Tag Archives: allocated

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.

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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?

For more information on how to gain control of your finances check out our info on Getting Started by clicking the link in the menu bar at the top of the page.

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Sam

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!

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