State of the Paydown – 2014

Day 258 | $17,274.17 paid | $54,801.41 to freedom

It’s time to analyze exactly where I am at and what needs to happen in order to get to the finish line.

$55,231.08 left in principal to go (prior a $500 additional payment last week).

37 monthly payments before my 30th birthday.

I have a big spreadsheet that lays out my path to financial freedom using the following recursive formula to calculate each month’s new balance:

recursiveThis is a bit of a conservative estimate, I believe.  Most, but not all, of my loans carry a 6.55% APR.  To play it on the safe side, I calculate as if all of them do. According to the math, making $1,100 payments each month* (then graduating to $1200 a month and eventually $1250) for the next 37 months results in a balance of $21,049.33. 

3yearplanYikes.  Of course, this doesn’t account for any additional payments.  If I were to evenly space out $3,000 of payments per year, that balance drops to $11, 575.

That still not quite enough.  If I can grow my savings balance as expected, I need to get the loan balance down to about $8k by January of 2017.  Therefore, I’m looking at the following to kill my student loans by 2017:

  • $1,100 a month payment
  • $4,000 in additional payments per year

Initial Game Plan

This will be tough to do in year 1, but would overshoot my initial plan of $12k.  Theoretically, I should have more income (knock on wood) as the years go on and the first year would be the toughest.  My initial graduated plan ($12k, $15k, $20k) assumed this to a hyperbolic extent.  If I am able to pay down $1,100 a month plus an additional $4k this year, that would result in a principal deduction of $13,859.1 (minimally).  Repeating this for the remaining two years gets me to a remaining balance of $9,700.  Therefore, it is a good plan for year 1 since, if I can pull it off, I don’t need to improve on it tooooo much in the subsequent years.  Of course, that extra $4k will not be easy.

As I mentioned in my New Year’s Resolutions post, this is a “make or break” year.  If I am able to pull off the goal of $12k+, then I probably continue with the quest to defeat these loans by my 30th birthday.  However, if that doesn’t happen, then it will probably be time to re-evaluate.  After all, what’s the difference between paying off my loans in 3 years versus 4 years?  Emotionally, that’s a big difference.  Financially, it may be only a difference of a thousand or so dollars in interest.  Though, it is also another year that I don’t fully contribute to my Roth IRA and another year I don’t contribute extra to my 401k.  Lots to factor in.

The bad news is it looks to be quite the uphill climb.  The good news is I have a plan to get there that isn’t too unrealistic.  And that’s the key, right?  It’s one thing to say “I’m going to pay off my student loans in 3 years.”  It’s quite another to say “Here’s how I’m going to pay off my student loans in 3 years.”

*By the way, I have that big post I’ve mentioned before coming out on Wednesday… A bit of a challenge for any other PF bloggers out there that are interested…

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1 Response to State of the Paydown – 2014

  1. It’s an uphill climb but you have a plan and a desire to make it happen! So you will! I find people with an actual plan will make the most progress. It’s not a vague “I’m gonna pay off some debt” idea. So congrats on your plan!

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