Positive Thinking is One Way to Pursue Happiness. If You are Saddled with Debt, another Way is to Create a Positive Balance in Your Bank Account by Paying Installments Early.
The best advice I ever received in a college class was:
Whether you are an employee or employer, you work for yourself and your family first.
The same principle applies to debt obligations. Sure, a bank may have done you a favor with a loan or credit card approval, but your efforts to return the money should be executed in a way that benefits you first by enabling you to pay down the borrowed amount quickly.
By making monthly student loan and credit card payments on the day statements are posted, you will:
- Diminish lender profits.
- Save a small fortune.
- Pay off the principal faster.
- Improve your credit score.
Why? Accrued interest added to your debt each day between the post date and the due date for a monthly bill is how lenders profiteer off student loans and credit cards for decades into the future.
When you pay early, less additional interest accrues, and a greater balance of your payment is applied to the amount originally borrowed.
Over time, because your balance drops faster, you will pay less to the lender overall, and keep more of your hard earned pay for yourself and your family.
The following table shows the difference between a few months of student loan payments based on the number of days paid ahead of the due date:
|When Paid||Applied to Principal|
|20 Days Ahead||75%|
|3 Days Ahead||50%|
|On Due Date||35%|
Best case scenario is to pay off student loans and credit card debt in a lump sum. This may require winning the lottery, inventing the next Facebook or Google, becoming a movie star, inheriting a fortune, or experiencing some other amazing windfall. Take a moment to calculate the odds on any of that actually happening, then let’s move on to the next tactic…
Second best case is to pay on the closing date of the bill, which should be posted on the online or paper statement (invoice), and to pay more than the minimum.
Third best case is to pay the installment in weekly increments, which is easily accomplished when you pay online.
Fourth best case is to pay more than the monthly minimum on the due date.
Early payments that include more than the monthly minimum create a particularly lucrative scenario for the payor.
If your monthly budget is too tight to shift all your payment dates at once, start by rescheduling one loan account, then gradually reschedule the other accounts until the entire pay schedule is re-aligned to the closing dates. Starting with student loans, if you have them, will benefit your bank account the most.
Beware of Sneaky Rip-Off Tricks:
If you pay online, be sure to check the default date in the payment date field to make sure the current or next day is chosen for your payment. Some creditors automatically post the due date as the payment date.
Worst case scenario is to enroll in Auto-Pay for only the minimum required on the due date. Auto-pay, which is touted as a convenience to the payor, often pushes the payment date as late as possible to maximize accrued interest.
Additionally, if an Auto-Pay transaction hits your bank account when you are short of funds, you may overdraw, which in turn can generate a disastrous cascade of fines and penalties that further depletes your earnings.
Students and graduates: tell your friends. Teachers: tell your students. Co-signers who get stuck with the bill – pay early, too!
Legislation is in the works to delimit exploitation of college borrowers, and offset the damage already done to students and co-signers who had no idea what they were getting into when they accepted private loans for college.
Until the new law passes and is signed, paying as early as possible, and preferably paying more than the minimum each month, will counteract lender exploitation and help borrowers get ahead.
If a creditor harasses you unreasonably during periods of hardship, you can report them here: US Consumer Financial Protection Bureau (CFPB), a department established by the Obama administration in the wake of the 2008 economic collapse.
ImgFlip.com served as the generator for the meme shown above.