Author: Aimee
Paying more than you minimum balance owing can save you thousands of dollars, and get you out of debt years earlier.
Make sure that you know how much of your monthly payment is going towards the principal (original amount borrowed) every month, and how much is going towards interest. If you have a 15,000 loan and the interest charges are $100 / month and our minimum payment is $187, if you only pay the minimum amount required then it will take you nearly 10 years to pay it off! You will also end up paying $12,054.94 in interest. You would end up paying $27054.94 in total! That’s almost double what you originally borrowed.
What is the reason for this? Well if you think about it, if you pay $187 a month, and $100 of that payment goes to interest, this means that only $87 will go towards your principal amount owing. Less than half of the money you pay every month would go towards paying off the debt! This means that in the end, IF you keep up with your payments, the amount you have paid will be almost doubled. For this reason you should always pay as much as you can afford towards your debt (of course that’s after you have put away your minimum 10% savings)
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