However, with it being tied to the LIBOR, it is a bit more risky, as the LIBOR is determined on what banks lend to each other. Until this crisis goes away, that LIBOR rate could fluctuate wildly. I would go against the grain and put it against the variable rate, as a 2 point change in that rate (which is very likely) would make a significant change to your payment, making it harder to pay off the fixed rates, which will not change.

So, if it were me, I would throw as much in as possible to the personal loan.

Another thing to check on is to make sure that neither of the other two loans are negatively amortizing. Some student loan funds make the minimum payment less than the interest owed. If that is the case, make sure you are at least covering the interest every month on the other two loans.

Finally, the PLUS loans are in your parents’ names, right? It *may* be a better option to pay off the private loans first, and try to improve your credit score, while allowing your parents to take the hit for having the PLUS loans in their name. (I’m not saying to be late with the payments, just let the installment loan sit on their profile, rather than yours). But I think this may or may not matter, depending on other factors on both your credit reports.

The 0.03% difference on the $10,000 loan isn’t even enough to pay for its postage stamp every month.

Just wanted to simplify things a bit. The responses here are otherwise smart and worthy advice.

However, a lot of people have mentioned the risk of the variable rate. Can you consolidate that loan? All of my variable rate loans my friends had, they consolidated, most into the federal consolidation program, which fixes the rate at whatever it was when you did the consolidation. Then, you wouldn’t have the market risk anymore. Just a thought.

Pay off the highest interest rate first.

Pay the Stafford loan next – it has a higher risk since it is not bankruptable.

Save the private loan for last – assuming that it’s not collateralized by anything. Consider refinancing to fix the interest rate- but not into a student loan for the reasons above.

This plan may be the safest if the economic conditions worsen!

* Never means, unless:

1. You cannot find the means to invest in your future, or

2. You retire (which is a sensible time to aim to become debt free), or

3. The terms of the Stafford loan change or you are required to pay it back.

The nice thing about problems like this is that it’s hard to be wrong. When I looked at my debt and tried to figure out the optimal order to pay it off, the difference between the best and worst order was about a month. Even making the worst of the three possible choices will still save you thousands of dollars.

C8j

One thing to consider: It sounds like you’re a Ramsey listener/follower (and that is great, there is nothing wrong with him/his approach – I frequently listen to him too) and his ’snowball’ approach is definitely the best approach for those who need the ‘psychological boost’ when even small debts are eliminated (and likely the people who get into bad debt situations, typically from credit cards and NOT student loans, need the ‘psychological boost’ to keep them committed). If you need the ‘boost’ to keep you committed, PAYOFF THE PARENTPLUS COMPLETELY.

However, if you are rationally committed to debt-elimination and think you can stay committed until success, than you attack the debt with the highest (or highest potential – i.e. variable) interest rate first (and don’t forget to ’snowball’ money once a debt is paid off – ala Ramsey). If you fit this category, TAKE A BIG CHUNK OUT OF THE PRIVATE LOAN.

Also, look into consolidation of (at least) the ParentPlus and Private Loan, you may be able to get a lower, fixed rate. If you can consolidate, don’t forget to keep making the same montly payment amount as the two original loans combined – use consolidation to only lower your interest rate, not to lower your monthly payment.

For instance, I put a lump sum against a credit card with a very high balance, which cut my monthly payment, and made the debt more manageable. By doing that, I was able to ramp up the payment on my smallest debt, and no longer had quite the mountain to climb once I got to it, so the emotion associated with it made it seem that I’d really paid off more than if I’d just paid off the small balance credit card.

I hope that made sense…

1) Complete elimination (annihilation?) of one out of three loans

2) Massive satisfaction of paying off one of your debts

Hope it all goes well and good luck.

Personally, I would want to knock out the ParentPLUS loan. It has the highest interest rate and it should be really satisfying to completely eliminate one of your debts. Interest rates are low now – so there is more risk with the variable rate loan. But just I can’t imagine rates going up anytime soon given the state of our economy.

I would also suggest that you consider establishing an emergency fund separate from your main checking account if you have not already done so. Paying off debt is fantastic and you want to make sure that even if you hit a bump in the road, you won’t need to take on debt again.