Consolidation/Refinance (Part 1)*

Greetings all!

I was reading a Dave Ramsey Facebook post today, and the topic was debt consolidation.  Someone mentioned that you don’t get the snowball effect/small wins with knocking out individual loans when you consolidate.  As for the snowball effect, I’ll disagree there, because when I pay off one of my loans now, my total minimum payments go down.  I can take this extra and put it into the “snowball.”  With my consolidated loan, my minimum payment never goes down, in spite of the fact that the equivalent of a whole bunch of mini loans. With separate loans, you have the option to not add your former payment on your closed loans to your payments on your current loans.  Having one loan doesn’t give me this option/flexibility.

As for the motivation of having individual loans eliminated, I can see that.  I paid off my five small undergraduate loans, and it was gratifying when an individual loan would be eradicated.  Especially since once I got serious about eliminating these, I was eliminating one every few months.  It will definitely take me more than a few months to get rid of my big daddy former federal consolidation loan.  While I can’t officially un-consolidate, I’m going to try to think of my big loan as a bunch of mini loans.

I originally consolidated most of my federal loans (and accrued interest, I’m sure) into one new federal loan.  I’m not sure that I had a reason for this (separate servicer, maybe?), but my three $3,000 Perkins loans were not included in this consolidation.  This $9,000 was also known as Law School Loan #1 (date of death, November 2015).  The remaining loans were:

  • $2,625 (freshman year – undergrad)
  • $8,500 (1L subsidized loan)
  • $12,000 (1L unsubsidized loan)
  • $8,500 (2L subsidized loan)
  • $12,000 (2L unsubsidized loan)
  • $8,500 (3L subsidized loan)
  • $12,500 (3L unsubsidized loan)
  • $3,500 (Grad Plus Loan – bar fees and prep)
  • $1,200 (Irresponsibility Loan)
  • $2,500 (Irresponsibility Loan)
  • $1,200 (Irresponsibility Loan)

These last three (maybe last four?) I will refer to as my “Irresponsibility Loans.” Each year I was in school I was given an aid package consisting of scholarship, federal Perkins and subsidized/unsubsidized loan, and a $6,000 loan from my law school (this  is the $18,000 original balance of Law School Loan #2).  I also had work study that I did not use, because I was able to work for more money/valuable experience elsewhere. This package did not meet the ridiculous “Cost of Attendance” for my school. I worked to make up the difference the first two years.  In my third year, when trying to figure out how I was going to pay for two bar exams and a bar prep course, I learned that I could take loans over and above the Cost of Attendance to cover the cost of one bar exam.  This was news to me — I didn’t realize I could get any loans other than those offered to me in my aid package. I could have been applying for Grad Plus loans the entire time, to cover the gap between my aid package and the cost of attendance.  REALLY glad I didn’t know this my first two years, or my total debt amount might be higher (and the interest rate on these was not pretty).  In my last semester, I took out these extra loans which covered all my bar costs, as well as made my life more relaxing generally.  Partially because I bought a new bed and mattress.  Though, to be fair, I love that damn bed, and my previous mattress was torturing my back.  Digression over, except to say that by consolidating these loans, I don’t have to see the shame that is these Irresponsibility Loans.

Moral of the story: these federal loans totaled $72,525.  After fees and interest, my consolidation loans were higher than this, but I’ll use this figure for simplicity (and because I’ve since paid any such interest).

Today the current incarnation of this loan has a balance of $66,316, meaning I’ve paid off a whopping (sarcasm) $6,209.  BUT when I view it as separate loans, it looks more like this:

  • $2,625 $1,316 (freshman year – undergrad)
  • $8,500 (1L subsidized loan)
  • $12,000 (1L unsubsidized loan)
  • $8,500 (2L subsidized loan)
  • $12,000 (2L unsubsidized loan)
  • $8,500 (3L subsidized loan)
  • $12,500 (3L unsubsidized loan)
  • $3,500 (Grad Plus Loan – bar fees and prep)
  • $1,200 $0 (Irresponsibility Loan #1)
  • $2,500 $0 (Irresponsibility Loan #2)
  • $1,200 $0 (Irresponsibility Loan #3)

I’m still planning on eliminating Law School Loan #2 as my next goal, but I will definitely look at my large loan as 8 loans going forward, so that I can actually feel more progress as I reduce the balance.  While I’m at it, I could separate Law School Loan #2 by year, leaving me with:

  • $6,000 $0 (1L Law School Loan)
  • $6,000 $3,412 (2L Law School Loan)
  • $6,000 (3L Law School Loan)

*It’s been over a month, and Mint is still having difficulty connecting to ECSI.  While I’ll be doing some baby furniture spending with my bonus, most of the amount I receive (after deductions, for taxes, 401(k) and HSA) will go toward Law School Loan #3 — so while I’m hoping it gets fixed soon, I hope this loan will be gone soon enough that it won’t really matter, and I can go back to including net worth updates with every post.

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One thought on “Consolidation/Refinance (Part 1)*

  1. $6,209 is nothing to sneeze at. I think the biggest challenge with paying down debt is first sitting down and figuring out exactly what you owe and then making the necessary lifestyle changes to pay down the debt. Congrats and keep pushing forward!!

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