd pay the 2 smallest first just to get them out of the way then I'd do highest interest rate.

[meandhim]

May 18, 2012 10:15:05 GMT -5 aspentosh said:

May 18, 2012 10:10:42 GMT -5 megs193 said:

I would typically put all my extra money towards the loan with the highest interest rate. If I had 3 loans with the same interest rate I would put the money towards the loan with the smallest balance. If I were you I would consider paying off the 2 loans at 6% with a 460 balance. The balance is low enough that you should be able to pay it off pretty quickly and the interest rate is not that much lower than your highest interest rate. After that I would put all the extra money to the $2,800 loan at 6.8%.

This exactly.

This is what I was thinking also. If you have an extra $300/month extra to put towards the loans, the two small loans will be gone in no time.

[farfalla2011]

Thanks ladies! What you guys have said goes in line with what I was thinking...

The dumb side of my question was more if I pay all three 6.8% loans from smallest to biggest, would I pay more/less interest than if I pay them biggest to smallest. I'm being too lazy today to do the math to get the answer. And my gut tells me it doesn't really make a difference.

[SJ]

Great job finishing off the credit card debt!

Before you really drill down to attack the SL debt, I'd take a look at your other savings/investments. How are your retirement accounts? Are you putting as much as you can into 401k/IRA accounts?

There are tax benefits and growth reasons to concentrate on investments before SL's (which do have a small tax benefit).

If you are comfortable with retirement, I'd attack the SL's in order of interest rate.

[farfalla2011]

May 18, 2012 12:00:34 GMT -5 SJ said:

Great job finishing off the credit card debt!

Before you really drill down to attack the SL debt, I'd take a look at your other savings/investments. How are your retirement accounts? Are you putting as much as you can into 401k/IRA accounts?

There are tax benefits and growth reasons to concentrate on investments before SL's (which do have a small tax benefit).

If you are comfortable with retirement, I'd attack the SL's in order of interest rate.

Thanks! I definitely feel very good about getting out of credit card debt.

I have very little in 401K and nothing as far as general investments. Back in December, I did up my contribution to 5% (was 1% most of last year - really bad) to fully take advantage of the company match we have. I'm currently way behind on retirement (I have approx $5000 and I'm almost 30). I do thankfully have about 1 month expenses saved - this is after I had about 3 months saved and had to spend all of it on something that came up back in February. I also have stable employment.

Although I'm behind in retirement, I'm very unlikely to ever be able to max out annually since that would be over 50% of my take home pay as things are currently.

[SJ]

May 18, 2012 13:20:47 GMT -5 farfalla2011 said:

Although I'm behind in retirement, I'm very unlikely to ever be able to max out annually since that would be over 50% of my take home pay as things are currently.

Sorry, I didn't mean the maximum allowed by IRS, I just meant the maximum that you are comfortable with in regards to your income/budget.

I'm glad you are putting in enough to get the maximum match- that is free money and very important.

Given the additional information, I would probably personally split the "extra" $300- putting half towards SL's and half towards retirement.

[farfalla2011]

May 18, 2012 13:28:48 GMT -5 SJ said:

May 18, 2012 13:20:47 GMT -5 farfalla2011 said:

Although I'm behind in retirement, I'm very unlikely to ever be able to max out annually since that would be over 50% of my take home pay as things are currently.

Sorry, I didn't mean the maximum allowed by IRS, I just meant the maximum that you are comfortable with in regards to your income/budget.

I'm glad you are putting in enough to get the maximum match- that is free money and very important.

Given the additional information, I would probably personally split the "extra" $300- putting half towards SL's and half towards retirement.

I actually didn't think you were implying the IRS max...it was more me in my dream world wishing I could do that for 2 years and catch up.

I have considered increasing my 401K a little bit more since I do have the extra money in my budget, it just makes me a little nervous because if I plan on applying it to loans, if something happens, I would have money to move around during the month. Every month this year I've had big budget items change due me trying to better my situation and I guess I probably just need to let the dust settle for a month or so and then come back and reassess once things quit changing.

Thanks for your feedback!! I really appreciate it.