Tag Archives: loans

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.

image

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!

brokeGIRLrich

Brittany’s October Debt Progress Report

This week you can also find Brittany’s October Debt Progress Report along with some other amazing financial posts at the Financially Savvy Saturday Link Up! Click the button below to get there.

brokeGIRLrich

The graph below summarizes my short term debt progress across all of my individual loans. The blue column represents my debt totals for individual loans as of October 1, 2014, and the green columns represent my debt totals for individual loans as of October 31, 2014. Looking at the debt progress in this format really emphasizes how paying more than the minimum has a HUGE impact on your debt decrease. My Great Lakes Student Loan 3 is my current focal loan, and I paid as much as I could above the minimum requirement in October. Because of that, it’s total decreased by just over 9% this month, whereas in prior months it was moving down at a rate slower than 1% decrease per month. You can also see that its total is decreasing at a rate much faster than the two loans that I am making minimum payments on. What was once my largest and most mentally defeating debt actually no longer holds the title of “largest debt”. Can I get an Amen?!?!

ind. progress

The bar graph below represents the long term and short term progress I have made on my overall debt. The grey bar represents my original total debt amount, the blue bar is my total debt one month ago, and the green bar shows how much debt I have today. Sometimes it’s hard to feel like you are making progress when you look at your BIG number on a month-to-month basis, but looking back to the beginning can remind you how far you have come.

total debt progress

Having ONE target loan will increase the rate at which you can pay off your debt and decrease the amount of money you will pay towards interest to help you become debt free sooner!

Because I was paying above the minimum monthly requirement on my focal loan, the percentage being paid towards interest was small—only 7% of my total payment went towards interest. In contrast, 21% of the total amount I put towards the loans I am making minimum payments on went towards interest!! You want to pay as much as possible toward the principal because that is what helps speed up the process of eliminating debt. The chart below gives you a visual representation of these numbers.

percent toward interest

It might seem like cash flowing money right now is rough, but if you make minimum monthly payments until all of your debt is gone, you will end up paying MUCH MORE than your original loan amounts in the long run.

Tell your Income Where to Go

The pie chart below summarizes where I delegated my earned income during the month of October. About 55% of my earned income went towards debt—that includes my minimum monthly payments and extra cash flow. Just below 32% went towards my living expenses (food, rent, etc.), and 13% of my earned income was put into long-term savings this month to prepare for holiday season travels and any surprise wedding expenses I haven’t considered in my budget. As much as including wiggle room in my budget pains me, I am continuing to do it. L Deep breaths…and I’ll be thanking myself in about three months.

pie chart

October Roadblocks: October was the first month since this summer that my credit card bill wasn’t (in my own opinion) HUGE at the end of the month, and no other surprise expenses snuck up on me. I’m still saving up for my wedding/holiday buffer—which even though it feels like it’s hindering my progress on paying off debt, is not a roadblock. Saving AHEAD of time is smart, not debilitating. I’ve got a life to live here, right?!?!

October Dollar Hollaaass: No additional income on my end throughout the month of October; however I have been doing a lot of research in freelance writing and am looking to take a (baby) step in that direction come November.

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?

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♥ Brittany

Brittany’s August Debt Progress Report

The graph below summarizes my short term debt progress across all of my individual loans. The blue column represents my debt totals for individual loans as of August 1, 2014, and the green columns represent my debt totals for individual loans as of August 31, 2014. Looking at the debt progress in this format really emphasizes how paying more than the minimum has a HUGE impact on your debt decrease. My ACS Student Loan was my focal loan, and I completely paid it off by the end of August because I paid as much as I could above the minimum requirement. In contrast, loans I am currently paying only minimums on decreased by an average of just 1.4%.

Next month there will only be three loans to report on!!!

Next month there will only be three loans to report on!!!

The bar graph below represents the long term and short term progress I have made on my overall debt. The grey bar represents my original total debt amount, the blue bar is my total debt one month ago, and the green bar shows how much debt I have today. Sometimes it’s hard to feel like you are making progress when you look at your BIG number on a month-to-month basis, but looking back to the beginning can remind you how far you have come!

total debt progress

Having ONE TARGET LOAN will increase the rate at which you can pay off your debt and decrease the amount of money you will pay towards interest to help you become debt free sooner!

Because I was paying above the minimum monthly requirement on my focal loan, the percentage being paid towards interest was very small—only 3% of my total payment went towards accrued interest. In contrast, 38% of the total amount I put towards the loans I am making minimum payments on went towards interest!! You want to pay as much as possible toward the principal because that is what helps speed up the process of eliminating debt. The chart below gives you a visual representation of these numbers.

It might seem like cash flowing money right now is rough, but if you make minimum monthly payments until all of your debt is gone, you will end up paying MUCH MORE than your original loan amounts in the long run

It might seem like cash flowing money right now is rough, but if you make minimum monthly payments until all of your debt is gone, you will end up paying MUCH MORE than your original loan amounts in the long run

Tell your Income Where to Go

The pie chart below summarizes where I delegated my earned income during the month of August. Just over 51% of my earned income went toward debt—that includes my minimum monthly payments and extra cash flow. Just below 49% went toward my living expenses (food, rent, etc.), and no money was put into long-term savings this month.

pie chart

Roadblocks: I did some “back to school” aka “back to work” shopping that was a specialty category separate from my allotted spending money for the month, but I kept that expense fairly low (probably lower than the amount I used to allow myself for clothes alone each month…yikes). I also had a credit card bill that was higher than normal because I used it to purchase a couple of plane tickets to head back to the Midwest for a wedding midmonth. We actually had two weddings we wanted to go to in August, but budget and work schedules only allowed for us to attend one :(

August Dollar Hollaaas: No significant increases in income this month, and I am aware that it will probably be that way for the rest of the year…so I am mentally prepared!

Looking Ahead

Up until this point, I have been choosing my focal loan based on its size. In order to reach my short term goals of paying off individual debts quickly (thus reinforcing my efforts with something to celebrate a couple times a year), I have made the smallest loan my focal loan and thrown all extra cash at it at the end of each pay period. Starting in September, I am going to tackle my debt a little differently.

Because my car loan has a very low interest rate, 97% of my minimum monthly payment is going towards principal. In contrast, my Great Lakes Student Loan 3 has remained stagnate for a year, and this is because less than 20% of my minimum monthly payments have been going toward interest. When that happens on such a large loan, it becomes nearly impossible to stay afloat— and more importantly, impossible to get ahead. That is why I have decided to start tackling my largest debt now.

The most crucial piece of keeping momentum to paying off your debts is to find ways to stay motivated. I know that watching the most stubborn loan I have FINALLY start to decrease will be more motivating than anything else, including paying off my car.  Even better, my car debt will continue to decrease at a steady rate as I make only minimum payments—so I will have visible progress across two loans.

Announcement

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

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 Brittany

Brittany’s June Debt Progress Report

The graph below summarizes my short term debt progress across all of my individual loans. The blue column represents my debt totals for individual loans as of June 1, 2014, and the green columns represent my debt totals for individual loans as of June 30, 2014. Looking at the debt progress in this format really emphasizes how paying more than the minimum has a HUGE impact on your debt decrease. My ACS Student Loan is my current focal loan, and in the month of June its total was nearly split in half by the end of the month, whereas loans I am paying minimums on only decreased by an average of 1%.

individual prgoress

The bar graph below represents the long term and short term progress I have made on my overall debt. The grey bar represents my original total debt amount, the blue bar is my total debt one month ago, and the green bar shows how much debt I have today. Sometimes it’s hard to feel like you are making progress when you look at your BIG number on a month-to-month basis, but looking back to the beginning can remind you how far you have come!

total progress

Having ONE target loan will increase the rate at which you can pay off your debt and decrease the amount of money you will pay towards interest to help you become debt free sooner!

Because I am paying above the minimum monthly requirement on my focal loan, the percentage being paid towards interest actually dipped to 0.4% of my total payment this month! In contrast, 40% of the total amount I put towards the loans I am making minimum payments on went towards interest!! My largest loan is being paid off SO SLOWLY because 86% of my monthly minimum is going toward interest! You want to pay as much as possible toward the principal because that is what helps speed up the process of eliminating debt. The chart below gives you a visual representation of these numbers.

interest comparison

It might seem like cash flowing money right now is rough, but if you make minimum monthly payments until all of your debt is gone, you will end up paying MUCH MORE than your original loan amounts in the long run.

Tell your Income Where to Go

The pie chart below summarizes where I delegated my earned income during the month of June. Fifty percent of my earned income went towards debt—that includes my minimum monthly payments and extra cash flow—and the other 50% went towards my living expenses (food, rent, etc.). I did not delegate any money to long term or short term savings this month.

pie chart

Roadblocks: I experienced a couple of roadblocks during the month of June. The first was that I have SO MUCH free time since the school year ended, and this has really increased the temptations and opportunities to spend more money. Sticking to my bi-weekly allotted cash amount has been more difficult than it was when 8-10 hours of my day were consumed by work. I’m not complaining too much though 😉

The second roadblock I faced was a credit card payment that was about double what I typically pay each month. I had been ordering bridesmaids dresses from companies that offer free returns so that I can try them on, make a judgment, and send them back to get refunded and pretend like the whole thing never happened. It was an excellent plan until it my payment was refunded AFTER I had received my monthly statement. In other words, by the time my credit card payment was due; my current balance was LESS than original statement of money owed for my previous month’s purchases. I always pay the full statement amount because paying interest on a credit card is a complete waste of money. Instead of calling the company and trying to get my refund applied to the previous month’s statement (the statement whose payment was due), I just paid the whole thing off at once knowing that I will have little to nothing to pay in July and won’t have to waste any of my time dealing with the credit card company or worry about potentially earning interest. A roadblock for now, but I know that it will put me a little bit ahead in July.

June Dollar Holllaas: Other than my regular paycheck, there were no dollar hollaaas in June. I think I may be hollering a bit louder on payday though—does that count? 😉

Looking Forward: My goal is to have my ACS Student Loan completely paid off by the end of July. Because I can see my next smallest loan—my car loan—decreasing each month I feel pretty good about it, and I have decided to tackle my biggest loan (and biggest headache) as soon as the ACS is wiped from my slate. After nearly a year of minimum payments that $21,000 loan has only decreased by about $500, and it is MAKING ME FURIOUS. It’s time to grab a life vest and save myself from drowning in those Great Lakes….too much? I’m sorry, I couldn’t help myself.

For more information about how to start making progress on getting out of debt or gaining control of your finances, check out our Getting Started tab at the top of our page.

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 Brittany

Brittany’s April Debt Progress Report

The graph below summarizes my short term debt progress across all of my individual loans. The blue column represents my debt totals for individual loans as of April 1, 2014, and the green columns represent my debt totals for individual loans as of April 30, 2014. Look at the debt progress in this format really emphasizes how paying more than the minimum has a HUGE impact on your debt decrease. My ACS Student Loan is my current focal loan, and in the month of April it decreased by nearly 25% whereas loans I am paying minimums on only decreased by an average of 1%. One of my Great Lakes student loans actually increased!

monthly progress

The bar graph below represents the long term and short term progress I have made on my overall debt. The grey bar represents my original total debt amount, the blue bar is my total debt one month ago, and the green bar shows how much debt I have today!

total debt progress

 

Having ONE target loan will increase the rate at which you can pay off your debt and decrease the amount of money you will pay towards interest to help you become debt free sooner!

Because I am paying above the minimum monthly requirement on my focal loan, the percentage being paid towards interest is very small—only 1.5% of my total payment went towards accrued interest. In contrast, 45% of the total amount I put towards the loans I am making minimum payments on went towards interest!! The chart below gives you a visual representation of these numbers.

It might seem like cash flowing money right now is rough, but if you make minimum monthly payments until all of your debt is gone, you will end up paying MUCH MORE than your original loan amounts in the long run.

It might seem like cash flowing money right now is rough, but if you make minimum monthly payments until all of your debt is gone, you will end up paying MUCH MORE than your original loan amounts in the long run.

Tell your Income Where to Go

The pie chart below summarizes where I delegated my earned income during the month of April. Forty-one percent of my earned income went towards debt—that includes my minimum monthly payments and extra cash flow. Just over 35% went towards my living expenses (food, rent, etc.), and 23% went into my savings account because I am doing some long-term savings for a wedding early next year. I saw the light at the end of the tunnel and went full steam ahead to come within less than $100 of completing my long-term savings for my wedding budget J Now I can increase my monthly cash flow towards debt by about 15% each month!

pie chart

Roadblocks: I didn’t face any significant roadblocks during April.

April Dollar Holllaaaas: During the month of April I received my tax refunds for both states I worked in during 2013, and I put each of those checks straight into my long-term savings. They weren’t as big of a chunk as my federal return, but they helped me get within less than $100 of my total savings goal for my wedding. Next month my percentage of income put towards savings will drastically decrease and my debt payments will increase.

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 Brittany

 

What is your Debt Domination Style? Take the Quiz to Find Out!

What is your Debt Repayment Style, and more importantly how will that affect your future?

Take this short quiz to find out–Write your answers on a piece of paper and add up your total at the end to find out if you dominate your debt or if you are letting your debt dominate you!

Debt Domination Quiz questions

Answer Key

  1. A-1, B-3, C-2
  2. A-3, B-2, C-1
  3. A-1, B-2, C-3
  4. A-3, B-1, C-2
  5. A-2, B-1, C-3

13-15 points: Fast and Fierce – If your scores landed you in this category, congratulations you are on a path that will soon make debt a distant memory! You know life will be better without debt, and you are taking the steps necessary to eliminate it as quickly as possible. Keep throwing as much as you can towards each debt—one at a time—and watch yourself knock them out quickly!

8-12 points: Motivated without a Map – If your points combined brought you into this area of middle ground, you hope to get out of debt sooner rather than later but are lacking a solid plan. Sometimes you make excellent informed decisions that will help you eliminate debt more quickly, and other times you choose to plead ignorance as you follow in the footsteps of many debt-burdened people who have walked this path before you. You have an internal conflict of interest—you can either choose to accept that debt will be an unfortunate part of your life for tens of years, or you can choose to live below your means now, join the nerds and energizer bunnies who are “fast and fierce”, and focus on debt intensely for a small portion of your life so you and your family can live free of financial burdens for many, many years to come!

5-7 points: Crippled and Clueless – If you found your total score placed you in this category, you’ve got a serious rain cloud of debt hovering over your head, and although it’s annoying, you’d rather stand beneath it with a holey umbrella than walk a couple of blocks to get out of the rain completely. Not only does accepting debt as a way of life stress you out mentally, emotionally, and financially, it stops you from having the freedom to partake in many of life’s great adventures. Getting informed and motivated will help get you out of this funk. Check out our posts on motivation and getting started for some go-getter ideas!


Now that you have determined your debt domination style, it’s time to look into our crystal ball to see the HUGE impact it has on your financial future, I have used a debt calculator to display how 3 different debt repayment plans can begin at an identical starting point and finish in dramatically different places.

THE SCENARIO

A recent college graduate is starting her new life with $50,000 of student loan debt. Her minimum monthly payments are $400, and the loan has an interest rate of 7%.

 future based on debt repaymet style

If you are still skeptical about paying your debts off as quickly as possible, take a look at the bolded portions of the tables that highlight the drastic difference in amounts paid towards interest and years of your life spent owing someone money. Because of the work we do on the blog, I look at these hypothetical debt situations all the time, but it never ceases to blow my mind how much money is wasted when only minimum payments are made on outstanding debts!

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Brittany