Yes, you read that right: I'm overpaying on my loans and the amount owed keeps increasing. I am literally in a no-win situation.
I've decided to take a slightly different approach and see if that pays off. Last month, $2.53 of my $300 payment went toward the principal balance of the loan. Looking at that paltry amount made me realize that there actually is no way that I can ever pay these loans off. I already knew that, of course, but I keep re-realizing it.
My loans are currently unconsolidated. Each semester I took out loans is represented as a different group, A-H, and they have about three different interest rates. My largest loan also has the highest interest rate at 6.5%, whereas the smaller ones are 2.1%. My new plan is to focus on that big guy and hopefully actually make some more progress in getting the principal down. After all, I can only write off $1500 worth of student loans interest payments on my taxes for the year, so I might as well see if this new strategy actually makes a difference.
It's pretty much like that credit card debt reduction strategy where you tackle the biggest debt first and then work your way down to the smaller ones. It is mighty tempting to try to wipe out one of the smaller loans, just because it would go faster, but that really wouldn't save me as much money since the interest is so high on the large loan.
It's all kind of like treading water and even if it does make a difference, it won't be a significant one, but I have to try. I just look at that number get bigger every day, and it makes me sick. If I can feel like I'm making some kind of progress, maybe it won't feel like I'm just throwing away my hard-earned cash every month.
I'll keep you posted...
I think that sounds like a good plan. the interest rates for my loans are all about the same, so I tackle one at a time (as in I pay the minimum on all the other loans, and pay more on one loan until it's kaput!)
ReplyDeleteI think back when was able to pay more I was told by the loan people that I had to write "apply to principal" on there for the extra or they would just act like I paid a month early. That might be part of it?
ReplyDeleteBecause they can't act like humans, can they?
DeleteHUMANS?!?!?! You're so funny, Joel :)
DeleteI think since mine are all federal loans, they're less horrible than your dear friend Sallie Mae. Nevertheless, I will be eagle-eyed in watching where this money gets applied and will hop right on the phone (to talk to someone with no real power) if anything looks hinky.
DeleteSounds like a good strategy… keep us posted! Damn student loans… glad I'm not alone in my frustration.
ReplyDeleteHave you thought about consolidating? If they are all federal loans, then you can do it. When I consolidated my loans, the interest dropped overall, the minimum payment dropped overall, and thus more of my payment went towards my principal. Plus, it's way easier to keep track of since it's just one payment. You can call up the service line and ask them to help you figure out what your payments and interest would be if you consolidated.
ReplyDeleteConsolidating also restarts the clock. I consolidated and it did lower the payments, but that's because with a larger loan, they can spread it out over 20 years instead of 10. so lower payments, but 10 more years of them.
ReplyDeleteI did talk to them about consolidating years ago, but, at least at that time, the interest rate I would have gotten for all loans would have been higher than leaving them all unconsolidated. I haven't looked into that again recently, but it's a good idea :) Thanks!
ReplyDeleteThe idea of consolidation is quite good. However, this is not for everyone, as it depends on the person's financial portfolio whether they have the ability to repay the loan. It can easily contribute to your debt problems if you are not careful and unable to meet the terms. Therefore, you must analyze first the pros and cons before you make your decision on taking it.
ReplyDeleteEustolia Nitta