Getting the most from your minimum payment

Michael Lux Blog, Student Loans 2 Comments

When you are only making minimum payments on your student loans, it seems like the debt will never be paid off.  By making the minimum payments, most of the check you send each month will go towards interest.  That is the reason most “experts” recommend paying more than the minimum on your student loans.  Unfortunately, the realities of life sometimes make minimum payments the only possibility.

Furthermore, if people who are paying off their debt smart know that the best way to eliminate student loans is to pay the minimum on every loan except one and then to attack that loan with everything you have.

Ultimately, the reason behind your decision to make a minimum payment on your student loan does not matter.  What matters is that you use your minimum payment to put the biggest possible dent in your debt with that minimum payment.

Though it may seem like all minimum payments are created equal, in reality they are not.  If you are crafty about the way you pay, your money can go further.  Try these three tips to get the maximum return for your payments.

1.) Pay when you have the money… not when it is due – Student loan payments are usually due on the same day of each month.  Giving your lender money early seems like an unpleasant thought.  However, the sooner you make your payment, the less of a hit you will take on interest.

Many people don’t realize that student loan interest is not calculated monthly, it is in fact calculated daily.  The lower your daily balance, the less interest you have to pay.

If your student loan payment is due on the 20th of the month, but you have your payment ready to go on the 5th, make your payment as soon as you have the money in place.  By going this route, your daily balance will be lower for an extra 15 days and you will spend less on interest.  The bigger your monthly payments and interest rates, the bigger a difference this approach can make.

2.) Try to use your credit card – Most of the time lenders will not accept a credit for payment.  Those that do, often charge a fee for the transaction.  These transaction fees negate any advantage to paying with a credit card.

However, if you can convince your lender to accept payment in the form of a credit card without charging you a fee, you can rack up extra cash back or credit card rewards.  The trick is to call customer service and convince them that you need to make a credit card payment this month.  If they think the only way they are going to get their money is via a credit card, they will be more likely to accept it as payment.

3.) Negotiate lower interest rates – It is no secret that many borrowers are struggling with student loan debt.  While federal repayment plans exist to help borrowers, many private loan borrowers are stuck with loans they can barely afford, or can’t afford at all.

The good news is that some lenders are starting to show borrowers a little slack.  In fact, if you work with your lender, you may be able to get your interest rates lowered.  This could result in a lower payment each month, but at the same time put a bigger dent in your total balance.  One example of a company offering lower interest rate plans would be Navient.

Getting your lender to voluntarily accept less money is no easy task, but it can be done.  If you are really struggling and willing to put in the work dealing with customer service, you could be rewarded for your efforts.