Two student loan payments in one month!

Have alot of student loan debt? Want to pay it off as quickly as possible but don’t know how? The answer is straight forward: make extra payments to principal. It’s what i’m doing to pay off my $170,000 of student loan debt by the end of 2019. Tactially this means I make, at a minimum, two payments every month:

Payment 1 - Required minimum monthly payment 
Payment 2 - An additional principal only payment targeted at a specific loan group

You can see my payment 1 for January 2019 here. It was for $862.56 across 4 loan groups, with approximatley 25% allocated towards interest, ouch!

I owe over 100,000 dollars of student loan debt

My 2nd payment is $1,139.44 which, in aggregate for the month of January, represents $2002, my self-imposed minimum monthly payment.

A 2000 dollar student loan payment

How does my 2nd payment get distributed?

Unlike payment 1, which requires that I make the minimum monthly payment across loan groups B,F,G and I: payment 2 is technically optional, which means I get to choose both the loan amount and to which loan group the payment is applied. I’m an advocate and follower of the debt snowball method which means listing your student loan debts smallest to largest and making additional payments towards the smallest loan group (in this case group C), then moving up to the next smallest loan group (group E), until all loan groups have been paid off. You can see how I’ve ranked my student loans in the picture below via the “Payoff Rank” column which is based on the ‘Original Principal Balance’.

Over $100,000 of student loan debt

It’s fair to ask “doesn’t it make more sense to pay off the highest interest rate first?” My response to that is:

if you and I cared about interest rate and the underlying math, we wouldn’t be sitting here with $170,000 of student loan debt!

In all seriousness, personal finance is 20% math and 80% personal and the feeling of being able to say “I’ve paid off 3 of my 9 loan groups” gives me the momentum and energy to keep moving. Furthermore, my target pay off for $170,000 of student loan debt is the end of 2019 which means the ‘additional interest’ paid by following the debt snowball method is negligible, in the low thousands.

The numbers

Let’s take a look at payment #2. Following the debt snowball method above, a total of $1,139.44 was applied to loan group B with an outstanding balance of $17,298.74. $1,127.49 went to principal and only $11.95 went to interest.

An $1100 dollar student loan payment

When we determine how much of this additional payment is applied to interest vs principal, it’s important to understand that all payments will have a percentage applied to interest. A principal only payment reduces the principal but not the interest. Remember interest is calculated on principal. The good news is that I already made the required minimum payment to loan group B in my 1st January 2019 payment.  This is important because loan group B has an interest rate of 6.31% with an outstanding principal of $17,289.84, which means it accrues about $2.99 a day in interest as outlined below.

Over $17,000 of outstanding balance in 1 student loan

I only pay the interest that accrues between my last payment and today’s payment. Since my last payment was made on 1/6/19, and today is only 1/10/19, I only pay ($2.99 x 4 days) or $11.95 of interest in this 2nd payment! hooray!

Did my overall balance actually go down?

When I look at my loan pay off balance as of 1/10/19, i’m excited to see that the balance dropped below $163,000 to only $162,894.96. You can see the impact of the $1,139.44 additional payment in column ‘B’ below. The total balance for loan group B dropped by $1128!

I still owe $162,000 of student loan debt

What really kicks me in the teeth though, is that while loan group B went down by over $1,000 as a result of this payment, all other loan groups (D,E,F,G,H,I) went up, in just four days! Infact loan group G increased went up an additional $29.87! That’s over $7 a day. How? Daily interest kills principal loan reduction. You can see that when I calculate the daily interest rate on my $38,000 student loan (group F\G), it does indeed accrue interest at a rate of over $7 a day. If you want to know why your student loan balance never goes down despite making the minimum monthly payments, this is why! Making the minimum monthly payments will allocate > 80% of your payment to just interest!

A $40,000 student loan that accrues $7 dollars a day in interest.

As of 1/10/19, my pay off balance is $162,894.96. My loan balance accrues interest at a rate of $27 a day, which is $837 a month. Making my minimum monthly payments of $1600, over 50% of the payment will goto interest! No thanks. I’m paying off my student loans by the end of 2019. If you’re thinking about taking the 10, or worse, 25 year payoff schedule, don’t. Run these numbers for yourself, it will make you sick, and hopefully, give you the motivation to crush your student loan debt!

Over $162,000 of student loan debt

4 thoughts on “Two student loan payments in one month!

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