Tag Archives: debt snowball

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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Sam’s November Debt Progress Report

Nov 2014 Debt Progress Report

Monthly Progress on Individual Debts

The graph below summarizes my short term debt progress during the month of November. The blue columns represent my debt totals for individual loans as of November 1, 2014. The pink columns represent my debt totals for individual loans as of November 30, 2014. Looking at the debt progress in this format allows you to see that the debts I made minimum payments on only decreased by a relatively small amount.

Nov 2014 Monthly Progress on Ind DebtsSince I am only paying minimum payments on my student loan (for right now), the total amount decreases very little (only about $130!).

Total Debt Progress

Nov 2014 Total Debt ProgressPaying more than the minimum (overall) has made a significant impact toward decreasing my debt.

Amount Applied towards interest

Nov 2014 Amount Applied Toward InterestMost of my minimum payment went toward interest in November.

Nov 2014 Amount of income applied toward debtRoadblocks: New brakes for my car, flight for a friend’s wedding, bachelorette party, wedding gifts for two friends, and niece’s birthday set me back about $1,000 in November! As much as I hate not putting every extra penny toward debt, I love being able to spend money (and not go into debt) to celebrate exciting things happenings in loved ones lives.

November Dollar Hollaaas: Unfortunately, none this month! Next month for sure :-)

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. How do you stay motivated and track your debt progress? How are you balancing holiday spending while attacking your debt snowball?!

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Sam

Sam’ Progress Report is linked up at the following Frugal Parties: The Thrifty Couple’s Thrifty Thursday, Living Well Spending Less: Thrifty Thursday and as *Part of Financially Savvy Saturdays on brokeGIRLrich*!

7 Days to a Debt Payoff Plan

Starting your debt snowball or a plan to pay off debt, can be overwhelming, scary, and frustrating. Procrastination is a major roadblock for many people who are faced with the task of paying off debt because it can make a person feel like he is staring up to the summit of Mt. Everest and being asked to climb it!  If sitting down and trying to tackle the job of getting organized to pay off your debt makes you want to put on your tennis shoes and run in the opposite direction, you are not alone. I’ve been there too. That’s why I’ve come up with 7 days of “jobs” that will have your debt payoff plan feeling less like climbing Mt. Everest and more like stepping over an anthill :)

debt snowball defined7 Easy Steps to a Successful Debt Payoff Plan

Day 1: Gather it up. Find all of your student loan/debt paperwork (including the car, mortgage, etc.) and put it in one spot/folder/pile.

Day 2:  Protect it. Find all passwords, and create a word document labeled (something like “debt payoff”, “debt snowball”, “hello financial freedom”) for all of your usernames and passwords. Create accounts if you don’t have one.

Day 3: Get technical. Log on to all of your debt accounts. Make sure that you save them on your web browser as a “favorite” so you can easily click and go.

Day 4: Create your DEBT SNOWBALL. Either write down or start a word/excel document listing your debt totals in order from smallest to biggest. Include interest rates.

Day 5: Schedule it. Write on a paper calendar and in your phone all of your payment due dates. Set an alarm to alert you of a payment 2 days or 1 week before each payment is due to ensure on time payments and avoid fees.

Day 6: Plan ahead. Use your budget to decide when (month and year) you will make your first EXTRA payment.

Day 7: Easy access. Make a filing bin, cabinet, or folder for your debt paperwork ONLY! Put it in a spot that is easy to access. Most people are more willing to do something more often if it’s convenient (i.e. fast food, pre-packaged foods, etc.). Make it easy on yourself and make your debt snowball information easy to access and organized!

debt snowball picThere it is. In just 7 days you will go from, “I just pay the minimum and forget about it because it’s too overwhelming to look at” to “My first extra payment happens on 12/1”! Congratulations on taking years off of your total debt payoff time!

debt snowball congratulationsHow did you begin your debt snowball journey?

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Sam