This is a post about student loans. For more info on student loan repayment changes, see this post on Forbes. In a prior post, I had mentioned the skyrocketing cost of our variable student loans. The amount due on 8.23% annual interest was greater than our payment! This month, the payment amount went up almost $100 a month!!! That makes sure the loan is paid off in 20 years, our original payment term. We’ll show how a $2000 pre-payment of our student loan saves us a total $6,320.65 in interest over the next 20 years and 2 years of payments.
Background info
There are 221 payments remaining on our loan. The current interest rate is 8.23% a year. Our balance is about $40,000. Our new payment is about $350 a month.
Today’s payment
Today, I made a $2000 payment on our graduate student loans. This is how the numbers change.
This is $6,320.65 that doesn’t go to the bank and goes into our pocket. These savings are capital gains tax-free. This is phantom income, as the savings are real to us and the government broadly only taxes you on labor income or gains from your capital. This $6,320.65 can be invested in our future, rather than making bank executives richer.
For every $100 we save for rewirement every week, we’ll earn 50 points. And, 50 points will be worth $10.
smilingdad, two posts ago
Earning an 8.23% return after-tax return, risk-free, is tough to beat. Therefore, our $2000 savings earns us 1000 points, and those points are worth $200. I haven’t decided what to do with those $200. I might save it for the next $2000 loan dump.
You might say, this is all semantics, you’re taking money out of your own paycheck, and giving it to yourself to spend. This is true. But, I am rewarding myself for making our retirement better (less debt), and I encourage myself to keep saving and paying down debt. The reward for my good actions is an important motivator. Plus, the more attention I pay to our finances, the more disciplined I become in spending money elsewhere. It’s a win all around.
Keep your head up. We’ve dug ourselves out of credit card debt 3 times. It can be done.
Sincerely yours,
smilingdad
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smilingdad 