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Making the Most of Additional Loan Payments

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Thank you for all your input on our move. The real estate agent thinks we could ask at least $475,000, and that could give us about $200,000 of profit from the sale. Now to weigh our options, consider your thoughtful input, and decide what the heck to do!

How to Make Additional Loan Payments

Meanwhile, we’re still trying to gather extra payments each month for our student loans. Like I’ve said before, we refinanced our student loans with Earnest in September and then set up auto-pay to get the rate down to 4.3%. That payment goes through on the 22nd of each month.

Last fall I finally learned the trick to making additional payments on top of your required payment: when you’re able to put extra towards your loan, schedule it the same day or the day after your normal payment. That way the extra payment will go towards lowering your principal, instead of paying off a bunch of interest but not chipping away at the beast itself. You’ll owe less interest because your principal is lower. So I always shoot to pay extra on the 22nd or 23rd. I’m sure this is obvious to some people, but I was clueless and I really wish I’d understood that sooner.

(I should note that Earnest’s policy is that all additional payments go to interest first, then principal; they’re not considered early payments. It sounds like with some other lenders you need to contact them each time to make sure an extra payment goes towards principal, and not just the next month’s payment.)

Making the Most of Additional Loan Payments

Bonus Refund This Week

So speaking of additional payments, we had an unexpected/weird-but-welcome tax refund come in this week that we’ll be able to put towards our loans.

First a little backstory: a few months ago, we were audited by our state. BOO. It was so unnerving. They audited 2017, our first full year with the business. Our accountant was surprised, and guessed they were trying to teach new business owners a lesson or to warn us to be vigilant or something. Lucky us.

When all was said and done, we did fine but they disagreed with how our accountant filed one thing. But that mistake meant we owed $3,000! Feeling a bit panicked, my husband sold some sports memorabilia he’d been saving to get us the money. Thanks to that, the payment stung but it didn’t kill us.

We vowed to learn from the audit and to keep doing our best to play nice with the IRS.

Fast forward to this past weekend: we got a letter from our state’s tax department saying that THEY owed US $6,000 for 2017. Say what?? We talked to our accountant on Monday, and he said that whatever they found in the audit must have triggered this.

We’re anxiously waiting on that $6,000 check (which still seems too good to be true), and feeling overwhelmed and grateful for it. I’m trying to see it as a blessing and an asset, but I’m also pretty guarded. I worry the IRS could come back at any time and say, “Psych! We paid you $6,000, but now you owe us $12,000!” Wouldn’t that be fun?

But if that money really does come in, I’ll gladly make an extra loan payment right after our auto-pay. Take THAT, principal.

Anything else I should know about making the most of additional loan payments?


7 Comments

  • Reply Jen |

    It seems like your home value has increased a lot in a short time? Or you had a substantial down payment?

    If the former is true, I would not sell. If the price of your home has increased that much over a short period, I would be very scared of being priced out of the market when ready to purchase again. We’re probably due for a market correction, but you can’t count on that.

    • Reply Sara |

      It went from $325,000 to $475,000ish in 6 years. So yes, this area is booming!

      Definitely some things to consider. Thank you.

  • Reply Angie |

    Yay for “found” money! I love that your first thought is to immediately send in a loan payment. Definitely the right thing to do. You resisted the temptation to fritter away some of the bonus money. Great job.

    Are you on income based payments? If you’re on standard payments it doesn’t matter if the extra payment is paying down interest, since it is interest you would pay at the end of the month with your regular payment anyway. Although, I bet it’s frustrating right now with the loan balance so high, your interest can stack up faster than extra payments so they all go to interest. Eventually it won’t, and you’ll want to be throwing extra payments at it as early and often as you can, regardless of whether it’s timed with the monthly payment or not.

    • Reply Sara |

      Oh that’s good to know about standard payments. I think there is a definite psychological boost when I see a payment cut away at principal. It gives me some friggin’ hope!

  • Reply Joe |

    I think it’s pretty important to understand what triggered both discrepancies, you don’t want this sort of uncertainty hanging over you all the time.
    I would also consider finding a new accountant!

    • Reply Margann34 |

      My thoughts exactly! If your accountant can’t explain to you exactly what has transpired, then you need a new accountant!

      • Reply Sara |

        You two are right. He told us generally what the deal was (as did our state), but we still don’t have all the details!

So, what do you think ?