Dashiell at nine months
Wearing Dashiell

Debt Reduction: Paying off two loans

Chris and I recently reexamined our budget and decided to make eliminating debt a priority. After we refinanced our mortgage, our debts, associated monthly payments and interest rates looked like this:


At the beginning of January 2014 they look like this:


I realize that paying off two of our loans with the lowest interest rates is not what a financial planner would tell us to do. They would tell us to focus on paying off the higher interest rate loans first. I do understand the reasoning behind that approach but by paying off those two loans we were able to eliminate two fixed monthly payments and make our monthly living expenses go down, which is a priority for us. That made this decision the right one for us. It felt good to make a bold move and eliminate a good chunk of debt right off the bat.

To pay off one of my student loans and my car we used money from our emergency savings account and from Chris's personal savings. We felt OK making use of some of our emergency savings to do this because both of our jobs are very stable right now. In fact, your comments on this post also influenced our decision! We still have room in our budget to cut back if something happened and we still have $5,000 in emergency savings.

What paying down a chunk of debt means is that over the next year we will focus on replenishing our emergency savings account and Chris's personal savings account (which we have earmarked for a new-ish car within the next two-ish years). After that we will be able to start chipping away at the rest of our debt: our remaining student loans and mortgage.