A Dollar a Day

August 9, 2009 · 9 comments

Back in March, I wrote about the struggle I was having with my student loan repayment. It was a good struggle. If you haven’t read the article, here’s a quick recap… I had about $2K in discretionary income each month and wasn’t sure how much I wanted to put towards student loan repayment, and how much I wanted to put towards saving for a house.


It didn’t take long for you PF bloggers to respond, which quickly lead to my decision to split the $2K down the middle; Half would go to my student loan and half would go to my savings. Since you all played such a pivotal piece in that decision making process, I thought it would only be right to fill ya’ll in with a little update.

In march my student loan balance was $25K. We are now in August and my balance is $20K. This means I have been a good Debt Ninja and have payed down $5K on my student loan over the last five months. As my balance continues to drop each month, so does the amount of interest I owe.

My student loans sits at 7% interest. Seven percent of $25K works out to $4.80 a day in interest. Seven percent of $20K works out to $3.83 a day in interest. This effectively means that after five months of following your advice, I am now saving a dollar a day without having to lift a finger. Pretty freakin’ awesome if you ask me.

I am totally motivated to continue forth and punch Sallie Mae in her stupid face. Before I go, however, I must solicit you finance geniuses for your advice once again. I have $14K in my savings account currently. I am tempted to take $10K of it and throw it at the student loan. Doing this though, would leave me with only about 3 months of E-fund and zero dollars towards my goal of saving for a house. It would be super sweet to knock out half my loan in one payment, but it’s scary as hell to part with all that money. If I don’t make the one large payment, I think I may just start throwing all $2K in discretionary income at the loan, but maintain about $10-$15K in my online savings. What to do, what to do?

1 Leigh in Tennessee

Way to go! My student loan balance is right around $55K at 7.2% interest and I'm just within the last three months started really throwning money at it. With savings rates as low as they are right now, I can't justify puttin the money in the bank when I'm in effect earning 7.2 interest by paying loans off early.

I would put $10K toward the loan and leave yourself with $4K in savings. That will basically knock out half your loan. You should be able to pay off the remaining $10K in the next year and then you can fully refund your EF and start saving for a house downpayment in earnest.

2 myprettypennies

Where do you have this nice chunk of change? Is it just sitting in a .25% savings account or in a higher money market? Stocks? Regardless, your debt interest is probably higher. Personally I am going for the debt-first approach with about $3,000 in savings to sustain me for emergencies. Next I want to fully fund my E-fund, and then I'll start thinking about a house. That's my approach.

If I were you, I'd probably put some of that money towards debt, but I'm not sure if I'd put all of the $10K for right now since it is an emotional "detachment" after having all of that money within your reach. Perhaps do $5,000 for two months just so it's not a quick "see ya" all of a sudden. Seeing that amount in your account one day and not the next can be kind of scary. But leave yourself at least $4,000 (if not $6K) for that emergency fund.

As for the discretionary $2,000 you are able to save/pay (impressive, I might add!), you may want to give yourself a set limit for savings, set limit for debt and any extra money that you earn give it to your debt. The snowball effect can really add up and motivate you to continue dumping that debt.

Sorry for writing a book! Let us know what you decide.

3 DogAteMyFinances

Back when ING was paying over 5% and my student loans were locked in at 4.5%, it was a tough decision. I'm glad that now debt repayment is finally the "smart" choice.

To me, the same number kept me paying off Sallie. I calculated my interest per day, and blew it up at the top of the spreadsheet. I remember it was easier and easier to make it smaller as more paid off.

4 calquist

I'm very conservative with my money. I like big emergency funds and I think you should keep at least $15k simply because you can. Judging by your tweets as of lately, it sounds like you might be in the midst of a big purchase. Is that money coming out of the 14k? My vote is for all the discretionary money going to the loan, but keeping the EF at 15K just because you never know what is going to happen and there is no point to potentially give yourself worry about only having 5k and an emergency when you are in a very excellent place with your money :) Your loan is pretty small in terms of student loans that I have seen and it will be gone soon enough.

5 DogAteMyFinances

Unless your job is rock solid (unlikely) don't cash out your savings for Sallie. She'll go away soon enough. You need to be prepared if you lose your job, for now.

Oh, and love the graphics, hot stuff.

6 SS4BC

I'd do it if I were you, but only because I feel comfortable that I don't need THAT large of an emergency fund.

Also, you can add that money you're using to pay for your student loans now to your house fund and it should grow pretty fast since interest will be working in your favor instead of against you.

However, you should do whatever you feel comfortable with. If you feel like you need only 6 months of E-fund, then just pay that much down just to stop paying more money in interest than you need to.

If I had the option to pay off all of my debt, but the consequence was that I only have 1 month of emergency fund I would do it in a heart beat, no questions asked.

7 Punch Debt In The Face

Pretty solid financial advice ladies and gentlemen, I can always count on you to beat financial sense in to me. I think I will refrain from throwing all my savings at the student loan, but I will redirect more of my discretionary income at it to hopefully knock it out in a year. I'm sure I'll be keeping you posted (whether you want to be or not) :)

8 Anonymous

Since you are talking about a 5 month time period if you were to take 10k of your savings and put all 2k at the loan for 5 more months you are looking at negligible interest savings over the 5 month period to do the 10k now.

Why not do the 2k a month and on the 5th month send the other 10k. This would only open you to 5 months of risk rather than 10 while you rebuild your savings.

9 Punch Debt In The Face

Not a bad idea Mr or Mrs. Anonymous. I may strongly consider something like that :)

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