Last Friday I sent in the final payment on my second loan of the year! It’s a great feeling to know that I’m making progress on becoming debt free and can see proof of it when I see things like this on my student loan account summary:
Total Amount Due: $0.00. // Status: Paid In Full by Borrow.
Sometime next week I’ll get an email from my loan company that tells me they’ve received the payment and that I have successfully paid off another loan. At my current pace, my next loan should be paid off in December. That will be a great Christmas present to myself!
The rest of this post takes a look at a comparison of making minimum payments vs my current payment rate vs even better payment rates. The amount of interest and time that’s saved just by paying a little more each month is incredible.
While I was working on my budget at Mint.com today, I discovered that they’ve added a loan payment goal tool. I set up a goal for all of my remaining student loans (the $14,164 remaining) and tested some different payoff goals to see what effect paying extra would have. Below are the results and they’re pretty astonishing!
This first image shows my remaining loans and the current interest rate, minimum monthly payment, and the balance on each. The next loan that I’m working on is the one with a balance of $1,692.
If I only pay the minimum balance of $177 per month, it will take me until February 2020 to pay all of my loans. It will also end up costing me an extra $3,936 in interest!
Currently I make the minimum payment plus $300 every month. If I make extra income on anything, that is paid in addition to the $300. At this rate I’ll be done in March 2014 and pay $1092 in interest. By paying just $300 extra per month, I’m reducing my payments by 5 years, 11 months and saving $2,844 in interest.
If I made even more money (like getting a raise or a part-time job or regular freelance weekend work) I could start raising the amount extra I pay each month. Below are four previews of what I could do if I raise my extra monthly contribution.
If I increased my total payment to $500, I would be done 2.5 years and waste $1,036 in interest. By paying an extra $13 over what I already pay, I would shave off one month and save $56 total.
The next three screenshots show the time/money savings for $550, $600 and $650 monthly payment. When you compare the time and interest paid/saved just by making small increases to the monthly payments it’s incredible how fast debt can be paid off and how much interest can be saved.
And if graphs make more sense to you, I put a couple together using the above information. Graph one, “Payments and Interest”, shows the inverse relationship between the amount I pay (or could pay) each month, and the amount of interest saved. Graph two, “Payoff Schedule”, shows the declining amount of time required to pay off the loans at each at the different monthly values.
What tools do you use for managing a budget or getting rid of debt? Have you shared your story about becoming debt free on your site? I’d love to hear your tips and stories, so be sure to leave a comment!
I’m using the Debt Snowball method to pay off my student loans. In a nutshell, you list your loans from lowest balance to highest balance. Make the minimum payment plus some extra towards the lowest balance. Once that’s paid off, continue paying the original minimum payments (including what you paid for the lowest balance) plus as much extra as you can. By doing this you eventually will end up paying a lot more than the minimum balance towards a much smaller remaining balance. Creditable.com is a pretty good site for setting up a debt snowball and tracking your progress, but I personally like Mint’s loan payoff goal tool better.
If you’re feeling super generous and want to help me pay my student loans off even faster, I won’t say no! You can also click on any of the book links on the left and buy one, two or all of them through my Amazon Affiliate site. This will make me a little bit of money. Or if you’re from a church who uses ProPresenter, I’m available for training, or I can help you set up a WordPress blog with StandardTheme. I’ll even come do yard work or clean out your basement if you live near Alpharetta, GA.
So very proud of you son! Great job on paying off the loans. The Dave Ramsey class really paid off for you for sure…you need to send him a copy of this so he can see it first hand.
Keep up the great work!