Blogging Away Debt Blogging Away Debt follows real people on their journey to debt freedom — with tips on the debt snowball, budgeting, cutting expenses, and staying motivated.

by Sara S

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.)

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?