Refinance or pay off individual notes aggressively?

[Bluepluto99]

Hello!

I am trying to tackle my student loans now that I am making attending salary.

I have about 120k loans with an interest of 6.8. I just graduated from residency and making 250k per yr. I'm trying to see what would save me the most money at the end. I want to be aggressive and be a diy person. I am willing to live like a resident for 3 years ☺️.

So please let me know which one is better:

A) do the "snowball" pay off by paying off the separate notes individually as quickly as I can. Trying to pay off the loans with the highest principle first.

Or

B)refinancing to 5 years with extra payments when I can.

[ACN]

refinance for 5 years @ 2% or better as an attending.  Then pay them off aggressively.

[Dreamgiver]

it does not matter which loans you pay off first if they are all at 6.8%. Refinance now. I do not see a reason for paying that much interest for an extra day other than masochism.

[TotallyBroke]

One thing that MAY make a difference is what happens when you refinance.  Right now, the 6.8% interest is only growing on the principle.  As soon as you refinance, all of the uncapitalized interest gets capitalized.

If you have $90,000 principle with $30,000 uncapitalized interest, annually it cost about $6,120 in interest.

If you refinance, and have $120,000 which is now entirely principle at 5.5%, annually it cost you about $6,600 in interest.

 

It is unlikely that you will get an interest rate that high with a 5 year variable, but I just thought I'd point out the potential depending on your principle/uncapitalized interest balances and the interest rate you get with refinancing.  See what kind of rates you can get by refinancing and plug in your own numbers to see how much interest you will very likely save by refinancing.

 

That said, you may also get the psychological benefit that Dave Ramsey touts by paying off loans individually.  There is definitely some truth to the psychological "win" you give yourself when another required payment is off your budget.

[Bluepluto99]

Thanks everyone for replying to my question.

 

I do like Dave Ramsey's approach of paying each note off aggressively.

We will see! I need to play around with the loan calculator.

[Zaphod]

I dont know why you wouldnt, makes no sense to build a bunch of interest in between the aggressive payoff. Capitalized interest argument doesnt make much sense either, as when you enter repayment that happens anyway. Also, you'd need a terrible rate for it to even be a wash.

Pick a five year variable and pay with the same aggressiveness you'd planned before, this is not an actual choice since you can have your cake and eat it too here.

[Travis @ Student Loan Planner]

ACN wrote:

refinance for 5 years @ 2% or better as an attending.  Then pay them off aggressively.

Click to expand...

The best fixed rate you can get right now is with FRB for a 2.3 ish % and best variable is around the same range. Nobody is doing 2 or below currently.

But I agree on the term and aggressiveness for that amount.

[DMFA]

Bluepluto99 wrote:

Hello!

I am trying to tackle my student loans now that I am making attending salary.

I have about 120k loans with an interest of 6.8. I just graduated from residency and making 250k per yr. I’m trying to see what would save me the most money at the end. I want to be aggressive and be a diy person. I am willing to live like a resident for 3 years .

So please let me know which one is better:

A) do the “snowball” pay off by paying off the separate notes individually as quickly as I can. Trying to pay off the loans with the highest principle first.

Or

B)refinancing to 5 years with extra payments when I can.

Click to expand...

Why in the world would you willingly pay 6.8% interest?  Refinance to a 5-year term, then pay as aggressively as you like.  You'll save thousands.

[Craigy]

Another vote for both.  That's what I'm doing.

Making $250k a year,  you should be able to throw at least 60k a year at it, so about 2 years to payoff, but really you should be able to do better than that.

Assuming generally that you take home $6k every two weeks, you should be able to throw $3k, $4k at your loans everytime you get paid.  Assuming you're already "living like a resident" now.  3 years is too long.

[fbaum818]

One devil's advocate response here.  You should create enough room to at least start (and max out) an IRA, employer's retirement plan, or both.  It seems that you can do both-pay down college debt and start saving for the future.

With the power of compounding interest, the earlier you start, the more wealth you can accumulate over time.  While a paid-off loan does not count as an asset, putting some of your money to work earlier will make a HUGE difference in your retirement savings.

[Dicast]

The snowball is a psychological tool.  Math is math though.  Refinancing will save you money and there isn't a reason you can't pay them aggressively.  If you want to keep separate notes, you could refinance with multiple companies or refinance each of the loans independently.  Or you could throw them all together and have a small party for yourself each time you cross one loans-worth of repayment.

TotallyBroke wrote:

One thing that MAY make a difference is what happens when you refinance.  Right now, the 6.8% interest is only growing on the principle.  As soon as you refinance, all of the uncapitalized interest gets capitalized.

If you have $90,000 principle with $30,000 uncapitalized interest, annually it cost about $6,120 in interest.

If you refinance, and have $120,000 which is now entirely principle at 5.5%, annually it cost you about $6,600 in interest.

 

Click to expand...

Doesn't interest capitalize after you enter repayment anyway?

[Bluepluto99]

Wow, thanks everyone for your valuable inputs. I am going to refinance and try to throw in 2000 every 2 weeks. It seems Elfi had the lowest variable rate at 2.38 for 5 years.

 

 

[TotallyBroke]

Dicast wrote:

Doesn’t interest capitalize after you enter repayment anyway?

Click to expand...

No, it does not through MyFedLoans.

[Bluepluto99]

Correct. I am currently still in IBR, and the interest is capitalizing only on my principal. However, with a principal of 96,000 at 6.8%, it is still better to refinance at 2.38% off of 120,000.

 

[StarTrekDoc]

Refi at lowest rate for debt.

Savings. Emergency fund is adequately established for attending. Max out all matching and pretax accounts. As people have mentioned, compound savings over time beats debt payments.

Also factor in things like house fund and marriage? And 529 funds in between all that.

With that level of income, you can safely knock out the loan 2-5 years depending on the other factors.

I understand the psychological portion, but math is math and make the most of your dollars. Come here for the hand holding and rah rah ????