Looking for opinions on MY debt

Hello all my fellow YNAB peeps!

 

I'm looking for opinions on paying off my various types of debt! Of course, like buttholes, everyone has an opinion, so I'm hoping to read about some varying opinions on this topic. Since I don't yet have strong feelings either way, I'm opening up my mind to all you lovely people to hear how view my various types of debt.

 

So the breakdown is as follows:

  TOTAL INTEREST RATE MINIMUM PAYMENT
Federal Student Loans $21,044.26 4.05% N/A
Student Loan Through Grandma $22,920.26 2.00% $50.00
Auto Loan $12,162.61 2.65% $235.20

Interest rates and required payments are suspended on the federal loans through January 2022. Also important to note that if my grandma dies before my loan is paid off, the loan is forgiven (morbid, but part of our "official" paperwork)

 

So my major question is, should I be paying additional amounts on any of these loans currently? I'm going to have around $150 each month to play with.

 

I'm considering the purchase of a house in the next 5 years, but no hard plans (I'm 25 for reference). I had planned to use that to bulk up some true expense categories (vet fund, furniture, clothes) all of which will have large use within the next couple of years. I was just wondering how all of you handled student loans (pay, pay, pay? minimum payments in hopes they are forgiven in the future?) and car loans! Love expanding my financial knowledge.

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  • This YNAB podcast regarding student loans is worth listening to. Addresses a lot of issues. https://podcasts.apple.com/us/podcast/you-need-a-budget-ynab/id477248343?i=1000530250765

    Like 3
  • Since you commented on the morbid part of things, I just have a question of out curiosity. What is stopping you from making any payments on Grandma’a loan and dragging it out? That being said, the prioritization of loans right now looks good, since you are paying off the highest interest one first.

    You can also use Undebt.it to help plan your snowball payments. You should check it out if you already have not.

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  • I'd make sure the auto loan is paid off before the car has to, or wants to, be replaced.

    Like 1
  • On the grandma loan, how well off is she, and could she use the extra money?  Or is she "loaded" and it doesn't matter?  Just thought it might enter into your decision.  Even though paying minimum on that, and having the possibility that a  chunk of it would be "forgiven" at some point sound good, if she needs extra money, maybe giving her more than $50 a month would be a good thing to do?

    Of course strictly financially/mathematically speaking, the higher interest payments saves you more over time, and like was mentioned above, paying off the car before you need to replace it is important.  So, I can see an argument for putting preference to any 3 of those, depending on what your priorities are.

    Like 1
      • Emma Catherine
      • Civil engineer getting back on track
      • emmacatherine
      • 1 mth ago
      • Reported - view

      Bruce She is well off, no need for extra money each month

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  • Most people here will not each have their own butthole. 😂 We all share one. 

    Extra money should go highest interest to lowest interest unless you truly need the lower debt payoff to keep your head in the game. But if you are going to slow and steady it and spending a long time paying off your first loan isn’t going to discourage you and cause you to stop allocating the extra, then you need to pay them off in descending order of interest rate. 

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      • Emma Catherine
      • Civil engineer getting back on track
      • emmacatherine
      • 1 mth ago
      • Reported - view

      Breau my grandma paid for my college, and now I'm in the process of paying her back with interest. No outside parties. 

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  • I would pay the extra $150 to the auto loan so you can get the loan company off your back as quickly as possible. With regard to grandma, I would start paying her back. It's the honorable thing to do, especially given that she was gracious enough to loan you the money.

    Like 1
  • As a CPA, I spent most of my life in the "highest interest rate first" camp. Then I discovered Dave Ramsey and his "smallest debt first" philosophy, which ignores all other factors and goes by order of balance owed (smallest to largest).

    My first reaction was "that's the dumbest thing I've ever heard". Then something changed. I tried it for myself. Now I get it. The psychological impact of paying off a debt creates a level of inspiration I hadn't previously considered. When you pay one off it gives you that money to attack the next one, which in turn inspires you to start working harder and putting even more money into paying off the next debt, and the next one, etc. Because you star to think, "Holy sh**, I can do this!" 

    Dave Ramsey calls this the "Debt Snowball" as in a snowball that gets bigger and bigger as it rolls down the hill, meaning as you pay off each one you have more cashflow to attack the next one, but also your enthusiasm grows too. We went from no hope of getting out of debt to paying off $77,000 in under a few years. And since using this strategy myself, I've seen it work miracles on others that I've coached, all getting out of debt faster than planned because it made them get fierce.

    Sometimes things can make no sense on paper but still be highly effective in reality. Something to consider.

    Like 7
  • Snowball it!

    Since your auto loan is so much smaller than the others, pay that one off first. Then put that $235.20 towards the federal student loans, while paying the minimum payment to Grandma. Repeat until the federal loan is paid off, then put that $235.20 + your extra $150 per month towards the federal student loans.

    Why is the minimum payment for your federal loan N/A? If it's because of the Covid-19 student loan forgiveness, then any payments you make will go directly towards your principal, and if you have the extra money I would definitely start regularly paying that. If not, then pay Grandma back first then throw all of your extra money at the end of the month to the federal loan! Either way, get the car paid off first.

    Good luck & keep us posted!

    Like 2
  • I have to agree that you've got things set up pretty good at the moment.
    Using undebt.it you can play around with 'what happens if' scenarios. I like to keep only one loan in there at a time so I can see what happens if I make additional payments on each loan independently. If you've got an extra $150 to "play" with, then go look at what it does to your car loan to add it to your payment each month. You might be surprised at how fast it will knock down your payments, which frees up even more room to really blast through the student loan payments.
    I also agree with possibly giving your grandmother more - just as a gesture of appreciation. Of course only you know her so only you know whether she would appreciate that, or whether she'd fuss at you for not putting more towards your car loan/student loan to get that out of the way first and THEN pay her extra.  If she was kind enough to loan you that much money towards your education, and might just be the type to get mad at you for not paying the "bigger" bills (i.e. more costly ones) first. You can always show your appreciation by doing things for her if that's the case, even if it's mailing her cards, or sending flowers now and then if she lives far away, or taking her out to lunch or something if you're close by.
    You're setting yourself up for success in a way that means you'll never have to end up in the places that many of us have ended up - so good for you!!

    Oh, and PS - as far as buying a house, I assume you're in the US, and if that is the case when they examine your credit when you are working on getting a loan for a house, they want to see about 10% utilization of debt. So they actually DO want to see some debt, but not too much. 🙄 After there, making sure you've got a good amount saved up for a down payment, and making sure you are really understanding how much the loan payments are going to end up being so that you know what the budget impact will be is important. They may say you can get a loan of a certain size, but it's up to you to know what kind of impact that's going to have on your finances, and always be conservative if you can. It's WAY better to have a smaller payment and have plenty of room to deal with the unforeseen things that come with a new house, than it is to push the limit of what you can handle on the payment and then end up not being able to invest anything in the house (upgrades, replacements of things that break or are old, surprise issues, etc). I'm sure you know that, but it's helpful to have someone say it, too sometimes!

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  • Actually, I would ask your grandma what she thinks. She agreed to loan the money in the first place. Would she feel better to be left for last so that she can see you debt-free except towards her?

    She might be happy to instill some good practices by putting an interest rate and a minimum payment and at the same time, she might prefer for you to pay your other debts and save for a house first.

    My grandma certainly had only one aim: see all of her grand-children established (starting family, in a job, financially secured etc) before she dies with little regard to the financial cost to her. I lived for 4 years with my grand-parents during my study for free.

    Like 4
      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 1 mth ago
      • 1
      • Reported - view

      Ceeses I was thinking the same thing while reading farfromtheusual’s response. Instead of guessing what she’d prefer, just ask. 🙂 But yes, very nice gesture on her part!

      Like 1
  • If you’re going to put more money toward any of these loans, it likely makes sense to start with the auto loan, as there’s more urgency to pay this off.

    But before you completely dive into a debt repayment plan, especially if you’re considering buying a house in the next five years, you want to make sure you’re saving as well. If you don’t have an emergency fund, consider building one up to at least $1,000.

    Once you have your savings set aside, if you implemented the debt snowball method, you’d also start with the auto loan because it’s the smallest balance. You can use a debt snowball calculator to figure out how much you can save in interest and when you’ll be debt free, but if you throw the extra $150 at your car payment each month, while continuing to make the minimum payment on your private student loan, you could have the car paid off by May 2024.

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