How should I go about paying down my debt?

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My fiancée and I have a lot of student loan debt. We also now have mortgage debt from a condo we bought a year and a half ago and a car loan that has 4 years left on the loan. We do not have any credit card debt. Our wedding is in about 4 months, so most of the money we have left over every month goes to that. We are paying for the wedding ourselves, in cash.

So my question is: After the wedding, which debt should we focus on? Let me give you some more details:

Fiancee’s student loan debt: ~$ 70,000, ~6.0% interest rate, ~$ 820 monthly payment
My student loan debt: ~$ 80,000, ~5.3% interest rate, ~$ 1000 monthly payment
Car loan: ~$ 12,000, 2.9% interest rate, $ 270 monthly payment
Condo: ~$ 125,000, 5.5% interest rate, $ 724 monthly mortgage payment (not including taxes and condo fee)

The student loans include many individual loans that could be paid off one by one to lower the monthly payment.

The amount we owe on the condo is about what it is worth, so it is probably safe to say that we are slightly under water on the mortgage.

I currently have about 2 months worth of expenses saved as an emergency fund.

After expenses every month my fiancee basically breaks even but I have about $ 400-$ 500 left over to either save or pay down debt. We are currently living in a one bedroom condo and would like to have kids 8-10 years from now which is how long we plan to live here. At the current rate that we are paying down the student loans they will be paid off 8-10 years from now when we will be ready to look for a new house. Houses in my area (washington dc area) are very expensive. Our plan was to basically put all our money into the condo so we would have a nice large down payment for a house when we are ready to sell. On the other hand, we would like to pay the student loan debt down, and also the car.

Some other points to consider: We could easily rent out our condo to cover all of it’s expenses plus leave us with a small monthly profit. We also expect home values in this area to go up. We already live within walking distance of a very desirable area where values for similar properties are double what we paid for ours. Also, within the next 6-8 years, the county plans on putting in a much needed streetcar system which will have 3 stops within walking distance from our condo.

Where should we focus our energy? Just the student loans? Just the condo? The car? Or all 3?

Thanks for your help.
This is pretty much the cheapest property that you can buy in this area. We are now spending $ 100 less per month than we were when we were renting. And like I said in the description, selling the condo now isn’t an option as it may be slightly underwater.

  1. Reply
    April 29, 2011 at 10:47 pm

    One of you could return to school paying cash for the classes and deferring one of those loans. That will give you some extra cash to pay off the car and pay down the first student loan.

    You can also sell the condo and buy a cheaper house.

  2. Reply
    April 29, 2011 at 11:40 pm

    Purchase Dave Rammsey’s “Total Money Makeover”. this will help you guys with the focus you crave and the tools and motivation to achieve your goals. If I were you guys i would look at if you can sell your car to get a cheaper car for a couple years while you focus on cleaning up the student loans debt. Other than that just pay all the minimums and then anything extra goes on the smallest of the debt by balence then move up snd throw all the extra on the next smallest.

  3. Reply
    April 29, 2011 at 11:44 pm

    All the best financial advice says pay off the debt with the highest interest rate first.

    It is good to have a savings fund for emergencies or even for other uses, but the interest you are paying now is greater than the interest you will get on your savings. I suggest paying off $ 400 extra, and putting anything else left over into your savings.

    Without calculating interest on your fiancee’s student loan, capital repayments of $ 820 monthly would clear it in about 86 months. If you paid in an extra $ 400 monthly, you would clear it in about 58 months, which is 28 months sooner. Left as they are, those 28 months would cost you a further $ 22,960 plus interest. I think being free of this burden is well worth the effort. And by now the car has been paid in full just by keeping to the loan agreement.

    After the first student loan is clear, you will have an extra $ 820 plus $ 400 to pay extra off another debt. If you were to choose your own student debt, that means instead of repaying $ 1000 a month, you could repay $ 2220, and see it melt rapidly before your eyes. Then you would have an extra $ 2220 plus the regular mortgage payment $ 724 (total $ 2944 – or even round it up to $ 3000) that you could pay off the condo every month. That would make some difference to your mortgage debt !!!!!

    A word about the condo mortgage. $ 724 a month is about $ 181 a week. If you paid that every week – or better still round it up to $ 200 – you will clear the mortgage years early. Partly because every week you have a lower balance and therefore lower interest, and also because paying weekly means you make the equivalent of 13 calendar month payments instead of 12. Banks don’t normally encourage you to do this because it means a bit of extra work for them calculating the interest, but if you can arrange it that way, it is a lot of extra money left in your pocket instead of theirs.

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