Submitted by DueChildhood5938 t3_125qcfa in personalfinance
Today, for the first time, I decided to look at the details for one of my student loans. It’s a joint account between my mother and I, and I give her a portion of my paycheck every 2 weeks and she pays that along with a few other things.
I am just now finding out the loan has a 11.25% interest rate. She was making very small payments until I graduated and started working about 1.5 years ago, and she’s been paying $285 a month since then. The original amount was about 16k and the current balance is still at 16k. WTF????
She didn’t tell me, but I also never asked or cared to check for myself so I have to take responsibility. I think I was in a state of blissful ignorance because we have a good relationship (I trust her and know she has my best interests at heart) and because student loan repayment has been paused for so long. This is also a private loan. This whole time I was assuming the loan was at 3-5% like federal loans. If I would’ve know the rate was so high. I would’ve made different budgeting decisions.
I’m 26, I currently make between 4 and 5k a month and have been contributing between 12 and 15% to a Roth 401k. There’s about 33k in there although I’m not yet fully vested. I also have about 6k in savings/brokerage acct. which is also my emergency fund. I have about 3k in credit card debt, although 2k of it is on a card with 0% interest until into next year. I don’t carry a balance on any card that accrues interest, and don’t add any debt to the 2k on the no interest card. I also have about 2k in a Roth IRA.
What is the best way to tackle this? Do I liquidate my savings/emergency fund? Do I pay off the 0% credit card and put as much as I can on there? Do I take a loan from my 401k to pay it off? This is scary and I don’t want to be paying on this until 2030. I also have other federal loans I will have to start paying soon.
EDIT: Actions I took on day 1 of this post: -reduce my 401k contributions to 4% pre tax (company match) -redirect that extra money to a separate account I only use for bills -pay off all non 0% APR credit card debt from checking (I had ~1.5k in there not mentioned in the original post) -made a $150 payment on the loan with money I was probably gonna go blow -cancel a NY trip I had planned for the weekend (I live outside of Philly and was going to drive and stay with a friend, but I still spend a lot of money every time I go there) -get an oil change: I used to deliver uber eats in college, I’m gonna start back up with that 5-6 days a week after work/on weekends (it’s the quickest way I could think of to bring in extra income, and now I live in an excellent area for it)
Todays plan: -Look into refinancing options (Sofi already said no) -Review my budget, focusing specifically on food and entertainment. I plan to cancel a subscription or two and learn a new recipe to start eating at home more often -deliver some food, cash out the money, pay down the loan
EDIT 2: I got “prequalified” thru Splash, then approved. I now have options to pick. The extremes are 5 years @6.66% paying 325 a month / 12 years @6.86% paying 169 a month. Is it better to get the longer or shorter option, and why? There is no penalty for additional payment, and I plan on paying well over 500 a month moving forward.
Thank you all for the responses. I am truly grateful for Reddit sometimes
RESOLUTION: I was able to refinance with Laurel Road at 6.5% for 10 years. I will aggressively pay this off then let off the gas for remaining federal loans