Have

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

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

#### How does my 2nd payment get distributed?

Unlike payment 1, which requires that I make the minimum monthly payment across loan groups B*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’.

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

#### 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.

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.

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!

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**four days!** *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!*

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 *No thanks. I’m paying off my student loans by the end of 2019. *If you’re thinking about taking the 10, or worse, **don’t**. Run these numbers for yourself, it will make you sick, and hopefully, give you the motivation to crush your student loan debt!

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