Student loan status - January 2012

It's that time of the month again when I look over my student loans, assess my progress, and send in some extra money to pay them off early.

This month I've seen my bank account slowly accumulating more and more dollars, on account of not buying so many things. My frugality muscle exercise routine is kicking in. Even so, I've decided to be a little more conservative in my pre-payments this month. I decided it's important that I have a bit of an emergency fund (see also a cautionary tale from mortgagefreeby30). My plan is to gradually fund a savings account while I stay as aggressive as I can with my student loan pre-payments. Once the dust settles from a few bank transfers and credit card shuffling, and I see where I'm at, I'll be in a better position to send in a bigger chunk of money next month.

Let's see what those balances are at:

• Direct Loans (US Dept of Ed): $25,879.91
• Sallie Mae (total): $3,900.32
• Current Principal Balance: $3,885.03
• Accrued Interest: $15.29
• TOTAL: $29,780.23

That compares nicely to last month's total of $31,825.54, a net reduction of $2,045.31. Not too shabby.

My plan is still to pay off the Sallie Mae loan with all due haste, but earlier this month I decided to add a caveat. Since both loans are at the same interest rate it's pretty much irrelevant which one I pay off first, from a how-much-interest-I'll-wind-up-paying standpoint. But for some reason it makes me feel a lot better seeing portions of my payments going toward principal rather than interest.

Take a look at my recent payments to my DoE loan to see what I mean:

It's irrational, but interest-only payments bother me.

As you can see, the amount applied to principal and to interest can vary widely. It was either an oversight on my part, or something to do with a payment mix-up, that caused me to miss my 12/07/2011 payment. The payment I made on 12/27/2011 mostly covered it, but those extra 20 days of interest meant I had an interest-only month in December. That makes me feel bad.

The way I see it, accrued interest gets in the way of my ability to chip away at principal. Even though I decided to retire my little loan first, I'll still feel a lot better if I can keep making payment toward principal on my big one.

I've decided to make a $900 payment toward Sallie Mae, and put another $200 toward DoE. This is a little less than the average monthly amount I'll need to vanquish all my student loan debt by the end of 2013. Hmm, come to think of it, I don't have that number handy. By my simple calculations, ignoring interest that accrues, I'll need to average payments of $1240/month to meet my student-loan-payoff goal. $1100 this month isn't bad after all, but I know I can do better next month.

This student loan payoff goal is fun. Vanquishing debt is almost as addictive as racking up new debt, and a whole lot less nerve wracking.