What to do?? Snowball SL Debt or Continue to Invest?

[broketriathlete]

I'm really having a dilemma right now. I have $25K in student loans at 3.69%. I am on IBR so my payments are $58 a month, so it's not a huge opportunity cost for me by any means. I also pay $29 a month to student loan services to basically manage my consolidated loan. I'm 31 Y/O and I make $40K a year. I promised myself once I pay off the student loans I'd start investing the $100 (plus whatever is left over) that I have been paying in loans (loan + SLS fee) in stocks/mutual funds outside of my IRA to help create more wealth. After I pay the loans off it'll be the last debt I have. I have no other debt.

The thing that pisses me off is over the last year of payments a whopping $1.98 has gone towards the principal. The rest towards interest AKA their pocket.

So I've decided I want to pay down the loan as quickly as possible. I have $10,000 saved up as of now (in a little less than a year) for the student loans. It has also pulled double duty as an emergency fund while I snowball this debt. After lurking here for a while I've gone into pretty much full mustacian mode and cutting all extra crap. I think I can save about 50% of my net income.

With that said... I started an IRA this year and have budgeted to invest the full $5,500 a year no problem. I have a target fund with Vangard (2050). So far, I've lost money (only $5 though as of today). So it got me to thinking should I quit investing in my IRA to knock this debt out quicker and then resume once I pay the debt off? It seems to be a bad year for this target account (averages 6.8% annually IIRC) so instead of putting money into a fund that isn't doing this year, channel it towards a debt that is pissing me off that I'm having. If I don't save another extra dollar (which I am ABSOLUTELY going to save more money) I can basically pay off the loans in 2 years with the $11,000 I'd be putting in my IRA. But on the other hand I'd be losing potential gains on my IRA, too. So I really don't know what to do.

Thoughts?

[firewalker]

You pay $29 a month that is for the service of receiving and processing your monthly payments? And that is above your 3.69 % interest? I would crush the loan to zero and then start investing.

[abhe8]

I agree. Kill the SL, then max the investments.

[Bob W]

It is a balance sheet question.   The correct answer is fully fund IRAs,  401ks and HSAs.   You can't go back and do this.  Then invest the rest in funds or real estate.   Even at 7% this the correct answer is that SLs are forgiven in the event of death or disability.  Very cheap insurance.  So delay paying as long as possible.

[Auckland Stubble]

I had a student loan that was low interest and I knew I could earn 10% plus on investments.

However, for the mental feeling of having the debt, no matter how much I had in investments, the debt was always there, just lurking in the background.

I paid of the debt in one big chunk of $30k after selling some investments. Looking back, I would be maybe $1000-2000 better off financially had I not paid of the debt, but the freedom and decrease in stress of not having the debt was worth it for me.

Not all financial decisions are based purely on finances, your mental state has to be taken into account also.

[broketriathlete]

Fire - Yes, along with speaking on my behalf to the loan company. They also make sure that my IBR plan is renewed every year.

Abhe - That's what I'm thinking. So you think cease investing for now and dump everything into the debt?

lhamo - My take home is around $35K on paper, a little more on the side. My expenses each month are around $1,400. I pay myself 20% into a separate savings account (where I make my IRA contribution from) for any "income" into my bank account. I always pay myself first. So I really have 2 savings account, 1 for E-Fund/SL Debt and the other for extra funds. My current expenses are as follows:

Rent - $600
Internet (so I can talk to you fine folks :) - $34
Car Insurance - $150 (300/300 coverage)
Navient - $58
Student Loan Services - $29
Dental Insurance - $33
Groceries - $215
Fuel - $160
Eating Out - $150
IRA Contribution - $375 ($1,000 start up so $375 for the remaining months for the first year, then $458)
IRA Balance - $1,795 (Invested $1,800) Started 3 months ago
I have $10K in a savings account, $1K in another and $2K liquid cash in my safe.

The fixed costs are met but the variable ones (groceries, gas, eating out) is the budgeted amount but never reached. In fact according to YNAB my balances for this month of groceries as of today is $346, gas is $255, and eating out is $278. I've used this app for 2 months and it's awesome.

I have 0 credit card debt and only use them as a debit card. I don't spend what I don't have, ever.

Serpen - I had thought that too but that's only on the earnings. You can withdraw your contributions from day 1.

Bob - I appreciate the input. I know that the IBR plan is forgivable after 25 years, but that's a long time LOL. I hope I die or become disabled after that lol.

Auckland - That's how I feel! At this moment in time I have a negative net worth (which I didn't give a shit about just 6 months ago) but now it's a big plague to me. I want to consider myself successful and a negative net worth is not cutting it for me. I feel as though I don't make enough money to work on both at the same time. In reality I could... but the debt will lurk around longer than I'd want. But bob did make a good point that you can't go back in time to make those investment months you missed and I can't see myself saving another $15K in the next 7-8 months to leave me enough time to save another $3.5K before April to have the entire $5,500 put into the Roth.

[kpd905]

I'm really having a dilemma right now. I have $25K in student loans at 3.69%. I am on IBR so my payments are $58 a month

The thing that pisses me off is over the last year of payments a whopping $1.98 has gone towards the principal. The rest towards interest AKA their pocket.

This shouldn't be too surprising, although I'm not even sure how you got that $1.98 to go toward principal.

The interest on $25,000 at 3.69% is $922.50 per year.  Your payments are $696 per year.  So your loans are slowly growing while you pay.

[broketriathlete]

I'm really having a dilemma right now. I have $25K in student loans at 3.69%. I am on IBR so my payments are $58 a month

The thing that pisses me off is over the last year of payments a whopping $1.98 has gone towards the principal. The rest towards interest AKA their pocket.

This shouldn't be too surprising, although I'm not even sure how you got that $1.98 to go toward principal.

The interest on $25,000 at 3.69% is $922.50 per year.  Your payments are $696 per year.  So your loans are slowly growing while you pay.

I don't either. It's a weird amount to be applied to it. Something even more funny is it was added with only two payments. The other 10 payments were straight to interest.

[Dezrah]

You’ve been given good advice so far but I’ll suggest “do both”.  I’ll add my own plan that worked for us and you can see if it appeals to you.

My husband also had loans roughly equal to a year’s salary (we did have two salaries though).  I set up a big spreadsheet that showed how much interest accrued every day for the next ten years with our standard 10-year repayments (depressing). 

Then I made it a goal to knock it out in three years by paying $X monthly for year one, $2X monthly for year two, and $3X monthly for year three.  X was not small but it wasn’t hard to beat on a good month, so we got to feel awesome about beating our goal and keep going.  2X was a bit trickier but by then we had better habits overall so we could still do it.  3X was harder and would require some real sacrifice and tapping into savings, or it would have if I hadn’t grown impatient and just knocked out the remaining balance with our house-down-payment-savings instead.

Every time we made one of these extra payments I updated the spreadsheet and could instantly see how much interest and time we saved.  It was highly motivating.

As long as we were meeting these artificial goals, I gave myself permission to keep investing in our IRAs and a little into 401ks.

Ultimately, you’re choosing between two great choices, so don’t waste effort worrying and regretting whatever decision you make.

Also, don’t forget that student loans are kind of special in that you can push out the next “due date” by paying ahead.  If you are ahead by over a month, you can effectively skip next month’s payment without being delinquent.  Interest will continue to accrue but you can safely drop loan payments for a time in extreme circumstances.  Think of it as shoring up an emergency budget.

[KCM5]

Can you get away from the student loan servicing company?

If it were just the loan itself I would pay it off on the standard 10 year schedule (or whatever) and not worry about it while saving the rest of  my money in tax deferred accounts. But that $29/mo seems silly. I have about 12 student loan that I never consolidated. I paid off all of the loans with an interest rate above 4% and then pay the minimums with withdrawal from my bank account for the rest. I seriously think about them once a month - just to check to make sure the withdrawal went through. It doesn't seem like you really require the income based repayment, so if I were you I'd change that repayment schedule to a more traditional one (10 or 20 years).

[Louisville]

The Roth emergency fund is only once the account is five years old, I believe, so not relevant for the OP.

One can remove the principal (no earnings) from a Roth any time with no penalty. Not a great idea, because you can't put it back, but the possibility is there.
For example, I've put $30k into by Roth over the last 10 years. The value of my Roth is now $46k. I could take out $30k today if I needed to. If I took out one dollar more, I'd be taking an IRS hit.
Somebody correct me if I'm wrong.

[broketriathlete]

Dezrah - Thanks for your post. I sent you a PM. I would love to do both to the max! That does sound really appealing. We have similar thoughts regarding permission to invest as long as we're doing what we can to get rid of the debt. Also thanks for the tip about the over paying. Did your extra lump sum you threw at it each month go towards principal or interest?

KCM5 - Yes I am not going to renew with them this next time around. I think through posts here I've decided to go on a standard rate, so I'll no longer need them because other than making sure I renew the IBR each month I really don't get much from them. In fact getting a response is a few days which is annoying.

Louisville - That is how I understand it as well. That is also what Vanguard, Fidelity, and Schwabb have told me as well.

[Dezrah]

Here’s how each ordinary and extra payment is supposed to work:  Money first goes to fees (late penalties, processing, consolidation, etc.), then to accrued interest, then to principal balance. 

So let’s say you have a $10,000 loan at 5% annual interest and $20 monthly consolidation fees.  After 10 days you make a $100 payment.  The balance has accrued interest of $10,000*(.05/365)*10=$13.70.  So when you pay $100, $20 goes to fees, $13.70 goes to interest, and $66.30 goes to principal making your new balance $9,933.70.

You make another $100 payment 10 days later.  Balance is now $9,933.70+$9,933.70*(.05/365)*10=$9,947.31.  $0 goes to fees (already paid this month), $13.61 goes to interest (notice it’s smaller than your last payment), and $86.39 goes to principal for a new balance of $9,860.92.

Your problem last year was your payments were so small, you weren’t breaking through the fees and interest to knock down the principal.  IBR can be useful for those who are truly struggling and desperate, but you should definitely try to do more if you can.

[northernlights]

I don't understand why this company is telling you that IBR has to be renewed every month. I've been on IBR or ICR since 2008 and I renew annually. I would think you'd be able to get rid of the student loan $29/month issue no problem.

As to your other question, do you work for the government or in a position that qualifies for PSLF? I ask that because if you do, and you anticipate working there for 10 years, there is no reason not to stay on an income-based repayment strategy unless you think you can FIRE in less than 10 years of work.

[broketriathlete]

I don't understand why this company is telling you that IBR has to be renewed every month. I've been on IBR or ICR since 2008 and I renew annually. I would think you'd be able to get rid of the student loan $29/month issue no problem.

As to your other question, do you work for the government or in a position that qualifies for PSLF? I ask that because if you do, and you anticipate working there for 10 years, there is no reason not to stay on an income-based repayment strategy unless you think you can FIRE in less than 10 years of work.

Ah I made a mistake in the last response. It is once a year. No I don't work in a government position that would allow that. I work at a jewelry store :)

[I'm a red panda]

I am on IBR so my payments are $58 a month, so it's not a huge opportunity cost for me by any means. I also pay $29 a month to student loan services to basically manage my consolidated loan.

The fee to manage your loan is equal to 50% of your payment?  That is insanity. I've never had student loans, so I don't know if that is normal; but I'd be paying a hell of a lot more than the minimum just to make that fee go away. That seems like highway robbery.

[broketriathlete]

Here's what I would do:

1)  End the relationship with the loan servicing company ASAP.  You don't need to be on IBR and every penny you pay them is one penny less going to pay off your loan.

2)  Take $3705 out of your savings and put that in your Roth ASAP.  That still leaves you with over 9k in savings, which is more than 6 months expenses -- should be plenty for an emergency fund for a young, single guy. 

3)  Start paying a MINIMUM of $1000/month on the student loans.   Based on your current income/expenses, it looks like you could actually do $1500, at least between now and the end of the year.  MIght want to see where you are in December and then decide if it makes more sense to power down on the student loan or start putting monthly deposits into the Roth for 2016.

4)  Be diligent about tracking your spending so that you have a better idea of what your actual monthly expenses are.  If you are overbudgeting in certain categories and you find your savings building up again, write an extra $500 or $1000 check to the student loan.  As you whittle down the student loan balance you might want to reduce the size of your emergency fund as well, depending on what you feel comfortable with.

5)  Be aggressive about reducing your spending even further.  Your insurance seems high -- can you get a better rate by calling around?  Consider whether dental insurance is really necessary -- get what major work you need done while you have it, and then consider discontinuing and paying out of pocket for cleanings until you get the loan paid off.  You already know that you seem to be overbudgeting on food, gas, etc -- see what else you can do to bring these categories as low as possible.  Any chance you can reduce housing costs further by getting roommates, etc?

6)  What is your side income and is there any way to rev that up for the next year or so?  Suggest all side income (less taxes) be plowed immediately into the student loan.

Your interest rate is low so once you ditch the servicing company if you can plow $1500/month or so into the student loan repayment you should be able to pay the whole thing off in 18 months or less.

Thanks so much for this informative post. I am going to talk to my SO tonight to make sure she's on board.

1)  I will end the relationship with the student loan servicing company. That'll save me a tank of gas a month that'll ultimately go towards the loans.

2)  I will do this as well. That way my annual contribution is taken care of and I can really just forget about it, and channel the $375 a month I was doing that with straight into my student loans!

3)  I will absolutely do this. What I'd like to do (so I have somewhat of a buffer is dwindle my E-fund to $5K (so I don't have to treat my Roth like an E-fund), and maintain only $1,000 in my checking for normal charges for monthly bills and what not, and put every last dollar into the student loans until next April and re-assess since that'll be time to start looking at my Roth again. At that time I'll have my tax return and I could use that for my first couple of months of investing to maintain the snowball of the SL debt.

4)  I will be better at that. Those amounts I started out with 2 months ago actually is what I used to spend for the last 2 years from tracking. But, since YNAB and my minmalist type spending that's why I'm seeing numbers well under. I'll let it run for another month or two and re-assess and adjust accordingly.

5)  I actually tried calling around for insurance coverage's. I'm with Geico now and have been forever and no one can provide the same level of insurance that they do within $50. So at least in my experience I'm running the cheapest rate. I could dwindle my coverage's down but my friend just had an accident with only $10/$20 and got sued because coverage ran out. I don't want that to be me with the situation I'm trying to fix. I have needed some major done in the last year and I have one last root canal coming up. Then I'll be done with stuff being needed for insurance and will cut that off. I can't split the costs further with living expenses. I live with my GF and she doesn't get living cheap because her parents have paid for all of her stuff grown up (cars, living expenses, no student loans, etc) and she makes $65K a year. So she can't quite grasp where I'm coming from.

6)  My side income is flipping stuff on craigslist. Revving it up is completely dependent on what people list for sale.

[broketriathlete]

Yea I have to get this paid off ASAP. I just did a simple interest calculation for 25 years (length of IBR plan) and it came out to $22,670.

Now that's highway robbery LOL.

[broketriathlete]

Sounds like a plan.  A few more thoughts:

1)  Is the make/model car you drive contributing to the high insurance cost?  Might be worth thinking about downsizing in car at least until you get the student loans paid off.  You could also drop collision on an older car. 

2)  Adjust your withholding so that you aren't getting a big tax refund.  You need that money working for you, not serving as a loan to the feds/state.

3)  Another thing you might consider is discussing a more proportional split of household costs with your SO, especially as she has no debt and isn't as willing to lower expenses.  Something Suze Orman often recommends is basing the split of household expenses on income ratios -- so in your case your SO would pick up more like 60-65% to your 40-35%.  Your income difference isn't huge, and it would depend a lot on how open/comfortable you guys are in talking about finances and working as a team to tackle this debt.   Starting to get on the same page about finances is also important if you think this is going to be a long term relationship.

Good luck and let us know how things develop!  I bet you can get the loans paid off in a year if you really put your mind to it and adopt a lot of the money saving/income generation strategies discussed here.

I'm hoping to get it paid off quickly! That's for sure.

1)  It's an 02 Jeep Lareado. Here are my insurance coverages in FL.

BI - $300K/$300K
Property - $100K
PIP - $1K deduct.
Add. PIP - 20% Med/$25% WL
Uninsured Motorist - $50K/$100K
Comp. - $1K deduct.
No Collision
Road Side Service

2)  I file as a 1 so historically I get between $800-$1000 on a refund.

3)  I've thought about that and I think it'd create some initial problems. We both agreed to pay everything down the middle and I don't want to make things awkward for $100 a month savings. I can sacrifice other places. Not that she'd be ok with it... I just know since we're not married I can't ask to sacrifice our income for me because it's not "our" income yet. I'm not trying paint a bad picture of her. I just don't think we're there yet.

[broketriathlete]

Got rid of the loan servicing company!

[zephyr911]

I have a pretty simple rule. I don't hold debt at higher rates than I'm earning elsewhere. My worst investments (rentals I wouldn't buy now, knowing what I do) are running 5-6% annual net, so I don't keep debt above that point. My highest rate is 2.25%, probably less than inflation. The only reason I'd consider paying it off is to reduce DTI for an investment loan application.

It made sense to calculate the interest you'd pay over 25 years, but have you also looked at what you could earn on investments during that time? Chances are it's a lot more than $22k....

Got rid of the loan servicing company!

Excellent.

[broketriathlete]

I have a pretty simple rule. I don't hold debt at higher rates than I'm earning elsewhere. My worst investments (rentals I wouldn't buy now, knowing what I do) are running 5-6% annual net, so I don't keep debt above that point. My highest rate is 2.25%, probably less than inflation. The only reason I'd consider paying it off is to reduce DTI for an investment loan application.

It made sense to calculate the interest you'd pay over 25 years, but have you also looked at what you could earn on investments during that time? Chances are it's a lot more than $22k....

Got rid of the loan servicing company!

Excellent.

That's a very good rule. Right now I have the ability to max out the IRA, but once I get this loan paid off I'd like to continue to dump more and more money. It'd also be $22K extra that I'd be able to invest throughout the next 25 years!

[zephyr911]

That's a very good rule. Right now I have the ability to max out the IRA, but once I get this loan paid off I'd like to continue to dump more and more money. It'd also be $22K extra that I'd be able to invest throughout the next 25 years!

Just remember, there's math and then there's preference. The value of being debt-free is more of an emotional thing, but it's still real.
I was fortunate to pull enough scholarship and grant aid that I didn't have loans, but if I were where you are, I'd look at drawing it down over the next few years - not so fast that it crimps my tax-deferred investing, but fast enough to watch the progress and feel good about it. YMMV :)

[broketriathlete]

That's a very good rule. Right now I have the ability to max out the IRA, but once I get this loan paid off I'd like to continue to dump more and more money. It'd also be $22K extra that I'd be able to invest throughout the next 25 years!

Just remember, there's math and then there's preference. The value of being debt-free is more of an emotional thing, but it's still real.
I was fortunate to pull enough scholarship and grant aid that I didn't have loans, but if I were where you are, I'd look at drawing it down over the next few years - not so fast that it crimps my tax-deferred investing, but fast enough to watch the progress and feel good about it. YMMV :)

I got what you're saying, sorta do both at the same time but take care of the loan after maximizing investing?

[zephyr911]

I got what you're saying, sorta do both at the same time but take care of the loan after maximizing investing?

Have your cake and eat it too.
If maximum growth in net worth is really all you care about, invest it all. Just pointing out possibilities that might enhance your happiness too. ;)

[broketriathlete]

I got what you're saying, sorta do both at the same time but take care of the loan after maximizing investing?

Have your cake and eat it too.
If maximum growth in net worth is really all you care about, invest it all. Just pointing out possibilities that might enhance your happiness too. ;)

I see what you did there...haha. So a question for you. With my limited income I don't think I could live and max out both a roth and 401K. If I'm correct that's $23,000 a year I could max out both which certainly wouldn't leave me anything for my loans. So what would you do in that case?

[zephyr911]

Earn more money. Side job, etc. ;)

[broketriathlete]

Earn more money. Side job, etc. ;)

Touche!

[broketriathlete]

This may be a dumb question (I've world renown for this LOL) but is the extra money I'm paying towards the loans automatically applied to the principal. I had a shitty car loan that when I was paying extra they were applying it to interest and not the principal. So all I was doing was paying their share faster and still being left with the principal. Should I try this with a smaller payment to the loans to see what happens?

[I'm a red panda]

This may be a dumb question (I've world renown for this LOL) but is the extra money I'm paying towards the loans automatically applied to the principal. I had a shitty car loan that when I was paying extra they were applying it to interest and not the principal. So all I was doing was paying their share faster and still being left with the principal. Should I try this with a smaller payment to the loans to see what happens?

This depends on the terms of the loan. What do the conditions you received when you took out the loan say?

[darkelfx]

This may be a dumb question (I've world renown for this LOL) but is the extra money I'm paying towards the loans automatically applied to the principal. I had a shitty car loan that when I was paying extra they were applying it to interest and not the principal. So all I was doing was paying their share faster and still being left with the principal. Should I try this with a smaller payment to the loans to see what happens?

If your creditor compounds the interest, then the interest becomes the principal and the amount you pay extra is applied towards principal. In most student loan cases, all your payments should be applied to principal (unless your creditor is terrible) then interest.

[broketriathlete]

This was taken right from Navient's FAQ page...

If my account is current, what happens if I pay more than my monthly payment?

When you pay more than your minimum payment, the extra funds will be applied to your balance. If the extra funds are less than the amount of your next month's payment, your next payment will not be reduced and will be due as usual. If the extra funds are equal to or more than the amount of your next month's payment, we will advance your payment due date by the number of full payments that are covered by the extra funds. For example, if the extra funds are equal to four additional monthly payments, you would not have another payment due for four months.
You have the option to instruct us to not advance your due date. Not advancing your due date may result in a shorter repayment term, less interest accruing on your loan, and a lower total cost of repaying your loan as compared to your due date being advanced. If you are paying by paper check, you can instruct us to not advance your payment due date by clearly writing your instructions on a separate piece of paper included with your check. If you make a payment online at Navient.com, you will choose at that time whether you want any extra funds to apply toward future payments and, if applicable, advance your payment due date.

[broketriathlete]

I've made a lot of progress since I posted this dilemma 24 hours ago.

1) Got rid of the loan servicing company!
2) Maxed out my IRA for the year!
3) I did a test payment of $200 to see how the loan repayment works with Navient.

When I was making my payment it offered me to postpone my payment or take the auto debit of $58 out of my account. I selected to keep the auto debit for this month (and I'll do that for every month). Question: When I made my payment is said that out of the $200 that $141 will be allocated towards the principal, which I'm assuming is interest and ass ramming fees. So when my auto debit is taken out that whole $58 should be applied towards the principal correct? Since I already paid my interest for this month?

[Dezrah]

So when my auto debit is taken out that whole $58 should be applied towards the principal correct? Since I already paid my interest for this month?

Possibly, but not likely.  It's more likely they accrue (but not compound) interest daily.  For every $1,000 principal, a 3.69% annual loan would accrue about $0.10 in interest every day. 

I could be wrong but this was how our loans worked and the most obvious way for the lender to get their money with each payment.  There should be a way you can verify this by either checking online or by phone in the next day or two.  See what the principal and interest balance is after a day or just simply call to talk to a representative.

[kpd905]

As I said before, your payments were not even paying all of the interest that was accruing each month.  This means that some of your extra payment is going to pay off the remaining interest before it goes toward principal.

[broketriathlete]

So when my auto debit is taken out that whole $58 should be applied towards the principal correct? Since I already paid my interest for this month?

Possibly, but not likely.  It's more likely they accrue (but not compound) interest daily.  For every $1,000 principal, a 3.69% annual loan would accrue about $0.10 in interest every day. 

I could be wrong but this was how our loans worked and the most obvious way for the lender to get their money with each payment.  There should be a way you can verify this by either checking online or by phone in the next day or two.  See what the principal and interest balance is after a day or just simply call to talk to a representative.

I'm following you now. So basically the closer the payments the less interest. It's not a set block of interest per month. I gotcha now.

[broketriathlete]

As I said before, your payments were not even paying all of the interest that was accruing each month.  This means that some of your extra payment is going to pay off the remaining interest before it goes toward principal.

Yes I understand that fully thanks to your post! My last question was I paid way more than my interest per month so was wondering if any other payment I make will go straight to principal during that month, but as dezrah said it's calculated daily so no matter what I'm going to have interest tacked on. It just depends solely on how long ago my last payment was as to how much I pay in interest.

Thanks for your informative post!

[I'm a red panda]

My last question was I paid way more than my interest per month

So you were paying well beyond the $58 payment you mentioned in the first post? 

Because at  the $58 a month rate, you would never pay anything but interest. The interest  the first month is higher than the payment itself, so the next month you owe even more.  I know IBR has a term, so you eventually have an out; but it would be mathematically impossible to ever pay the loan off at that payment.

What the payment applied to depends on the terms of your loan.

[broketriathlete]

This is probably a really dumb question but does it matter from an interested saved point of view if I make 1 large monthly payment or 2/3 smaller payments since the interest accrued daily?

[oneday]

This is probably a really dumb question but does it matter from an interested saved point of view if I make 1 large monthly payment or 2/3 smaller payments since the interest accrued daily?

In my experience (as an accountant), if you have a plain-vanilla compounding interest, then the sooner you pay, the less interest you owe.  Keep in mind (using Dezrah's estimate of $0.10 in interest each day for each $1,000 borrowed) that currently you save $2.50/day making your payment earlier, but as the loan goes on & the principle dwindles, this will be less & less "profitable".

Now I never had a student loan, but from what I gather, there are a few quirks to them & they may not follow all the same rules.  Ask your loan servicer!  They should be able to tell you, or explain the terms of your loan so that you can figure it out.

The other thing to keep in mind: don't make *too many payments* each month.  Reasons are 1) greater chance of something going wrong, 2) if you make yourself too much of a pest, the CSR's are not going to go the extra mile when you might want/need them to down the line, and 3)  there's the hassle factor of making multiple payments, too.

What I might do in your place would be to make a payment out of each paycheck, assuming you are paid either 2x/month or every 2 weeks (so, 2 loan pmts/mo) AND that you have the cash flow in the first paycheck to make a full payment (second paycheck would be whatever you can afford or whatever amount you target).  HTH

[broketriathlete]

This is probably a really dumb question but does it matter from an interested saved point of view if I make 1 large monthly payment or 2/3 smaller payments since the interest accrued daily?

In my experience (as an accountant), if you have a plain-vanilla compounding interest, then the sooner you pay, the less interest you owe.  Keep in mind (using Dezrah's estimate of $0.10 in interest each day for each $1,000 borrowed) that currently you save $2.50/day making your payment earlier, but as the loan goes on & the principle dwindles, this will be less & less "profitable".

Now I never had a student loan, but from what I gather, there are a few quirks to them & they may not follow all the same rules.  Ask your loan servicer!  They should be able to tell you, or explain the terms of your loan so that you can figure it out.

The other thing to keep in mind: don't make *too many payments* each month.  Reasons are 1) greater chance of something going wrong, 2) if you make yourself too much of a pest, the CSR's are not going to go the extra mile when you might want/need them to down the line, and 3)  there's the hassle factor of making multiple payments, too.

What I might do in your place would be to make a payment out of each paycheck, assuming you are paid either 2x/month or every 2 weeks (so, 2 loan pmts/mo) AND that you have the cash flow in the first paycheck to make a full payment (second paycheck would be whatever you can afford or whatever amount you target).  HTH

Thank you for the post. Even though I have one consolidated loan there are 2 loans within that consolidation. One had a balance of $1,495.82. I paid that yesterday, and the payment hasn't gone through yet so todays balance is $1,495.93. So I had to pay another dollar to make sure the interest is covered...haha. Learned a lesson there!

[justjenn]

This is probably a really dumb question but does it matter from an interested saved point of view if I make 1 large monthly payment or 2/3 smaller payments since the interest accrued daily?

In my experience (as an accountant), if you have a plain-vanilla compounding interest, then the sooner you pay, the less interest you owe.  Keep in mind (using Dezrah's estimate of $0.10 in interest each day for each $1,000 borrowed) that currently you save $2.50/day making your payment earlier, but as the loan goes on & the principle dwindles, this will be less & less "profitable".

Now I never had a student loan, but from what I gather, there are a few quirks to them & they may not follow all the same rules.  Ask your loan servicer!  They should be able to tell you, or explain the terms of your loan so that you can figure it out.

The other thing to keep in mind: don't make *too many payments* each month.  Reasons are 1) greater chance of something going wrong, 2) if you make yourself too much of a pest, the CSR's are not going to go the extra mile when you might want/need them to down the line, and 3)  there's the hassle factor of making multiple payments, too.

What I might do in your place would be to make a payment out of each paycheck, assuming you are paid either 2x/month or every 2 weeks (so, 2 loan pmts/mo) AND that you have the cash flow in the first paycheck to make a full payment (second paycheck would be whatever you can afford or whatever amount you target).  HTH

Thank you for the post. Even though I have one consolidated loan there are 2 loans within that consolidation. One had a balance of $1,495.82. I paid that yesterday, and the payment hasn't gone through yet so todays balance is $1,495.93. So I had to pay another dollar to make sure the interest is covered...haha. Learned a lesson there!

Navient has a feature on their website called "loan pay off calculator". You put in what day you will make the payment and they will give you the exact amount you need to pay off the loan so you don't wind up with $1 or 2 left over.  I've made that mistake before as well!

[I'm a red panda]

Navient has a feature on their website called "loan pay off calculator". You put in what day you will make the payment and they will give you the exact amount you need to pay off the loan so you don't wind up with $1 or 2 left over.  I've made that mistake before as well!

Is it not typical for companies to forgive that amount?

We got a letter when husband had $800 left on his loan that they were forgiving the loan and he was free and clear.  For $2, you'd think it would be standard!

[broketriathlete]

This is probably a really dumb question but does it matter from an interested saved point of view if I make 1 large monthly payment or 2/3 smaller payments since the interest accrued daily?

In my experience (as an accountant), if you have a plain-vanilla compounding interest, then the sooner you pay, the less interest you owe.  Keep in mind (using Dezrah's estimate of $0.10 in interest each day for each $1,000 borrowed) that currently you save $2.50/day making your payment earlier, but as the loan goes on & the principle dwindles, this will be less & less "profitable".

Now I never had a student loan, but from what I gather, there are a few quirks to them & they may not follow all the same rules.  Ask your loan servicer!  They should be able to tell you, or explain the terms of your loan so that you can figure it out.

The other thing to keep in mind: don't make *too many payments* each month.  Reasons are 1) greater chance of something going wrong, 2) if you make yourself too much of a pest, the CSR's are not going to go the extra mile when you might want/need them to down the line, and 3)  there's the hassle factor of making multiple payments, too.

What I might do in your place would be to make a payment out of each paycheck, assuming you are paid either 2x/month or every 2 weeks (so, 2 loan pmts/mo) AND that you have the cash flow in the first paycheck to make a full payment (second paycheck would be whatever you can afford or whatever amount you target).  HTH

Thank you for the post. Even though I have one consolidated loan there are 2 loans within that consolidation. One had a balance of $1,495.82. I paid that yesterday, and the payment hasn't gone through yet so todays balance is $1,495.93. So I had to pay another dollar to make sure the interest is covered...haha. Learned a lesson there!

Navient has a feature on their website called "loan pay off calculator". You put in what day you will make the payment and they will give you the exact amount you need to pay off the loan so you don't wind up with $1 or 2 left over.  I've made that mistake before as well!

Thanks for that info. I'll have to check that out. I submitted the payment for the entirety of that smaller loan but Navient dispersed the funds amongst the two loans. Any way to make my funds go towards one loan so I can close it out?