With the tax season in full effect, finances are definitely on the top of the list in terms of priority. Keeping my finances in check has always been one of my top priorities but this year, I really want to tackle the debt head on. I was really inspired by this article (link). In a nutshell, this couple was able to pay off $157k in 3 years which is pretty darn crazy. Not really sure if I'll be able to do it by the time I'm 33 but it has a nice ring to it ;).
Since this year has started, I have already completed one of my goals of paying off one of my loans completely. This was of course the smallest of 3 loans (the loan I had from undergrad). I pretty much wiped out my savings to do so (not including my emergency fund) but it felt absolutely amazing to be just be completely dunzo with something and best part is that I can now use the money that I had been using to pay of the undergrad loan towards my other two loans!
I'm going to start blogging a little more about my finances and hopefully these posts will help some of you out. It definitely keeps me in check to blog about my finances so it might be helpful to start a financial diary so to speak. So here's how my financials have looked for the past couple of years and what it looks like today. You may remember a different version from here. My goal is to eliminate $200,000 of debt before I reach 33. It's definitely a huge goal but the only one reaping the benefits will be me lol.
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Right now, I'm currently on the 25 year plan to pay off my loans. Here's the monthly breakdown of what goes where.
If you owe as much money as I do, it's very important to know how much money is going towards the principal vs. the interest. This is because in order to pay down your debt faster, you want more of the money you're contributing to go towards the principal. For each payment you make, the amount of money going towards the principal should be increasing and the amount applied to the interest decreasing. It's almost like climbing a mountain. The top of the mountain would be when you reach the point where you start paying more money towards the principal vs. interest. So, in order to reduce the time I have left on my loan, let's say in half so 12.5 yrs instead of 25, I would basically double the amount that's being applied to the principal. Therefore, if I start paying approx $173 and $130 extra per month to each one of those loans respectively I could finish paying off the loans in 12.5 yrs instead of 25 yrs.
It's also important to note that it is crucial to do this as soon as possible as your interest can also accumulate more interest and who likes paying back money you didn't actually borrow?! Definitely not me and as you can see, I'm mostly paying back money I didn't borrow :/. But I guess that's the price of education these days...
Welps, here's to the start of this great feat! Wish me luck and check back for more financial tips! I've made a new tab up top for all my financial posts. Enjoy!
Great job in explaining the concept behind principal vs interest. Knowledge on where your money goes and what it means for your finances is crucial when it comes to paying off debt because, as you mentioned, no one wants to pay money for something they didn't borrow. That said, congratulations on paying off one of your loans, Jenn! I wish you the best on the rest of your journey to being debt-free!
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