Taking a Break from Payments a Good Idea?

The student loan and credit card industry’s have this great way of keeping us all current on our bills by using payment due dates. They let us know when our next payment needs to be made by, and even tell us the minimum amount we need to pay in order to stay current. If we made a duplicate payment, they let us skip a month so we can take a break from our financial obligations and enjoy that extra money next month.

How nice of them.

Did you ever stop to think that they do this to create more income for themselves? Think about it. When you only pay the minimum amount on your loan, it takes you longer to pay the whole thing off and you end up paying them more in the long run. Who wins? The loan company.

If you skip a payment because you got ahead, well congrats – the next time you do make a payment, you’ll be paying double the interest and less of your payment goes towards the principal amount. They make extra money, and you pay extra money.

Total Score:

Loan company – 2

You – 0

 

I’m ahead of my payment schedule, should I keep paying?

In short, the answer is yes. To give you an example of my reasoning behind this answer, check out what my current statement looks like:

payment due in 2024

My next payment isn’t due until 2024. While I technically can take a break from making payments, it is not be the best option for me at this point. Not only am I trying to get out of debt in the shortest amount of time, so allowing interest to accrue without making payments virtually reverses this process.

To give you a more detailed example, the loan in the photo above accrues about $15.60 in interest each month on its own. That’s about 50 cents a day, which doesn’t sound too daunting in the short-term. However, if I didn’t make that payment until 2024, I would have accrued more than $1872…in interest alone. I would have essentially MORE THAN DOUBLED my loan balance for that one.

Do you see how kind they are for letting me take a 10 year break from paying that off?

 

Why This Drives Me Crazy

The best part is that since that loan isn’t technically due until 2024, every time I make an extra payment they automatically spread it out across the other 4 loans I have with them, and exclude this one completely. Even though I want the whole extra payment to go towards this one, I end up having to call them every time I make a payment. While it may be a hassle and complete waste of time to do this, it’s necessary for me to reach my financial goals so it’s worth it.

I mean, it’s not like it’s the 21st century where they would have the capability to allow me to choose which loan to apply my payments to, right? Of course they could, but so many people fail to do this so I’m sure it would cost them quite a bit of money.

Don’t let the loan company decide the best way to go about paying off the loans you have with them…that they are earning money on. Clearly, this is a conflict of interest.Make sure you to always check your statements to see how your payments have been applied. They are not the best people to trust when making this decision.

 

Final Thoughts

This is what they really want to say when they send your $0 due bill:

Paying ahead on student loans

The next time you get a statement from your loan company that you owe $0 this month, give yourself a pat on the back for getting ahead of your repayment schedule, and then go ahead and make the payment anyways.

Money doesn’t grow on debt.

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Chenell

I am Chenell Tull and so far, I've had a pretty rough time with my student loan debt. Recently, I've figured out a more productive "get out of debt" plan and the goal is to pay off over $60k in just 36 months. If you want to learn more, subscribe to the mailing list and get FREE updates on my successes and failures on this journey out of debt. 

  • Hey,

    This is such a hot and great topic. I find that if I never know what’s going on, I always call and expect the wait so I can sort through it (ie my direct debit not matching up).

    I guess my way around avoiding the “paid ahead” status is by having direct debit. Any extra payment I make has no impact on the core payment I have to make. Are you able to do that via Sallie Mae? I have been ‘lucky* to have all federal loans.

    Really enjoyed it. Additionally, their loan payoff letters are so sad. Only one even said congratulations. The other just said: you’re done.

    Sometimes that letter is necessary to avoid feeling like slowing down and I guess that’s why it’s a measly letter haha.

    • I have direct debit too. Funny enough, I just got an “out of the blue” statement in the mail telling me that my payments were slightly reduced and my next one isn’t due until September. What timing! Haha

      I love the “you’re done” statement after paying one off. It does re-motivate you to get these crooks off your payroll. 🙂

      Thanks for stopping by and sharing your thoughts, Jacquelyn!

  • Amy

    Great post! I think we should always operate under the assumption that banks ONLY have their bottom lines in mind, and that everything they do is done to pad their bottom line.

    • Exactly, once you realize that they are a business and out to make money, you start seeing the holes in some of the “nice things” they do for customers. Reminding myself of this has definitely saved me a dollar here and there.