No. of Recommendations: 3
regarding putting the money to work in some other fashion, I think its a good idea, particularly since I think I can beat 3.75% on that money over the long term.

I'm not even saying that you should necessarily 'put the money to work in some other fashion'. What I am saying is, with a 3.75% interest cost and a 1% interest rate on your savings, it costs you little to put the money that you would have used to pay down the loan into a savings account, and buys you a lot of flexibility in terms of having additional liquidity in case of any emergencies. With low rate installment loans, it's not generally a good idea to make large lump sum payments, since it's difficult to get the money back again under the same terms, if you can get it back at all.

However, its a joint decision between me and my DH, and its pretty important to to pay off the student loan.... We are trying to follow a Dave Ramsey type snowball which suggests pay off your smallest debt first.

Well, if a $36k student loan at 3.75% is your 'smallest' debt and your only other debt is your (preumably larger) mortgage at 4.875%, then I'm not so sure I'd be so worried about getting the debt down 'quickly'. Unless you have lots of spare cashflow, it's going to be a long haul, multi-year paydown. Trying to take a 'sprint' attitude against that type of debt is probably going to lead to frustration, even if you are making great progress.

However, I probably would recommend choosing a time frame that you want to have the student loan paid down to the savings account balance, then start making payments at that level, instead of your graduated repayment level. For instance, if you want to pay the student loan off in 5 years, you put the $6000 into a savings account now, make payments of $560 a month to the student loan, and in 60 months, you should have enough money in your savings to pay off the loan completely.

If you want to pay off the loan more quickly than that, the payments would need to be larger:

A $600/month payment would allow you to pay off the loan with your savings in about 56 months

A $700/month payment would allow you to pay off the loan with your savings in about 47 months

An $800/month payment would allow you to pay off the loan with your savings in about 40 months

And if you were able to make $1000/month payments, you would have enough in your savings to pay off the loan in 32 months

AJ
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