Our Changing Debt Strategy

Our debt strategy for 2016 (up to now) has been to devote $1500/month to pay down student loan debt, plus our $504 minimum payments, plus anything extra we can scrape together.

Our goal has been to pay off all four loans by February 2017, which, admittedly, would be quite a stretch, as it requires more than $1,000 beyond our $2,000 that we can budget towards debt repayment.

A few things have happened since January that have made us rethink our strategy, and it’s been kind of a rollercoaster (which has reflected the rollercoaster of crazy H’s job has been riding). So here’s some info (hold on!):

Buying a House: Thoughts

We saw that a house on our street was put up for sale. Since we would like to someday own a house in this neighborhood, this seemed a bit like a dream come true! We went to see the house and we decided it wasn’t the house for us, but it gave us the house-hunting bug and now we can’t stop looking at Zillow and Trulia. Ack!

H has been promised a job (finally! though, again, we still have yet to see the contract), which means that don’t technically need the $6,000 that we saved up as an “Oh, $hit Fund” in case H found himself unemployed this summer. So, yeah – that extra $6,000….

We did some math on how much we would pay in interest if we got the kind of house we’d like (well, within reason – we’ll never be able to afford the kind of house we’d love, and anyway it would not be a responsible use of our money to buy a 3,000 square foot house with double ovens and granite countertops and a library and a screened-in porch on a yard with a little creek running through it and… oh, wait… where was I?).

The end result is that if we bought a house now, we’d have to go for either 0% or 5% down with our house savings (which stands at about $9,000 at the moment), and it would be an ARM loan. I’m not super comfortable with that, but honestly, I’d be happy to do that if we found the perfect house for us in the perfect location in the perfect price range. (We would definitely refinance later on.)

However, if we stay in our rental (@ $800 a month for this area, it’s a steal!), then we can save up for a 20% downpayment and get a 30-year fixed rate mortgage. If we go with the latter option, we figure we’ll save about half a million dollars by the time we’re retired. Half a million!

We got pre-approved at our Credit Union for a mortgage, and the Loan Man (I’m sure he had a real title, but whatever) shared with me that unless we have 10% down, it’s not worth doing 5% down, and we’re better off saving that money for repairs, the expenses that come with moving and owning a home, and closing costs, because the interest rate hardly changes between putting 0% and 5% down.

That means that what we are holding on to right now (which is making us 1% in our credit union’s money market account) is going to do us more good in immediately paying off some of our loans rather than sitting in the account. Even if we found the perfect house in a month, we wouldn’t lose much by not having that money in the bank. (Note: we would still be hanging on to $5,000 in the bank to cover closing costs, which run about $3,500 with the credit union here, but could also be covered by the seller, depending on negotiations.)

I’m not saying that it’s a good idea to go out and buy a house right now. It really isn’t! But our plan at the moment is:

If we see something that we love and seems perfect, we will consider buying it. However, our priority is to pay off all student loans, then build up 20% for a downpayment as quickly as possible, using the same strategies we are using to pay down debt. We believe we can probably have 20% built up in 3 or 4 years after we complete our debt repayment, which looks like February 2020. (Ack! So far away….)

H’s Student Loans: Plans

  • Extra payment of $11,000: $4,000 from our house fund (which also serves as our emergency fund for the time being) and $6,000 from our “Oh, $hit Fund” (once H has his contract) + money that I’ve snowflaked over the past month.
  • Extra payment of $575: H signed up for a Citi Thank You card (the same one I signed up for way back when), and we used it to rack up enough charges in the first three months to get the bonus points. Those points have been translated into a paper check that they sent to us. I filled out the account information (they just want the account number on the memo line, really) and added in a clear letter about how to apply the money to the loans, and then sent it off. (I’m keeping my fingers crossed that it gets applied next week, which should be soon after another minimum payment goes through, so the payment will end up being applied mostly to principal!)
  • 0% Interest Loan Transfer of $8,999: We have been getting those checks that advertise loan transfers for our many different credit cards. We decided finally to just bite the bullet and do one for as high as the credit limit would allow (within an acceptable timeframe). We used the Citi Simplicity card that we used a long time ago for H’s loan that was at over 8% interest (that post is here) – this is not the same Citi card that generated the Thank You points that I talked about above. More details:
    • The transfer fee was 3% (and the loan with Navient was at 6.88%).
    • 0% interest until July 1, 2017
    • We will save about $300 on that particular loan, but this leads me to the next part of our finances….

My Student Loans

  • We may even see greater savings on the Citi balance transfer for H’s loans, since we can then push to pay off my loans, which are at 2.something%, since now those loans will be the only ones we are paying interest on. If we pay them off first, we will save some cash there.

More Thoughts

  • We are in a holding pattern until H gets his contract signed – I don’t feel good about sending off $11,000 until we have it in hand!
  • Right now, we have enough from the $11,000 earmarked for loans plus the snowflaking for May that we could completely pay off H’s student loans! (Not forgetting, of course, that $9,000 remains on a credit card.) The issue is timing and when it will get resolved.
  • Because the timing is so unpredictable, I’m having trouble predicting where this will land us in our debt-payoff scheme. My hope is that we will pay off my loans by October  2016 and the Citi credit card by February 2017, but that’s still a bit of a stretch goal. A more easily attained goal is probably November for my loans and April for H’s loans.

So, that was a lot for an update, but I hope it’s not incredibly confusing. I don’t love having a $9,000 credit card balance just sitting there until we start paying it off, BUT seeing H’s loans with Navient go down by $9,000 was very satisfying. #*@% Navient!.

Any suggestions for us? I’m always interested in new ideas or strategies….

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6 thoughts on “Our Changing Debt Strategy

  1. Brooke says:

    This all looks well researched, thought out and smart to me. It is risky doing the CC transfer — what if you can’t pay it off in time??– but I’d probably do it too if I had Navient instead of Great Lakes considering how much a pain in the $$$ making multiple payments is on Navient.

    Are your student loans with Navient as well?

    So how many months will this 11.5K payment move up the timeline? That’s got to feel great knowing that will happen as soon as the contract come through.

    You have less than a YEAR to go!!!!!!!!!!!

    Liked by 1 person

    • Yes!!! I’m so excited that it’s down to a year (or less!). The $11,000 should cut down our repayment time by about 5.5 months! I’m REALLY looking forward to being debt free!

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  2. I would personally stay in the rental and push pause on a house. Houses are perpetually hungry for money in the form of surprise repairs and improvements. These are easier to deal with when you can be certain you can handle them with cash.

    Liked by 1 person

    • Agreed! When we owned a house before, we were pleasantly surprised that all we had to do was replace a water heater and some flooring, but it was a relatively new house. Most of the houses in the area we live in now are older and undoubtedly come with expensive issues.

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  3. 2020 is sooo far away. We are participating in this company that lets you know how much they would pay for your house. I keep looking at the figure and zillow and trying to make some miracle work.

    Liked by 1 person

    • When I think about how we won’t be able to buy a house until I’m almost 40…. SHUDDER. I had this feeling for the longest time that buying a house is just what you did (unless you lived in the city, and then it was okay – in my mind – to rent indefinitely). The timeline is long but you and I will eventually meet our goals! I do think, though, that it’s the impatience that helps people find ways to cut more expenses and find more money to pay down debt / save up for a goal.

      Liked by 1 person

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