For most people currently under the age of 30, student loans are basically reality. We all know someone (or know someone who knows someone) who doesn’t have student loans, but for the most part, everyone we know has them. Some of our friends could be buried under them, and some could just have a little bit, but they are a reality for just about everyone. For me and most of the people I know, talking about going through school with zero loans is a waste of breath. We’ve been through school, graduated and moved on. The only thing that is really of interest now is how to get the balance of your student loans down as much as possible. If you can’t do that, you figure out how to refinance your student loans. I figured this out a while ago, I just was not sure if it was worth sharing or not. Depending on how you do things, it doesn’t really amount to that much savings, but what the hey, right – any time you can save even a bit of money on interest, you’re going to be better off in the end, right?
I’m not sure about your loans work, but with mine, they take your payment, use it to cover interest, then put the rest towards the principle balance. So say your minimum payment is $100 per month, and $45 goes to interest that has accrued since you last made a payment, so there is $55 left to put towards the principle. Usually, this won’t take your balance down that fast, so next month you’re going to have about the same situation. My family pays a little bit towards my student loan every month (which I’m very thankful for). After this had been going on for a while, I talked to my dad about trying optimize the payments so that more of the payments were going to the principal. Here’s what we do:
We usually make payments around the same time. They aren’t always credited on the same day, but they are usually very close. One payment takes care of the interest that has been piling up for the month, and the other one is basically free to dig into the principal. The best case scenario goes like this: Payment of $100 clears, and away goes $45 of interest and the rest goes into the principle. Now, there is currently $0 in interest on the loan, and it would start accruing at say $1.25 per day. Within the next 2-3 days, another $100 payment comes in. It pays $2.50 in interest, and sends the other $97.50 to the principle balance. This puts more money to the principle of the loan, reducing the amount faster.
While it’s not going to help you pay down your debt as fast as getting a second job, I’m a firm believer in the “anything helps” mantra.
Do you do something like this with your payments, or is this strategy news to you? Would you be willing to try it?