Big Bucks, or Little Progress

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.

Comments

  1. Hi Cindy,
    for me, saving for a larger payment would always imply the temptation that I might take the money for something else, like you with the house. If I were really determined to pay off debts, I would rather pay small amounts as often as possible. Even at the beginning of the month, so I can tick off this issue for some weeks. This would give me a better feeling of working actively on my debt relief. If I’d be afraid that I might need some extra money for [the house or somewhat else], then I would create an extra fund for this, splitting my money between this fund and the debts . Otherwise I would have a bad conscience when I take money from the debt fund, and the part of me who wants to get rid if the debts would be frustrated. Just my two cents 😉

    1. Thanks Anne!
      I tend to get a little obsessive about things, so I worry about making payments more than once a month. But I definitely need to get on track with making extra payments. Otherwise, as you said, that money will always find a way into something else. Hopefully monthly will be a good balance. It isn’t set in stone though, so I can always bump it up.

      I have a “house fund” right now of $2,500 which should be more than adequate for everything we have yet to do. I just have this slightly irrational fear that I’ll need some extra money to sell the house. I say slightly irrational, because I should be able to sell it for enough to cover what I owe, plus all the costs of selling it. I might even be able to get a little extra out of it, but I’m trying not to get my hopes up. And the boyfriend and I have discussed that if we can’t get enough out of the house to at least break even, then we’ll need to consider renting it out instead. So I should be fine. But I’m such a “worst case scenario” kind of girl!

      1. Yes, Cindy, and that’s not too bad! You’ll always have a plan B and will not be surprised by something that everybody else has seen coming. I’m the same and I’m glad 🙂

  2. I forgot: if you see later that you don’t need the extra fund, you can use it for debt payments as well and have an even better feeling!

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