How do we plan to pay our student loan during residency?

There are two methods people refer to when paying down debt. One is called the snowball method and one is referred to as the avalanche payment method.

Snowball method: paying off smallest debts first and the progressing to bigger ones.

Avalanche payment method: making minimum payments on all debt, then using any remaining money to pay off the debt with the highest interest rate.

Both payment methods can be justified and which you choose can depend on where you are in the debt repayment process. If you are someone beginning to pay off debt, the snowball method creates positive feedback in that you are actively watching a small amount be eliminated. This is more satisfying then chipping away at one large loan that requires a longer time period to pay off.

For us, we are going to use the avalanche method to attack our student loans, but we are going to take it one step further. As we are both under REPAYE for our student loans, each month half of our interest is being paid by the subsidy. Thus, for my $1,250 in interest that accumulates each month, REPAYE is paying around $625 of the interest (effectively lowering our interest rate to around 3%).

How we are going to take advantage of this is by saving up throughout the year and making a one-time large payment toward our loan that covers the interest that has accumulated for the year. This allows us to take advantage of the monthly subsidy for eleven out of the twelve months of the year and then lose our subsidy for the one month we make an extra payment. This is because when you make an extra payment it decreases the interest subsidy (unless you have Great Lakes Borrowers).

That is our current student loan payment plan! Do you prefer one method to the other in terms of attacking debt? Comment below!