Mythbusters: How to Make Your Debt Payments Count

Lies and MoneyCongratulations! You’re doing great on your debt snowball…paying off loans like it’s your job and suddenly the last loan on your list is your student loan managed by Navient (the old SallieMae) or some other federal student loan company. Unlike most of your other debts, you don’t have the choice to click a button that says, “I want to allocate this payment toward my principal balance” which forces you to pay your OLD interest rate without making a dent in your principal balance.

The Problem: When you pay online or call to make a payment, you’re unable to allocate extra payments the way YOU want to allocate them. When you make an extra payment online or over the phone, your payment is applied to outstanding interest.

What That Means: You are paying down your already accrued interest without making a dent in your principal balance. Your goal should be to decrease your principal balance as much as possible because the interest accruing will end up being LESS because the interest charged is based off of a smaller number. Confused yet?!

The Solution: If you search and search and search on your federal student loan service providers website, you will see a little tiny line that says, “you can allocate your payments differently if you mail in your extra payment with a WRITTEN notice describing how you want the payment allocated”. Tricky, tricky, tricky.

AVOID: What you don’t want to happen is make extra payments that results in payment due dates that get pushed further and further in the future. You want your extra payments to go toward your principal balance ONLY! That means, even when you make an extra payment, your normal balance is due the next month.

The LIE: If you call Navient or your federal student loan provider, they will tell you over and over again that, “your extra payments are applied toward your accrued interest”. They will not even mention any other option, even if you tell them that you read online that you can allocate payments differently. They are out to make money and the more money you pay in interest, the more money they make. DO NOT settle…this is YOUR hard earned money and you want to do what’s smartest and will eventually save you THOUSANDS!

If you’re confused, extra payments should ALWAYS go toward principal balance.


How have you been allocating your extra payments? Have you seen a drastic decrease in your principal balance? What’s your “trick” to making your payment count?

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Disclaimer: This blog post is based on my personal experience with my student loan service company. Not all student loan companies have this policy.

Sam’s post is also found linked up with other brilliant folks on Financially Savvy Saturdays. Click the button below to head on over!


10 thoughts on “Mythbusters: How to Make Your Debt Payments Count

  1. Nichole @Budget Loving Military Wife

    That’s great you were able to figure out a way to go around them trying to scam you out of more money! Luckily I didn’t have this issues with my student loans, but I had ACS. Although, I need to get to reading the fine print for our mortgage, because it drives me crazy that if I make an early payment (say 3 weeks early) I still have to pay the interest on the pre-early payment mortgage principal for the full month. Typically, it is less than a $10 difference… but $10 is $10 LOL.
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  2. Liz

    Great post! There are so many things wrong (besides the fact that I took out too many) with federal student loans (this practice of allocating extra payments to interest, the inability to refinance) I have some with Navient, Fed Loan Servicing, and ACS. It is always frustrating all the ways they are looking to get as much money as possible from you. Currently I don’t even make payments to cover the interest, I’m on the IBR repayment plan until I get my other debts paid off. Only then will I be making extra payments to pay down the principle.
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    1. Brittany Post author

      Liz, you’ve got a plan and that’s all that matters! This was my 2nd extra payment toward my student loan EVER and this was the first extra payment made toward my principal balance (learned my lesson the hard way after my first “extra payment”). Good for you for making a plan, sticking to it, and making great things happen for yourself! Thanks for reading! <3 Sam

  3. Melissa @ Sunburnt Saver

    So you have to mail your payment in (so, send a check) with a written notice saying you want it to go to your principal balance? That’s such crap. There should be an easy way to check a box ONLINE to pay down your principal balance. What a scam! I’m not bad at you, btw, at the stupid lending companies.

    I have Sallie Mae/whatever they call themselves now too, and I knew my payments went to interest. It’s so absolutely crummy, but luckily (I guess), I’m in the program where if you work in public service, your loans will be forgiven in 10 years. It’s hilarious/sad, because all I’m paying right now is interest, and that’s all I’m projected to pay in the entire 10 years. I won’t even ever touch my principal (now, whether that’s sad because I don’t allocate my savings towards paying off my debt faster, or if it’s because I get paid little in the public sector compared to what I could make in the private sector is debatable, but still).

    It’s okay, I’m sure I’ll end up giving the government $80k just in interest anyway, so they’ll get their money back. And all of that money won’t go back into the economy, into a house I could buy, etc. But MY extra money will go towards my retirement, which is what’s important to me! /rant lol :)
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    1. Brittany Post author

      Melissa, that is AMAZING that you’re able to participate in the 10 year public service loan forgiveness program! It is SO terrible that loan companies work really hard to scam people and make as much money on us as possible. Soon we will all be debt free and be able to spend our money the way WE want to spend it! -Sam

  4. Kelly

    The timing of this post is uncanny! We literally just ran into this same problem. We have not had any problems paying off the principle of any of the other student loans but Chase is giving us the hardest time. We are going to try to call it in but if that does not work we will definitely try mailing it, because an extra $2000 toward interest does us no good!
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    1. Brittany Post author

      Exactly Kelly! I made this mistake when I made my first extra payment and knew there had to be another way to allocate MY money the way I wanted! Glad you stumbled across this and I really hope you’re able to put that hefty $2,000 payment toward your principal balance…get it girl! -Sam


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