Earlier this year I finally decided to set a goal to pay off my mine and my wife’s student loans. Since we got married last year we have been paying extra toward our loans but we were just paying an amount that we were comfortable with. While there was no defined goal we did agree that paying off our student loans was a priority, we even put most of our wedding-gift money toward our loans! Sitting at home one night earlier this year I decided that it’s time to pay an amount which we AREN’T comfortable with so that we can get on with our lives.
Our Financial Situation
Our take home pay averages about $4400 a month. Right now it is my wife’s busy time of year so she is getting a lot of overtime, this should end by May. In January, I started a paper route to relive the nostalgia from when I was younger and that brings in about 200 additional per month. Hopefully by the end of March I will begin my summer side-gig doing landscaping. I find this work fulfilling and it’s a great way to make money on Saturdays and in the evening. Last summer I made about $4000 and I hope to increase that this year.
We have an emergency fund of $2500 and about $5000 in our checking account. At this time we are not looking to put more into our emergency fund but in the future we certainly plan to have 6+ months of expenses saved. We put everything on our credit card but never carry a balance/pay interest and are enjoying accumulating rewards.
I am contributing 14% of my salary to my 401k and my company contributes 4%. My wife contributes 6% with no company match guaranteed but it may happen depending on the year. Our contributions and match should total about $10k a year. Right now our retirement savings are at about $19k.
I budget for our expenses (mortgage, utilities, food, transport, charitable contributions, and entertainment) to be around $2100 a month. For this experiment we will not be including our mortgage as part of the snowball. When our student loans are paid off we will reevaluate our financial situation and determine our priorities (retirement savings, college fund, kids?) You may notice that the debts are not being paid off in the order of highest to lowest interest rate. To be fair since we both contribute financially and to make it feel like we are both making progress we have decided to alternate between paying one of my loans and one of hers. The difference in interest paid was minimal and I was willing to make this compromise to get her onboard.
Mortgage: 83,385@ 5%
Auto Loan: 452 @ 5% - will be paid off very shortly
1. Bill’s Loan 1: 961 @ 7.9%
2. Sarah’s Loan 1: 3,684 @ 6.8%
3. Bill’s Loan 2: 4,290 @6.8%
4. Sarah’s Loan 2: 4,562 @6%
5. Bill’s Loan 3: 4,318 @6.8%
6. Sarah’s Loan 3: 8,261 @ 5.75%
7. Bill’s Loan 4: 12,891 @ 5%
8. Sarah’s Loan 4: 751 @ 5%
9. Bill’s Loan 5: 4636 @ 5%
10. Sarah’s Loan 5: 5,127 @ 2.79%
11. Bill’s Loan 6: 2,587 @ 2.36%
12. Sarah’s Loan 6: 2,106 @ 2.36%
If I managed to rekey these from my http://www.vertex42.com/Calculators/debt-reduction-calculator.html correctly the total amount should be $54,626. Right now we are paying $1070 which includes my soon to be paid off auto loan and two other loans that have been snowballed in. The minimum payments for the student loans which we working on add up to $730. The goal is to begin paying a total of $2000 a month toward these loans. If we are able to pay that amount every month I estimate that we will be able to pay off all these loans in August 2014, 29 months from now. August of 2014 isn’t bad…but the goal is January of 2014. If we pay $2,000 for 29 months we will pay $3,216 in interest and a total of $57,842.
So we need to come up with quite a few more thousand dollars. Realistically I do not see myself continuing with the paper route past May, but I plan for $600 extra to come from that by the time I am done and I will add that in. If I only make $4000 landscaping this summer I plan to apply that to the loans in October. By adding in this $4600 the payoff date changes to June 2014, saving me two of the needed 8 months and $441 in interest! Of course I am not going to rely on the potential income and if for some reason it did not come through we would not be in financial hardship.
I feel the need to mention that we are not increasing our EF at this time because in the unlikely event that one of us loses our ability to earn income we would be able to survive on one income. If there were some sort of emergency car or home repair we could reduce to only paying the minimum amount on our loans, this combined with the $2500 EF we have should be enough to weather any unforeseen situations.
So...what do you think?