Graduated Learning: Life after College

I got my degree, I got a job…now what?

My interest rate epiphany September 2, 2008

Okay, it’s really not that impressive of a revelation.  And many people have probably already realized this.  But it required the help of my boyfriend telling me to take a step back and look at my finances before I could realize this for myself.

I was struggling with the idea of going into even more debt to have a car.  And I kept saying I just wanted to pay off the car as soon as possible.  But as I mentioned before, my interest rate is actually lowest for the car out of all my debts.  And that’s when Aaron pointed something out:

Once you have the debt, it doesn’t matter if it’s “good debt” or “bad debt”.  You just develop a plan and pay it down.

It’s really that easy.  Sure, you should try not to incur more debts.  And of course, if there are tax or other benefits involved in paying off certain loans, you should bring that into the equation (which might make some debts slightly “better”).   But the typical good debts, like student loans and mortgages, are more often allowed in the personal finance world, compared to consumer debts.  But you can’t keep kicking yourself for making that decision; regretting a choice wont make the consequences go away.  But that’s how I was looking at the car debt; it was bad debt that I needed to get rid of ASAP.  Which really isn’t the financially smart thing to do.

Some people prefer following a debt snowball, starting by paying off the smallest debt first.  It may not be the best choice, mathematically speaking, but if you will actually do it, it’s a heck of a lot better than saying you’ll pay the highest interest rate debt first, but not doing it.

If you’re able to look at the debt in a purely logical way, and not in an emotional way, you can create a plan, and stick to it.  So that’s the plan for me.  I’m going to pay the amounts due each month (of course) and figure out how much extra money I have in my budget when considering monthly expenses, including putting money into savings and retirement investments.  And whatever that “excess” is, I’m going to pay that towards the student loans with the highest interest rate.

I think this is where the “personal” comes in with personal finance.  Sometimes you need to bring your feelings into the money equation, because they will inevitably affect you.  But I believe that I can look at the finance just numbers that need to go in a certain direction.  This may not work.  I think I’ll need someone to hold me accountable on this.  Make sure I actually sit down and write out my budget, rather than spend and then track the spending afterward.

I think I tend to make a lot of to do lists.  And sometimes I don’t do everything on the lists.  But I think that paying off my debts really needs to be something that takes top priority.  Which means I need to do the budget, and actually make the phone call to the bank where my student loans are from to find out if I can consolidate my loans at the low rate that they currently are (thanks to the low fed rate).  It really doesn’t take much time at all to do something like that.  But I just need to do it.

And like I said before, it’s better to do the thing that works, rather than the “best” thing if it doesn’t work.  So we’ll see if this plan works.

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My student loan interest rate dropped! Hooray! January 9, 2008

Filed under: Personal Finance — Stephanie @ 10:13 am
Tags: , , , , ,

I had read a post over at FiLife.com about why student loan interest rates aren’t dropping nearly as quickly or as often as the savings account interest rates are dropping. They said that many student loan companies have set their contracts to change variable rates at certain times and based on certain values and averages. For the company I’m borrowing from, they reset their interest rates every quarter. They’ve lowered my interest rate from 8.25% to 7.5%. I was worried that they had taken away my .25% rate reduction that they had given me for automatic deductions. I called them up and they said that they did. So, I guess that’s that.

So, check out your loans! Your rates might have been lowered!

(Yes, I know that since it’s based on variable rates that it could also go up. But for as long as I’ve been actively paying my loans (since I graduated) they’ve been at a stupidly high 8.25%. So things feel better now)

One thing to note is that if you are automatically having money deducted from your bank account, they might start taking less out…because with less interest charged, they wouldn’t get as much money from you, so by lowering your monthly payment, they’ll have you paying slower at the lower interest rate. So, keep that in mind if you’re trying to pay down your loans faster than they want you to (like I want to do).

 

 
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