Challenge: “The Debt Payoff Challenge”

Challenge: “The Debt Payoff Challenge” [∞]

Overview: Students are given a scenario where they owe $10,000 in student loans spread across three loans with varying interest rates. They must analyze repayment options and create a plan to minimize total interest paid and pay off the debt efficiently.

Materials Needed:

   Debt Profile Sheet:
   Each group gets the following information:
       Loan A: $4,000 at 6% interest.
       Loan B: $3,000 at 8% interest.
       Loan C: $3,000 at 5% interest.

   Monthly Income:
       Each group has $1,500 monthly income to allocate. Fixed expenses (rent, groceries, etc.) amount to $1,200, leaving $300 for loan payments.

   Repayment Options:
       Minimum monthly payments:
           Loan A: $50
           Loan B: $75
           Loan C: $45
       Extra payments can be allocated to any loan.

   Loan Repayment Worksheet:
       Includes formulas to calculate monthly interest and track total interest paid.

   Calculators or access to online loan payoff calculators.

Steps:

   Introduction (5 minutes):
       Present the scenario:

           "You owe $10,000 in student loans spread across three loans with different interest rates. Your goal is to create a repayment plan that minimizes the total interest paid and pays off the debt as quickly as possible."

       Explain the terms: interest rates, minimum payments, and the impact of extra payments on reducing debt.

   Strategy Phase (15–20 minutes):
       Groups analyze the loans and decide:
           Should they pay the minimum on all loans or make extra payments on one loan?
           If extra payments are made, which loan should they target first?
       Encourage students to debate strategies like:
           Debt Snowball Method: Pay off the smallest balance first to build momentum.
           Debt Avalanche Method: Pay off the loan with the highest interest rate first to save the most money.

   Presentation Phase (10 minutes):
       Each group presents their repayment strategy, including:
           Which loan they prioritized.
           How they distributed their $300 extra payment.
           Their rationale for minimizing interest or paying off loans faster.

   Reflection and Discussion (10 minutes):
       Review the groups’ plans and compare outcomes.
       Discuss:
           Which strategies saved the most money?
           How emotions like motivation or fear of debt might influence repayment choices?
           The importance of balancing short-term sacrifices with long-term financial benefits.

Socratic Questions:

   Why might someone choose to pay off a smaller loan first, even if it costs more in interest?
   How does focusing on the loan with the highest interest rate affect long-term financial health?
   What other factors, like income changes or unexpected expenses, might impact a repayment plan?

Why It Works:

   Real-Life Skills: Teaches students how interest works and introduces effective debt management strategies.
   Critical Thinking: Students analyze trade-offs between emotional satisfaction and financial efficiency.
   Engagement: Simulating a real-world problem makes the lesson relatable and practical.

Optional Add-Ons:

   Include a bonus scenario where students receive a $1,000 windfall and must decide how to use it (e.g., debt repayment vs. savings).
   Introduce potential setbacks, like an unexpected car repair, to simulate financial challenges.