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Question:


I owe $55K in student loans. It feels like a cloud hanging over my head. I can only afford the $255 “interest-only” payment for 1 loan. I make a full payment of $70 on the other set of loans. I don’t want to spend the rest of my life repaying loans. Help!
-1908Belle


Answer:


Borrowing elsewhere at more favorable terms and using the proceeds to repay the loans would help, but student loans often have below-market interest rates, so that’s probably a nonstarter. I hate to be a killjoy, but your options may be limited to earning more money, spending less or finding the most palatable combination of the two. If you can manage that, however, you’ll be on your way to getting out of hock, probably sooner than you think.
 
Let’s say your big loan has a $40,000 balance and a 7.65 percent interest rate (that’s one of the possibilities when you do the math and work back from a monthly interest payment of $255). If you could pay $478 a month instead by spending $223 less or saving that much extra, you’ll pay the loan off in 10 years. If your financial circumstances take a turn for the better, then perhaps you can make an even bigger dent in the balance. Even if you can’t and you need the full 10 years, it’s not so bad. As things stand now, your interest-only loan won’t be paid off until the end of time. Ten years will come a lot sooner.
-Conrad de Aenlle



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