Get intimate.. with your debt.

Do you have student loans?  Do you wuv your student loans and think they’re adorable, make your life awesome, and make you feel wonderful?  Great, then do nothing, and you can skip the rest of my blog.  Because if you’re ready to get cozy with your loans and “just live with them,” that roommate will be with you for the next 10-25 years.

But trust me (or as you may already know), loans are the worst kind of roommate: that steal money out of your wallet, bum you out, and drink the last beer in the fridge.  OK maybe not the last part, but their effect on your bank account is as lame as that!

Still on the fence?  I bet you don’t know much about your loans.  Quick quiz: do you know the interest rates on your loans?  The schedules?  I bet you know how many loans you have, who services them, and what the monthly payments are.  But that’s not the full picture.

Get intimate with your loans.  Get all up in their personal space.  I challenge you.  If you were fuzzy on the items above, take the unthinkable step of opening the loan letter or electronic statement and reading the whole thing.  Take down the schedule ending date, interest rate, and original loan balance, and pop these data points into an amortization calculator like this: http://www.amortization-calc.com/

And behold the horror of how much you really have left to pay, and how much will be pointless interest.  Say you took out a $20,000 loan in school in 2008 at the typical 6.8% interest rate of that time, and elected for a prolonged 15 year repayment schedule.  If you let that schedule play out, you will ultimately pay nearly 60% more than the original $20,000 loan at $31, 956.62.  The nearly $12k delta is pure interest – all for the convenience of paying over time.

But you can use the same tool to see that if you apply your rad self and pay over 8 years instead of 15, at the monthly rate of $270 rather than $177, you will pay less than $6k in interest, and over half the period of time.  With 7 additional years to start getting on with the rest of your life.  If you are committing to pay $177/month to avoid defaulting on the agreement you already made, maybe you could find $93 more per month to cut the interest (loan company profit at your cost) in half.  That is the beauty of amortization calculators.

Up next: finding extra money for this.

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2 thoughts on “Get intimate.. with your debt.

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