In August’s Net Worth Update, I mentioned that I put a chunk of cash towards paying off my student loan. I had $1,000 set aside in my saving’s account specifically for my student loan. I originally intended to wait until the end of the year to put a much large chunk of cash towards the loan. I hoped that I’d be able to come up with enough money to completely pay off the loan, although that’s looking less and less like it will be possible.
There were multiple reasons that I wanted to pay-off the loan in larger chunks, instead of bit by bit. The first reason is Sallie Mae’s reputation of “accidentally” messing up loan repayments when you try to pay ahead. My loan is set up on automatic monthly payments. I’m bad about remembering things, so automatic payments make things super seamless for me. Being on auto-pay also means that I get a small discount on the interest rate of my loan.
The second reason was because of my house. Although I was setting aside money ear-marked for the student loan, there was a little less stress knowing the money was there in case I needed it to sell the house. Like a secondary emergency fund. Which ended up being exactly the reason I ended up making the $1,000 payment last month. I saw that money as being available for something else. Giving myself permission to use money for something other than it’s intended purchase makes it susceptible to being poached for any number of reasons. If I was ever going to make progress on paying off the loan, I needed to start making progress on paying off the loan. Once the money is put towards the loan, it can’t be taken back to use for something else. Like the house. Or a vacation.
So I bit the bullet, and made a big payment towards the loan. When I made the payment, I set it up as an “additional payment”, and not to affect my normal payments. We’ll see how that works out. If it doesn’t? Oh well, I’ll just have to start making all of my payments manually. It’s not the end of the world. And the tiny discount I’m receiving will be more than made up when the loan is paid off.
When I made the extra payment in August, I started thinking about how often I should plan on paying more towards the loan. A thousand dollars seemed like a nice, round number. But at the rate of $170 a week, I’d be making an extra payment every 6 weeks. Call me impatient, but 6 weeks seems like too long. So I’m thinking maybe I’ll just start making an extra payment at the end of every month? Maybe a few days before the end of the month, so it will be adjusted for my net worth updates?
I’m sure there will be some bumps in the road, and I’ll change my mind as I go. I always change my mind as I go! But at least I’m making a plan to move forward. And forward is a great direction to go!
What do you think of my plan? Would you pay more monthly, at a set dollar amount, or save to make a larger payment?
– Cindy W.