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So I can now calculate exactly when my loans would get paid off by ensuring I consistently contribute some amount X to my loans where X is greater than the sum of the monthly minimums, where the extra is put towards the highest-interest loan (interest-rate snowball method).

Question: I have no idea just how much extra I should put towards my loans. I could probably put 100 more each month, maybe 200, possibly even 300 or 400 if I wanted to be hyperaggressive, but then I question if I am leaving enough money for myself here in the present to enjoy youth.

While I understand this is a subjective question since we all have different utility profiles, I don't know a good way to gauge it. Is there some sort of way I can use heuristics/ballpark figures to get a rough idea?

My problem is that there are just too many unknowns. If I go aggressive (ensure 800/month towards loans) I'd be done in 50 months or so, but then I'd have that much less to save/play with/buy things/eat out/enjoy life/etc.

I'm not asking anyone to overlay their utility profile onto my own or vice-versa, but rather what are some questions I should ask myself to help me figure out where the sweet spot lies? Thanks.

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  • To add to the good answers about budgeting your immediate cashflows every month, you should also begin to think about your long-term financial goals. Do you want to buy a house in 5 years? Do you want to retire in 20? Pay for children's education in the distant future? Work part time by the time you reach 40? If you have an idea of what you will need money for in the future, it will help you to attach a real value to the money saved, instead of just saving for the sake of it.
    – Grade 'Eh' Bacon
    Jun 26, 2017 at 14:11

3 Answers 3

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I'd suggest you start with a budget that includes savings, the minimum payment for those loans, estimates for recurring expenses, entertainment, and lifestyle items. That will let you baseline how much money you need for the lifestyle you want to have. Then apply your income to that model and whatever is left distribute out to your loans starting with the highest risk (not forgivable in bankruptcy/would make you homeless if you don't pay) and highest interest rate.

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  • Totally this. Your budget is your guide. I think the question is way over thinking the problem and the solution and the answer will be obvious once a budget is done. Any amount under budget could be extra principal on the loans. Because that is a pretty exact way to measure the utility of extra payments versus the rest of the expenses.
    – MrChrister
    Sep 8, 2012 at 16:30
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While the question is highly subjective as you noted, putting extra money will of course save you interest payments, it depends on how much "enjoyment" is worth now. I would suggest you to not be overly aggressive as you might dig yourself a ditch, your minimum monthly payments might get adjust upwards if some of these loans are student loans as it might seem you have a higher degree of disposable income to play with. Be aggressive in paying them off but not to aggressive, I also think the interest is tax deductible.

What it really comes down to is, how much more interest do you want to pay them for enjoyment now, 50 months is not long its just north of 4 years. I'd say if you think you can put 800 extra towards them, don't. Instead if it were me I would put an extra 400 towards the highest until its paid and then take the 400 plus the monthly minimum and add that to the next highest and keep the other 400 for a rainy day, you will still get paid off quick but will leave yourself some scratch if necessary.

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I think JohnFx's answer is pretty much the right thing to do. I'd just like to suggest that the budget doesn't have to be fixed. It sounds like you aren't completely sure what an acceptable lifestyle costs for you, and it might feel like a budget locks you into a spending pattern that could end up being unfulfilling, or keep you in debt longer than necessary. To reduce that risk, you could start with a very easy level of contributions, then every month see if you can spend $10-$50 less without sacrificing in the lifestyle department. And eventually if you feel like you're missing out, you can stick with the previous month's budget.

You might avoid depriving yourself by starting with something easy, but I think if you make an effort to save money, you'll more likely be surprised how much you can improve your lifestyle while spending less. I like a lot of the advice on Mr. Money Mustache and Early Retirement Extreme, and I'd recommend the introductory sections of both blogs if you ever hit a block at some level of contribution.

And one minor (highly situational) comment: You mentioned having less to save if you contribute more, but if you have high interest loans, paying them down early can be (pretty much) a guaranteed very high ROI. So while you might want to prioritize an emergency fund and maybe an employer match first, most saving will probably be less useful than extra contributions.

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  • oops, didn't realize this was so old.
    – Charles_F
    Jun 25, 2017 at 3:03

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