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I’m currently 24 years old and have a job that pays 92K annually as well as 50K in student loans to pay off. After taxes my income is about 63,000 dollars.

My loans are very low interest so interest is not an issue. I thought up 2 ways to pay off my debt:
1) Pay it off as quickly as possible by living extremely frugally for 2 years.
2) Live a comfortable life style and take 6-7 years to pay off my loans.

If I take the 1st option I will rent a cheap studio apartment and keep on driving my current car. If I take the 2nd option I will buy a new car for 20K and rent a semi-upscale apartment.

Which option sound best?

3 Thoughts on How quickly to pay off loans?
  1. Reply
    chase t
    February 6, 2014 at 2:00 am

    Loans are bad news. Even if they are (at some point) a necessity. Seriously, pay the most you can now. Just because you make good money doesn’t mean you should blow it. Don’t go buy a new car or things you can’t buy in full. Loans are a black hole, the interest is terrible even if it doesn’t appear that bad. We’ve been raised in this I want it now mentality and loans and credit cards have let us fill that craving when its not something we need.

  2. Reply
    bdancer222
    February 6, 2014 at 2:35 am

    Even if your interest rates are low, why pay interest for 7 years? Work on paying off the loans now. Get ’em out of the way. Then you will be able to afford an even fancier new car and place to live.

  3. Reply
    BeeLiz19
    February 6, 2014 at 2:52 am

    Let me put it this way; first option you’ll take 24 months, you’ll make payments of $ 2260 per month to the debt and end up paying $ 4200 in interest. Second option will take you 84 months, you’ll make payments of $ 780 per month, and end up paying $ 15 400 in interest.

    That’s a difference of 15 grand, that could be a great down-payment on a car and financing which will really boost your credit, that’s money that could be put towards a down-payment on a house, that’s 10 semi-nice vacations, etc. Depends how much debt is too much debt for you. For me, there’s no way in hell I would take that long.

    But let’s look at the reality of the numbers that you can afford. If you make 63k after taxes, you’re making $ 5250 a month.

    10% goes to long-term (Retirement) savings: $ 525 a month, but you’re young, use half of this to boost your debt repayment.

    15% goes to debt repayment/emergency fund: $ 787.50 a month. Use $ 500 from here for debt repayment and use the rest to build emergency savings until you have at least $ 31 500 saved up (6 months worth of your life).

    35% goes to housing (rent, mortgage, bills, utilities): All-inclusive, you can afford $ 1837.50 a month, which is EASY to do, you could easily put $ 500 towards debt repayment from here.

    15% goes to transportation (gas, insurance, repairs, bus): $ 787.50 a month. Insurance costs a couple hundred, there’s no way you need to spend $ 125 a week on gas, you could probably put $ 260 a month towards debt again.

    25% goes to life (food, entertainment, clothing, gifts, travel, medical, wants, phone, internet, cable, other): $ 1312.50 a month, or $ 328.12 a week, which is INSANELY comfortable; there are families of 6 who are able to make their budget work on half that, this should already be a comfortable lifestyle.

    Debt Repayment Plans:

    1) Put $ 500 from debt repayment towards the debt, you’ll have it paid off in 100 months, or 8.5 years

    2) Put $ 500 from debt repayment and $ 262.50 from retirement towards the debt, you’ll have it paid off in 66 months, or 6 years.

    3) Put $ 500 from debt repayment and $ 262.50 from retirement and $ 500 from housing towards debt, you’ll have it paid off in 40 months, or 3.5 years.

    4) Put $ 500 from debt repayment and $ 262.50 from retirement and $ 500 from housing and $ 260 from transportation towards the debt, you’ll have it paid off in 34 months, or 3 years.

    Compare plan 1 to plan 4. Plan 1 you pay $ 18 665 in interest, plan 4 you pay $ 6046 in interest, not to mention you’ll be out of debt 5 years sooner. That’s a difference of $ 12 619 that you could be putting towards a new car, that down-payment on a house, 6 nice vacations, etc. etc.

    It depends on the quality of life you want to have. The reality is that you have posted this question, hoping that someone will help you justify why it’s better to have more debt for longer so that “you can have a better lifestyle”, but personally, I’d rather suffer for 3 years and then have an amazing quality of life for the rest of my life, instead of constantly worrying about debt.

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