The value of a lower interest rate when it comes to paying back your student loans is obvious to most people. It is part of the reason that so many people investigate companies that refinance or consolidate student loans.
Surprisingly, lower interest rates are not the only way to make debt disappear faster. One method that many people overlook is lowering their minimum payment. It may seem counter intuitive, but by reducing your monthly minimum payment, you can actually pay off your debt faster.
How is that possible?
The key is to look at the big picture, instead of just one individual loan. Most student loan borrowers have multiple student loans. Many also have other forms of debt, such as credit cards, mortgages, or medical bills.
The fastest way to eliminate all of your debt is to attack one single loan with every dollar you can spare By doing this, you can pay off your highest interest debt first. Eliminating the high interest debt first means that you spend less on interest in the long run.
It is with this fact in mind that the benefit of lower minimum payments becomes apparent. Lower minimum payments allow borrowers to pens less or their low interest student debt and more on their high interest debt. Bottom Line: If you can lower your payments on one loan, you can use the money saved to put a bigger dent in a higher interest loan.
An additional benefit
Most people can’t predict their exact monthly expenses at the beginning of the moth. Cars break down, people get sick, and the unexpected happens. If your income is less than you expected or your bills are higher than expected, you could be in serious financial trouble. Having reduced minimum payments can be the little bit of help you need to stay above water.
The one exception
Even though lower minimum payments make sense for everyone on paper, there is one type of person who should probably ignore this advice.
Some people don’t have a plan to knock out their student loans. They set up payments on auto-pay and forget about their debt. They may even realize that it costs more in the long run, but they don’t care. Maybe the just want to avoid thinking about their student loans. The fact is that some people just prefer a head in the sand approach to paying off their student loans.
If this describes you, it is probably best not to lower your minimum payments. Going this route will just result in even more money unnecessarily being spent.
If this exception does not apply to you and you want to use lower minimum payments to attack your debt…
How to I reduce my monthly bill?
Be sure to check out part two on lowering your monthly payments.