Take the 2-minute tour ×
Personal Finance & Money Stack Exchange is a question and answer site for people who want to be financially literate. It's 100% free, no registration required.

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.

share|improve this question

2 Answers 2

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.

share|improve this answer
    
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 '12 at 16:30

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.

share|improve this answer

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.