Like a lot of students, I was determined to pay off my student loans in lightning speed after I graduated from college. I knew that I didn’t want to have this monthly burden lingering over my head for very long. I’m a big believer in minimizing monthly payments. With low expenses it’s easier to cash flow surprise expenses, it’s easier to save money each month and it generally lowers financial stress which is a top priority for me.
My $25,000 of debt was made up of several smaller student loans with interest rates of 2%, 4% and 6%. I decided to pay off my 6% loans first, followed by the 4%, and finishing with the 2% loans in order to pay as little interest expense as possible. I didn’t know this at the time but this is generally referred to as the “debt avalanche” method of paying off debt. A popular alternative is the “debt snowball” method where you pay off the smallest dollar amount loan first and work your way up to the highest dollar amount loan. While the avalanche method is better mathematically because you pay less interest overall, the snowball method is great because you get more instant gratification by paying off the smallest loan faster which can be very motivating.
It took a little over 4 years to pay off the $25,000 using the avalanche. Paying more than the minimum payment every month sped up the process. Even though it took awhile to pay off the 6% loans, I didn’t suffer from a lack of motivation at any point. Overall, the avalanche worked great for me.
Really, either of these debt reduction methods can work. How committed you are to getting out of debt is what will really determine how quickly the debt is destroyed.