So you received a tax refund check – Lucky You! Getting a lump sum of money is fun. Sometimes I think that dreaming of all the ways you could spend it are the biggest part of the fun – a well deserved vacation, a shopping spree, down payment toward a car……you can spend days dreaming and planning. However, before you make your final decision, think about “paying” yourself first! Seriously, would you like to would you like to make 47% on an investment? Sounds like a ponzi scheme or something but the savings are real and you can turn part of your tax refund into some serious money for yourself.
If you follow this Blog, then you know that I am a huge proponent of making small additional payments to “chip” away you student loan debt. However, paying larger sums toward your student loan will also help, significantly – even if it is only a one-time payment! Let’s look at two scenarios, to see how making a lump sum payment can benefit you. Each of these will be based on a $20, 000 loan debt, at 6.8% interest, with standard 10 year repayment plan.
Scenario 1: Payment of $1,000
No Extra Payments With Extra Payments
Monthly Payment $230.16 Monthly Payment $1,230.16
10 years Pay-off time 7 years 8 months Pay-off time
$7,619.28 Interest Paid $6,149.15 Interest Paid
Advantages of Additional Payments:
2 years 4 months Time Saved $1,470.13 Total Interest Savings
Balance Schedule for Scenario 1:
Year ---No Extra Pymt With Extra Pymt
2012 ---$18,553.54 $18,553.54
2013 =-$17,005.60 $17,005.60
2014 -=$15,349.06 $15,349.06
2015 --.$13,576.29 $12,524.12
2016 =-$11,679.15 $ 9,489.03
2017 =-$ 9,648.90 $ 6,240.99
2018 =-$ 7,476.21 $ 2,765.07
2019 = $ 5,151.09 $ 0.00
2020 = .$ 2,662.83 $ 0.00
2021 =. $ 0.00 $ 0.00
Scenario 2: Making $500 additional Payment
No Extra Payments With Extra Payments
$230.16 Monthly Payment $730.16 Monthly Payment
Pay-off time 10 years Pay-off time 8.75 years
$7,619.28 Interest Paid $6,733.53 Interest Paid
Advantages of Additional Payments:
1 year 4 months Time Saved $885.75 Total Interest Savings
Balance Schedule for Scenario 2:
Year =-No Extra Pymnt With Extra Payments
2012 =-$18,553.54 $18,553.54
2013 =-$17,005.60 $17,005.60
2014 =-$15,349.06 $15,349.06
2015 =-$13,576.29 $13,050.21
2016 =-$11,679.15 $10,584.09
2017 =-$ 9,648.90 $ 7,944.95
2018 =-$ 7,476.21 $ 5,120.64
2019 =-$ 5,151.09 $ 2,098.19
2020 =-$ 2,662.83 $ 0.00
2021 =-$ 0.00 $ 0.00
If you would like to see how different amounts of “lump” sum payments can help you clear those loans faster, visit http://www.mortgagecalculatorsplus.com/calc-additionalpayment.php .
PAY YOURSELF FIRST – You Deserve It! It is tempting to splurge and spend your tax refund check on something fun or frivolous – I am not talking about using your whole refund to pay toward your student loans. I am a believer in having your cake and eating it too. However, if you will take just a small amount and pay toward your student loan debt, you can significantly shorten your repayment period. Think of all of the ways you could spend the money you currently have to pay on your student loan monthly payments once they are GONE! Now that’s something fun to dream about!
