So I have about $85000 left in student loans that I’ve been paying on for several years now. My minimum monthly payment is about $750 and I autopay $850 a month. I also have been making an additional payment of $600 trying to knock down the loan. The only problem is that the interest is absolutely killing me. My first autopay payment I usually pay $400 in interest and then the second payment is roughly $220-$230. My question is what is the best payment method to minimize the interest. I also assumed that additional payments went all to principal and not interest. Someone please help!
Posted by jay_kay25
11 Comments
If you have multiple loans, send all the extra payments to the one with the highest interest.
Payments always go first to outstanding interest and it accrues daily. The closer you can make the second payment to the first the less interest you will pay on that payment.
I followed Dave Ramsey’s advice and paid off 68K in student debt in 5 years. Pay the small payment possible to the loans and attack the smallest loan principal as your “additional payments”. Paid a total of 16 loans ranging from $2000 to $6000.
For reference, the loan is private and my interest rate is 5.3%
I was sitting like this in 2020–$70,000 l. I buckled down and pay every penny I have. $40 in savings rn. If I get sick this month or the next two years, I’m screwed.
I think interest is the silent killer when it comes to student loans, and other large debt. I’m not sure if you’ve looked into this, or already have done it, but see if you can refinance your student loans at a lower interest rate.
Depending on what the interest rate is (<~6%) some people suggest paying the minimum and investing the rest the market typically returns ~8-10%/year. Like a credit card, making only minimum payment will maximize the time to pay off and lead to you paying the most amount of interest. I’m not sure what other debt you have, but it’s generally better to pay off highest interest first.
Just keep chugging away at it. I still have student loans I’m slowly paying off from over 2 decades ago. Don’t worry, once student loans are done you will be adding other loans soon enough so the cycle continues.
The more you keep going the less interest you’ll be paying down the line. Keep the payments the same or more and make payments as frequently as possible.
The beginning of any loan is painful due to the interest but put your current payments into an amortization table. You’ll see the interest slowly diminish and the principle slowly increase.
I pay every 15 days on the dot, targeting to pay more on the higher interest loans and alternating them between payment cycles. PITA to organize, but helps my payments go towards principal!
Make sure that your extra $100 is going towards the principal and not advancing the next payment. When making additional payments make sure you do them right after you pay the interests so that the extra payments are applied to the principal. Lowering the principal will lower the interest acquired each month. Don’t assume that the servicer is doing this, go into the settings and verify that this is the option you are agreeing too. You can also check how your auto payments are being applied and ensure they are being applied how you want them to be applied.
This is just how loans work. Look up loan amortization tables. The majority (or sometimes even all) of your payments will go towards interest in the early years. As you make more payments over time, more and more will go towards the principal.