Debt has been on my mind a lot recently. Even more so now that we own a house and I am watching a monthly mortgage payment fly away at the beginning of every month. I became so frustrated with the monthly outflows, that I finally vented and challenged myself to start paying down debt as soon as possible. While I had already established my plan to pay down our student debt in 6 quarters at the time of the frustration, I knew that I wanted to continue to pay down our private student loans as fast as possible. But of course, things change over time and our situation has changed FOR THE BETTER! It is now time to take a hard look at our student loans pay down plan and make a few adjustments based on our changing situation.
What’s Causing the Change?
I mentioned things changed for the better in the intro paragraph, right? I couldn’t be happier or more proud of my wife. After graduating from school and passing her boards, she finally found a job as a Nurse Practioner! All that hard work and studying over the years finally paid off. There will be a lot of changes to talk about with the new career and new salary and the majority of those will be discussed when I set my 2018 goals.
One of the perks of her new employers is that they offer new graduate Nurse Practitioners a tuition reimbursement benefit. If she works at her practice for three years, she is eligible to receive three annual $5,000 payments towards the outstanding balance on her student loans! In total, that is $15,000 extra towards paying down her debt, which will go a long way towards knocking this debt out. I’ll be honest, I was pretty excited about this perk when she read it to me and she will be eligible to receive her first $5,000 payment within 90 days after starting in January.
What Are We Changing About Our Student Loans Payment Plans?
Currently, my wife has $17,546.19 remaining on her outstanding student loans. The timing of this job opportunity could not have been better given the fact that I was getting ready to make our quarterly $4,000 payment that was a part of our initial plan. Obviously we are going to receive every penny of the $15,000 her new employer is offering us. However, the balance has to be outstanding with the borrower at the time of the $5,000 installment payment, so here is how we are going to adjust our student loans payment plan.
- Rather than applying a full $4,000 payment at the end of December, I am going to apply the amount required to reduce the outstanding balance to $15,000.
- Alter the monthly payments to the minimum amount possible (this may require some adjustments to the amount outstanding for Step 1.
- Brainstorm and enjoy figuring out how I want to allocate the extra $4,000 in quarterly cash flow that this opportunity will free up.
- Start performing research for options to refinance!
Phew, a simple four step plan. Well, it is actually a three-step plan if you ignore Step 3! After logging into to our online portal, without applying an additional December payment, we are paid ahead through April 2019. So I could stop making a payment today without being considered past due. Interest will still accrue, but I can change our monthly payments to $0 without any ramifications. And after this next payment, that date will only be pushed further into the future, and then even further once we receive our first $5,000 payment from her new employer. Maybe I’ll set up automatic payments each month to cover the monthly interest that will still accrue. We will see though and I won’t mind throwing an occasional one time payment for the amount of the interest if needed.
And now, one option that I am excited about is back on the board. In the past, I had always been hesitant to re-finance my wife’s student loans. Since we were planning on having the debt paid off by Summer 2018, I figured the benefit of refinancing to receive a lower interest rate would be minimal. But now that the situation is changed and we are planning on having this debt outstanding for another three years, it is time to reconsider this notion. If we are going to accrue interest for three years, why not try to accrue interest at the lowest rate possible? Right??
Currently, the interest rate on my wife’s student loans are 5.60%. A 1% reduction in the interest rate would save us $150 in interest annually. Performing quick research (obviously I will complete a more thorough study and write to all of you about it!), I could potentially refinance our student loans for a fixed rate between 3.25% and 4% or for an even lower variable interest rate that could be in the high 2%, low 3% range. It would all depend on the underwriting, credit score, etc. And I’m hoping our income and credit history would allow us to receive the lowest rate possible.
Typically, I hate having an adjustable interest rate and I would not consider it in a looming rising interest rate environment. Especially for long-term debt; but I would be willing to consider it in this situation. Since our debt window is only three years and the balance will decrease by $5,000 each year, I would be willing to take out an adjustable rate loan and receive the lowest interest rate possible during our first year. On one website, the lowest variable interest rate available was 2.57%! That would represent a 3% drop in year 1, saving $450 of interest. Even if the rate increase 1% annually, I would still be miles ahead compared to the higher fixed interest rate we are currently receiving. Obviously this all depends on the rates we qualify for, but I’m getting very excited about the options that are in front of us!
Summary
I cannot wait to start applying and working through the different options ahead of us! Luckily, my wife kicked butt in her job search and her studies and made this option possible. I’m excited that I am not going to have to pay the full $4,000 installment this month, meaning I have more money available to invest or allocate to different debt-pay down options. Maybe I can use the capital to pay down my mortgage. Who knows? Plus, I’m actually looking forward to vetting potential refinancing options to see how we can achieve the lowest interest rate possible and save on our interest expense. Now, it is time to put this capital to great use. Remember, every dollar makes a huge difference and I am planning one heck of a splash here!
Have you refinanced your student loans? If so, what bank or financing company did you use and what was the interest rate you received? If you were me, would you use the capital to pay down additional debt like our mortgage or invest the proceeds?
Bert