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Getting the most from your minimum payment

Some minimum payments are better than others. Careful borrowers can maximize the value of each minimum payment.

Written By: Michael P. Lux, Esq.

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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 your monthly payment will go towards interest. This 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.

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 card 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.) Keep student loan forgiveness in mind

Borrowers with federal loans can be working towards student loan forgiveness while making their minimum payments. In fact, $0 payments can actually be used to count towards forgiveness.

Those considering Public Service Loan Forgiveness (PSLF) should be mindful of all the requirements for PSLF. Using this program, tiny minimum payments can put a huge dent in large amounts of debt.

4.) 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.

The borrowers that get creative will usually find that there are many options to get lower interest rates.

5.) Go beyond minimum payments

While the above strategies can help things a bit, paying extra on student debt is almost always the fastest way to get it paid off. Most borrowers understand this reality.

Making minimum payments as part of a debt elimination strategy can be nice, but it comes with a catch. The catch is the highest interest loan should be attacked with every available dollar. This is the fastest route to debt elimination.

What most borrowers don’t realize is that paying a tiny bit extra can make a huge difference. Paying an extra $10 per month could function as a double payment depending on the loan!

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

1 thought on “Getting the most from your minimum payment”

  1. Just knowing that you can pay less is great solution. There are still new college grads who have not found a career job and are earning less than their potential.


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