Smash Student Loan Debt

dw_learnYou know Kenia. She's a devoted DailyWorth reader (and commenter) who works as a systems engineer in California. Here, her get-out-of-student-loan-debt report.

In January, after three years of repaying my student loans—without much progress—my situation needed a closer look. I'd never added up my debts, but it was time to get serious:

  • Loan 1: $684 @ 3.28% interest
  • Loan 2: $19,081 @ 6.375% interest
  • Loan 3: $29,563 @ 3.19% interest

Wowzers! I owed almost $49,000 in student loans. Panic set in: This could take years and years to pay off.

Building a bigger snowball
OK. Breathe. I'd read up on different debt strategies—and I decided to combine all of them into one massive debt attack. Here they are:

I started with the "snowball" strategy: i.e. once a debt is paid in full, you add its monthly payment (say, $100) to the next debt's payment ($125)—voila! A snowball of $225 per month. Once that loan is paid off, you take both payments and add them to the next debt, etc.

I combined snowballing with these other strategies:

  1. Low-balance method: Tackle the loans with the lowest balance first. The reasoning: Rapidly paying off small debts keeps you motivated.
  2. Avalanche method: Tackle the loans with the highest interest first. The reasoning: You save the most money over the life of the loans.
  3. Biweekly payment: Make half a payment every two weeks instead of one monthly payment. The reasoning: By making 26 payments you end up with the equivalent of 13 monthly payments instead of 12—and you barely feel the pinch.

My Game Plan
It was time to throw the first snowball. I knocked out the $684 loan with my annual bonus from work. This was motivating and it felt great! I bragged to everyone how I got rid of one of my loans. One down, two to go…
Now for the avalanche! I took the payment for the $684 loan, and added it to the monthly payment on my highest-interest loan of $19,000 @ 6.375%.

According to my calculations, following the biweekly system alone would allow me to pay off the $19,000 loan in eight years, rather than 13—and the $29,500 loan would be paid off in 7.5 years, rather than 8.5.

But it gets even better: If I use the biweekly payment system plus snowballs and avalanches, I could pay off my $19,000 loan in only five years (down from 13), and my $29,500 loan in just six years (down from 8.5)!

And, I’ll be paying approximately $10,600 less in interest!

Thirteen years of debt? I don’t think so! I’m on my way to being student loan debt-free in just six years. You can apply these strategies to any type of debt—from credit cards to car and home loans. Tell me your debt reduction strategies and secrets.