After five years of college for Daniel and four years for Jane, the couple had amassed a total of $ 88,000 in student loan debt.
“After we graduated, we wanted to get rid of these loans As soon as we could, “Daniel told Insider.” We definitely didn’t want that because it was just sticking out over our heads. “The couple planned to pay it off as soon as they got their first jobs.
“We put all our extra money into it. It wasn’t much more in the first few years,” he said. The couple quickened theirs pay off at the beginning by rounding up your monthly payment to the nearest hundred.
After a few promotions and raises, they were able to invest even more money for their student loans and turned to two common strategies for paying off debt, the debt snowball and the debt avalanche to speed up the process.
They paid off the smallest loans first to get going
Her student loans weren’t included in a single $ 88,000 loan, but were broken down according to the year each loan was taken and the loan types used. They decided to start with that Debt snowball strategywho focuses on paying off smaller debts first.
“We had a couple of loans that were only a few thousand dollars each,” he said. You are investing extra money in these small dollar loans to pay them off and build momentum.
This was a great start to their payout journey for two reasons. “First of all, it just felt good to get rid of her. Then, second, the money we contributed to these loans could be carried over into the larger ones and put in snowballs, ”Daniel said.
One of the benefits of the snowball approach to debt settlement is simply motivation. It can feel a lot more rewarding to make progress early in the process, Daniel said.
Then they started prioritizing higher-interest loans
For federal student loans, the Interest rates vary based on the type of loan used and the year of borrowing – some years and loan types have higher interest rates than others. So this couple turned to the debt avalanche method to reduce the potential interest they would owe.
The debt avalanche is concentrating extra money on the highest-interest loans. After paying off the small loans, Daniel and Jane turned to this method. “There was a pair that I think was about 9%,” Daniel said. “Those were the ones we wanted off the table as quickly as possible just to avoid paying interest.”
Student loan interest rates can add up quickly over time, as with any loan. The higher the interest rate, the more expensive it is to borrow. By paying off the higher-interest debt first, the couple could lower the overall cost of their loans.
While this larger, higher-interest debt took longer to pay off, it saved the extra money on the interest. Then they could take that money and use it for the other lower-interest loans. Their strategy combined the best parts of both strategies and ultimately helped them achieve their goal quickly.