One Simple Change That Shaved 7 Months Off My Student Loan Debt Repayment

A few tips and tricks tend to be popular go-tos in financial advice. Namely, creating a budget and taking advantage of opportunities to increase earning power. And while both are viable (and valuable) ways to pay off your debt even quicker, they also require long-term focus and maintenance. By no means a bad thing when it comes to keeping in touch with your finances – they are the pillars for your debt repayment, after all! But it goes without saying that if there’s something you can do that requires minimum effort and has a high pay-off, it should be employed in your plan, right?

That’s where biweekly payments come in.

You probably already know that we’re huge fans of biweekly payments here at ReadyForZero. It’s a tip we share far and wide with anyone wanting to speed up their debt repayment. In particular, it’s become a favorite tip of mine precisely because it is such a quick, simple switch… anyone can take advantage of it! Including this gal.

To be honest, I’d never even heard of biweekly payments before I started working for ReadyForZero. And even after I learned of the amazingness, it took me a few weeks to actually utilize the tip into my own plan. It wasn’t until I crunched my numbers and saw the direct impact that I was sold.

Personalization of the impact was what converted me which is exactly why I wanted to create a post to explain why we mention this tactic so often. I also wanted to use my experience to share a look at the value of this simple strategy (and give you the resource to punch in your own numbers).

Let’s break down the basics first:

Essentially, biweekly payments help you make an extra payment per year. The impact of that extra payment may seem small at first but it can have a big impact over the life of a loan!

In a standard year of repayment, you make one payment per month, or twelve per year. The amount you pay ranges from the minimum owed (usually dictated by your lender or banking servicer) to the specific sum that you’ve set for your repayment plan.

When you follow a biweekly repayment schedule, you simply take the amount you pay each month and divide it by two. Then, you take the sum of that “half payment” and apply it to your bill every two weeks.

This doesn’t increase the amount that you pay each month, but it does increase the frequency. This is where the “magic” lies. There are 52 weeks in the year which means that by using the biweekly method you’ll end up making 26 payments per calendar year. Divide by 2 again (since you want to compare the “full” payments and 26 weeks represents 26 half-payments) and you get 13. That’s an additional payment per year.

My real life example

To give you a sense of the real life impact of biweekly payments, y’all get to see my real numbers (including a credit score that I’m slowly bringing back up after accidentally tanking with a small, forgotten student loan payment. More proof that we all make mistakes in our finances). Currently, I have roughly $22,000 in student loan debt (I’m rounding down for my own sanity):

Following the traditional plan (monthly payments of $500) I can expect to be out of debt in 5(ish) years and pay around $3,000 in interest. Since my goal is to be out of debt by the time I’m 30, I’m following a fairly aggressive repayment (about 300 dollars over the minimum/suggested payment) and employing as many tricks and tips to help me to pay as little interest in the meantime. That, of course, includes biweekly payments.

Using the ReadyForZero biweekly payments calculator, I punched in my numbers to see the total impact on my plan. As you can see below, applying biweekly payments results in some good stuff happening to my repayment plan:

Over the life of my loan, I’ll save $500 and be out of debt 7 months sooner.

With such a large initial debt, $500 might not seem like much. However, it’s 500 dollars that I can invest in my future or put towards my retirement fund. The compound interest (the good kind) on $500 will increase the initial investment in a substantial way. On top of that (and what’s even more compelling) I also shave 7 months off my repayment. I don’t always connect with the concept of a lump sum of money, but I definitely connect with the idea of being debt free 7 months sooner. In fact – I already count it as a huge win and I didn’t have to do much beyond set up a payment schedule. As I mentioned above, simple steps that result in markable rewards are easy ways to speed up your debt repayment.

2 Responses to “One Simple Change That Shaved 7 Months Off My Student Loan Debt Repayment”

1. Latoya Marshall says:

   October 3, 2016 at 1:11 am

   I (previously Sallie Mae) serviced loans come with a 0.25% interest reduction if I pay via direct debit. I’d like to shift my payment date to the beginning of the month (the due date is at the end of the month), thereby reducing the amount of interest I pay over time. I’ve called customer service several times and there is no possibility of changing the payment date in the automatic debit system (it’s not as if they are programming rockets, it’s a simple online payment system). If I change my payment date, I give up the 0.25% interest reduction, which I believe is unfair and frankly quite a slimy way of discouraging me from benefiting from paying early each month. Curious to know RFZ and RFZ community think of this practice.

   • Preston Lloyd says:

     October 3, 2016 at 1:12 am

     That’s interesting. I have Sallie Mae/Navient loans, and I had no problem changing my payment date (when it was still Sally Mae) to whatever date I wanted. And I was (and still am) doing automatic debt. There was a link on the website to basically write a message to them asking them to change the date – they changed it with no questions asked. I wonder if it’s something new with Navient??