Now that I have paid off my private student loan with the painfully high interest rate, I now have to determine how I want tackle the rest of my nasty loans. (To say I can’t wait for them to be gone is an understatement.)
There are two well known payment strategies:
- The Snowball Method-The idea behind this method is momentum. You pay off the loan with the smallest balance first and do not take interest rate into account. Then as you pay off each little loan and enjoy the accomplishment you are driven to keep going by paying off the next smallest balance. The negative of this method is that when you ignore the various interest rates and let a high rate hang out, you may end up paying more interest.
- Highest Interest Rate Method-This method is about saving the most money on interest. You attack the debt balance with the highest interest rate first so you reduce how much you pay in interest overall as soon as possible (save money, I’m all for that). The negative of this method is that you may have spend a long time paying down one loan with a high interest and may become frustrated, lose focus, or cave to all the advertising in the world and over spend.
In my nerdy accountant way, I feel like this decision is like choosing between red or blue in politics, or even more so, team Edward or team Jacob for Twilight….I need to choose a side and stick with it. I was able to stay focused long enough to pay off my private loan over the last year without losing motivation. Therefore, I am going to take my chances and work to payoff my loans based on the interest rate.
Time to start chipping away at another one!
-What team are you on?