Amortization Calculators and Aggressive Debt Reduction

Lately, I've been thinking about the debt that I have. I have an American Express credit card that I pay off every month - I don't think I've ever paid interest. I also have a sizable privately funded student loan from my undergraduate days (2000-2004) that has been in deferment to this point. Starting this summer, its term is ten years. Finally, I have my motorcycle loan from BMW, which has a five year term.

After all is said and done, I have a fixed amount "above and beyond" what I need for my usual budgeted living expenses (housing, groceries, medical, etc.) that is pretty much discretionary. Currently, I split that evenly between my Roth IRA and the BMW loan. Six weeks from now, my Roth IRA will be 50% funded for 2009. I have decided to shift gears at that point and apply all the "above and beyond" to the motorcycle. When 2010 rolls around, I will re-allocate these discretionary funds so that by the end of the year my Roth will be once again funded 50% and the rest will go toward the motorcycle. On top of this, "extra" paychecks (I get paid every Thursday and budget monthly so every 3 months there is a surplus) will be contributed 50% toward loan repayment. When the motorcycle is paid off, I'll simply apply the payments to my student loan.

Using a loan amortization schedule I found here, I calculated that this tactic will pay my bike off on May 14, 2010 (one year minus one day after I bought it) and my student loan will be paid off in June of 2012. At that point, I will step my Roth IRA back up to 100% annually. I'll probably increase my 403(b) contribution at work as well.

I don't feel like I will be missing out on anything huge by reducing my Roth IRA contributions - I will still be contributing and I have been contributing 8% of my pre-tax income (I don't remember exactly why I chose this number but I'm sure there was some logic to it) to my 403(b) since I started working full-time in January of 2005. In addition, my employer contributes 8% to a 401(a) in addition to my paycheck. To me, the peace of mind of having the loans paid off is worth the opportunity cost.


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