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Our Loans: Which loan to pay first?



You've seen the breakdown of our student loans here, now the next step, creating a plan to pay them off.
What did we take into consideration when we started paying off loans?

1. Always pay at least the minimum on ALL loans
2. Do we owe anyone personally? (ie- my dad)
3. What has the highest interest rate?
4. What loans are private v public?
5. What loans have a variable interest rate?
6. What is the principal amount?

I put these in order of importance, but the last few get a little mixed depending on your opinion of student loans. Because we are paying so aggressively on our loans, I am more concerned with interest rate than I am whether our loans are variable and public/private. 

#1
Pay the minimum on everything. No questions asked. You absolutely have to, or you will get no where. Your credit score will tank, you will have people calling to get your payments...this is non negotiable.

#2
We agreed to pay $1,000 per month to my dad, and we are going to continue that until we have paid him back for my law school loans. Yes, there is no interest rate on that, but its important. We made an oral agreement with him, and even if we hadn't...I would highly suggest paying any debts off to individuals first. That causes breakdowns in families and other relationships. 

#3
Some debt payoff programs tell you to pay the smallest amount first, to keep yourself motivated. While I see how that works for many people, I'm a math person. Its more motivating for me to see the loan with the highest interest rate disappear, rather than leave it lurking for last. If you are afraid you'll lack the motivation to keep paying, if your highest interest rate loan is your largest...then maybe you'll consider that strategy. That, however, is not for us. Simple math tells you to pay the highest interest rate first. 

#4
I know there are benefits to paying private, variable rates first. But quite frankly our private loans have great interest rates. Also I know we will likely never look to programs that pay off government loans (such as working in a government job) for us. Often the programs require you to be paying on the loan for a certain number of years (10 for the government job loan forgiveness) and we plan to have our loans paid off long before that, and neither of us currently work in a government job. 

#5
Variable interest rates are just a little more risky than others. Simple as that. Not only can it change, but you may not realize it and it may become one of your highest interest rates later on. You signed a contract when you took out a loan, and it will say in there what the rate is tied to. Likely the bank isn't going to take your 4% interest rate, and the next month make it 20%...it wont be that drastic. Its simply one more thing to keep an eye on. 

#6
I did, however, put at the very end that I will consider how much we owe on each loan. If there is a loan for less than $1,000 just get rid of it. It will simplify your life. One less loan to deal with, and something to cross off your list. I put this last (rather than first as some scholars write) because it really is of least importance. Paying the smallest loan, that doesn't have the highest interest rate, actually costs you money because it could be going towards the higher interest rate loan. However, there are other mental and time-saving reasons to do this. So if it is less than $1,000...go for it.

Also, I want to clarify, I often say that these loans are OUR loans. I do think of the loans that way, but let me mention we did not consolidate our loans when we got married. My name is not on any of Kevin's loans, the loan payments go through his bank account, even though we transfer money back and forth because it is our debt, and our money. There are many reasons I am VERY against consolidating loans with your spouse! I'll explain that on another day. 

This is a list of factors I've compiled through reading and my own personal thoughts. I am not a financial planner, and I don't pretend to be an expert. This is one lay-person's thoughts of how we personally decided which loans we would pay off first. 

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