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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?


Setting Small Milestones While Paying Off Debt

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Over the weekend I was feeling the fatigue of paying off our massive student loans. I just wanted to eat out and buy extra presents with reckless abandon. It’s hard to stay motivated while paying off debt that doesn’t change quickly. I just wanted to feel a win by paying off and eliminating a debt.

I was also frustrated that our shovel of money to put towards debt hasn’t grown this month like we hoped. My side hustles are plugging along, but my husband’s side job (which makes a heck of a lot more than mine) will only get him one shift this month. It’s disappointing.

Thankfully, more than one of you BAD commenters encouraged us to look for small victories and to create milestones as we chip away at our total debt. It’s a marathon not a race. So after a pity party, I did two things this weekend:

Charting Our Progress

I looked over what we’ve paid off in the last year, and decided to put them into charts. I made a bar chart for the past 15 months that is both non-impressive and encouraging. Yes, that crazy-gradual drop is not eye-popping. In fact, it shows that we were stuck paying off interest only for at least 7 MONTHS from September 2018 to March 2019 (insert facepalm).

Chart of Student Loan Principal Payoff

But then in April we put our tax refund towards our debt. This triggered a wake up call this summer that we could be doing a lot more to pay off our student loans. By September we had refinanced with Earnest, which initially (cringe!) bumped our principal up a bit. But then we kept making more progress with our lower interest rate and higher monthly payment.

I then calculated our percent of change. In 2019 (January to November), we’ve paid off $40,953 of our principal, a -12.23% percent change! Considering we had a 0% change for too long, it’s great to see we ARE making progress.

I also decided we needed a visual of our payoff to feel like we were accomplishing something. An adult sticker chart, if you will. I printed off a free chart from Debt Free Charts. I capped it at $300,000 so we’ve only been able to color in a teensy section so far, but somehow there’s a lot of satisfaction that comes from coloring in a line.
Filling in Our Student Loan Payoff From Debt Free Charts

Setting Small Milestone Goals

I then started to brainstorm small wins for our debt payoff in 2020. There’s no debt snowball to motivate us with small victories, so we have to create our own milestones. We most likely won’t put all of our tax refund towards our debt this year (we just purchased some equipment for the business and we need to beef up the business savings account). That means we’re going to have to really hustle to keep up our momentum.

Here are my ideas for milestone goals and rewards:

  • Order pizza and party when our student loan principal reaches $290,000, $280,000, etc.
  • Go to the movies when our principal gets lower than our mortgage (which is currently at $279,000)
  • Stay a night at the beach if we have a 20% change in principal (or get down to around $230,000) in 2020

 

Long payoffs are really draining. But as we track our progress and celebrate small milestones, I’m hopeful we’ll be able to keep ourselves going.

What small milestones or rewards motivate you to pay off debt?


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