Tip #21: Save thousands by pre-paying your debt
November 25th, 2008 - 43 Comments
Today’s tip is to save money on interest payments by paying a little extra off your loan each month. Because loans are usually large amounts spread out over many years, the savings can be significant. The longer the loan, the more you save.
Let’s say you have a $10,000 student loan, at a 6.8% interest rate and a 10-year repayment period. If you go with the standard monthly payment you’ll pay around $115 a month. But look at how much you’ll save in interest if you just pay $100 more each month:
Monthly payments Total interest paid You save
$115 $3,810 $0
$215 $1,640 $2,169
$315 $1,056 $2,754
$415 $782 $3,027
Remember, even $20 more per month can save you SIGNIFICANT amounts of money. Note: Earlier I wrote “You have $100 extra per month. Should you pay off your mortgage early or invest?” and linked to two great articles. The point is, if can contribute even a small amount per month — whether to investments or any loans — the benefits can be huge.
See for yourself: Calculate your own savings using this calculator.
Total saved: $0 to $200 per month
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Last thing to do
1. See other tips in the Save $1,000 in 30 Days Challenge
2. Leave a comment on this post describing how much you’re saving with this tip and any unusual techniques you use to make this tip work.
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