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  • April 24, 2019, 04:58:18 AM

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Author Topic: Autopay with 0.25% reduction or weekly payments no autopay/0.25% reduction  (Read 418 times)

emlopez2

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Hello , I’ve researched this question but haven’t gathered a clear answer on what will save you more money. Autopay with a monthly payment will reduce your interest rate by 0.25% but you interest compounds daily. Will you save more money by taking off autopay and losing the 0.25%reduction but instead making a weekly payment to combat interest instead of paying monthly .

I understand the compound interest may be miniscual for most but my loans are really high so may make a difference . I do also understand the weekly payments tacks on an extra payment a year so will pay off the lone quicker. I guess my question is should I keep autopay with the 0.25% reduction and make 1 extra payment per year or better to lose it a and make weekly payments to combat the compounding interst throughout the month. Here’s my numbers as of now
 
My Balance $401k at 4.865% making $1300 payments weekly( previously 4.615% w/ $5,200 monthly)

Wife’s balance 50k at 5.7% making $847 payment monthly on autopay

TheCollegeInvestor

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That's more math than I can do right now, but my gut tells me to keep the auto-pay discount AND make additional payments beyond that if you can afford it.

With that amount of debt, I'm assuming you are in medicine. If you have good income and expect that to rise, then definitely keep the auto-pay and save. If you're going for PSLF, that's moot.

I would also look at refinancing (once again, assuming you're in medicine or similar with high income) - highly qualified borrowers can get 1.95% fixed rate loans at First Republic. But even other places might save you 1% or more. Check this: https://thecollegeinvestor.com/21558/best-places-refinance-student-loans/

emlopez2

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Yes I am in the medical field and that's why they are so high.

So im still not sure if my interest is compounding, simple, or whatever else kind of interest on my loans but it does accrue $54 per day and I about 20k on my 1098-E. So I gave it a try and took my loans off autopay and lost the 0.25% interest reduction and started making $1300 payments every week rather than my $5162 monthly. I also sent in instructions to use any extra payments towards interest and not pay the account forward. Here's how my statements have looked so far which Im not sure if they made an error since my whole last payment went towards principal and none towards interest. Im still not sure how to track which strategy is better but will keep an eye out and possibly put back on autopay and make one extra payment a year.

date           amount       applied principal       applied to interest
1/17/19      1300            1300                      0.0
1/10/19      1300             924                       375
1/3/19        1300             924                       375
12/27/18    1300             942                       357
12/20/18    5162             3615                     1545

TheCollegeInvestor

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Keep us posted.

Also, whenever you make extra payments, do it through their website and directly assign it to the loan principal. Never just send extra in.