Do you ever feel like, ‘damn this is a grind’? My December 2018 student loan payment just posted, and it’s definitely how I feel right now. My balance is now at $164,137.35 — ouch.
My loans are currently in deferment until January 2019 and February 2019, but i’m on a quest to pay off my $170,000 of debt by the end of 2019. My payments will ratchet up to a point where, in aggregate, about 70% of my post-tax income will go directly to student loans. Let’s break down this month’s payment.
Focused on a single loan group
I’m following the debt snowball method for paying down debt. Listing each loan group smallest to largest, and paying it off in that order. Starting in January 2019 I will have minimum payments required, at which point I will make the minimum payment as defined by the US Department of Education. I will then make additional principal only payments to the loan group with the smallest loan balance. Right now, this is loan group B, which has an outstanding balance of $17,453.51 at an interest rate of 6.310%.
Breakdown of the $2,000 payment
This month’s payment had a principal/interest ratio of ~36/63. This means 36% of the $2,000 payment went to principal, 63% went to interest. For every $10 I give to the US Department of Education, $6 goes into their pockets as interest. Yeah, this sucks — this is the grind I feel right now.
The reason over 60% of this month’s payment went to interest is because the original loan amount was $18,170 which accrued interest at a rate of 6.3% since it’s first date of disbursement in 8/2016. A 6.3% annual interest rate is a daily interest of 0.000172877% (.063/365), which is around $3.14 of interest accrued PER day. There have been a little over 2.5 years or ~900 days since the loan was first disbursed, which represents 900 days x $3.14 ~ $2,866 of interest accrued, and capitalized to principal.
This interest needs to paid down before principal is reduced. The reduced principal (currently $17,444.53) is the new balance through which interest is applied. This is a long way of saying that interest does not stop accruing until I reach a very low principal balance where the daily interest rate is negligible *sigh*.
Where are we now?
The table below represents my loan payments to date. In aggregate $11,916.69.
The good news is that with this renewed sense of intenionality and focus I have been able to pay off 3 of the 9 loan groups — following the debt snowball method of smallest to largest. The loans identified as ‘PIF by borrower’ (paid in full) represent a $0 balance.
Beyond ratcheting up my payment to 70% of my take home pay in the coming months, i’m also getting a second job to earn extra $$ to throw at the debt. It will be in a sales or commission based capacity — I am a fan of sales and think if you can do it right, there’s unlimited potential. Also, i’ve got a roommate! This will offset about $800 a month in rent, a big deal in the San Francisco Bay area. I’ll have a post dedicated to ‘money hacks and roommates’ coming soon. Onward to being debt free by the end of 2019!