Cash flow current tuition or pay down old student debt?
Thanks to YNAB, I was able to pay off all of my outstanding credit card debt in less than one year, just before the start of 2017. It would have taken me a lot longer had I not used YNAB.
I'm now so disgusted by debt I can't stand even having my student loans. However, I started graduate school in Fall 2016, and I've been struggling with deciding to save my monthly debt payment amount to pay for tuition or paying down old student debt.
One good thing is no payments are required since I am in school, and the majority of my student loans are subsidized so interest in no longer accruing now that I'm back in school. The one loan that is unsubsidized is about $2,600. My first thought was to pay off all the interest-accruing debt, then just pretend like the ones that aren't bearing interest don't exist while I attack current tuition and save for future tuition costs. My current overall student loan balance is $19k.
I don't have enough money each month to do both. If I put my extra money towards tuition, I would only be able to pay down old student loan debt with my end of year bonus at work or tax refunds I may get. If I pay down all my old student loans, I'd be adding new student loan debt to pay for my current tuition. I'm going part-time, so my expected graduation date is Spring 2020.
It would be great to see what other people would say about the pros/cons of focusing on current tuition v. old student loans or tell me something totally different! Thanks so much!
I'm so glad YNAB has helped with the credit card debt! Hooray!
As for your decision between paying off old student loans or preventing new debt by paying grad school tuition, are there any interest benefits? You said that most of the loans are not accruing interest -- if there are any still accruing interest, you might want to prioritize paying those down first.
It will be nice to hear from other YNABers, too!
I would consider pay off the interest bearing college debt then when you pay that off, use that to pay for tuition...yes your student debt will increase but not bearing any interest until you graduate. I think this will give you some "mental relieve" from striking off another debt. Also for 2018 fed taxes you should estimate your tax liability based on estimated income and adjust your withholding amount so you are not overpaying your fed taxes...that will free up some monthly cash to add to your debt payment (so you can pay it off sooner too!). You can do this on-line with HRBlock or use the W-4 form then give to your employer before year-end.
I would recommend paying for tuition out of pocket. I am in the same situation. I have had to pay for about half my tuition with financial aid. Those loans are at about 6% interest. The amount of interest I have to pay on those new loans increases the amount of money out of my pocket monthly. However, the times I was able to pay for tuition out of pocket I didn't have to accrue any new debt or worry about paying that debt off later. For a $2600.00 unsubsidized loan the monthly interest rate shouldn't be much so you could budget to pay at least the interest. Then depending on how much your year end bonus and tax refund is you could pay off that $2600.00 loan.
My advice is to put the money toward whatever debt has or will accrue with the highest interest rate. I know my loans had different rates. Hypothetically, if you have to take out a loan at a higher rate for this years tuition vs. any of your current rates, pay out of pocket now. A more complicated situation: If you have a loan, that is even interest deferred, that will be the highest when it kicks in, pay on that. Reason is you are likely to save more paying off the principle on that low now even if you get hit with interest on your current loan. The exception to this is if you can manage to pay off the current loan concurring interest quickly, but if you can't I believe if you crunch the numbers you'll see you will save more the way I suggested.
That being said, if doing it a different way give you better peace of mind, do it that way.