Student Loan Dodgers

When does accelerating debt payments make sense? As it turns out, most of the time. If you have accumulated debt, you will pay interest on the debt as long as you hold it. When you shorten the time you hold the debt, you reduce the overall cost of the loan or debt.

Accelerating payments can help reduce the overall cost of an obligation. In most cases, your initial monthly payments are applied to the interest you owe on your principal sum. Very little of the money you borrowed is actually repaid. As you pay down your debt, more of your payment is applied to your principal sum, which in turn reduces your interest.

To accelerate a debt payment, pay the full monthly amount. Your monthly payment will be applied to your debt as usual. Make an additional payment of some amount - it doesn’t have to be a full payment – and the additional amount will be applied directly to your principal balance. Your extra payments will begin to reduce the principal sum on which interest can be charged. Regular extra payments could cut months or years off of your debt repayment.

Reducing your overall debt by making extra payments makes sense. If you owe multiple lenders, start applying extra payments to the debt whose interest rate is the highest. Once you’ve repaid the highest-rate debt, shift the full amount you were paying on the retired debt to the debt with the next highest interest rate. If you apply this same payment to your next debt, you can quickly reduce it to zero as well. Be sure to make the monthly payment on all of your debts while you’re reducing your balances due.

Using this method, you don’t spend any additional money to pay down your debts, but you concentrate it where it will provide the most benefit. Work your way through all of your debts, saving your lowest interest rate obligations for last.

Some people also choose to apply any raises or tax refunds they get toward debt reduction. This approach means that you maintain your standard of living, but you retire your debts faster than you would by making payments only according to the schedule.