Comments on: 5 Questions To Ask Your Creditors When Making Debt Reduction Payments

By: sara l

sara l — Wed, 26 Mar 2008 04:33:46 +0000

Luckily both my student and car loans both pay down the principal and forward the due date. After deciding to make extra payments I called and asked both companies what their policies are. An important second step after asking all of those questions was to send a test payment and do the math. When the payment was applied to my account I made sure that my principal amount decreased accordingly.

Though I’ll keep paying in my usual fashion my due dates are in May, June, and September.

By: NCN

NCN — Thu, 20 Mar 2008 01:02:03 +0000

@Dana – Thanks! That would be awesome…
@Roman – A year? That’s great!

By: Dana

Dana — Wed, 19 Mar 2008 21:23:12 +0000

@Funny: Why do I get the feeling that credit union’s gonna lose a customer?

Great article. I’m linking to it tomorrow in my roundup, and will probably print it out and save it for my own use.

By: Roman

Roman — Wed, 19 Mar 2008 18:52:22 +0000

Too many people never ask the second question. If they did they would know what and how much they can save. I used the method to pay off my college loans. Cut about a year off of them.

By: Colonel Cash

Colonel Cash — Tue, 18 Mar 2008 16:16:15 +0000

Good topic! It seems I’m asked almost every day about how interest calculates on a loan, so I wrote this post
http://moneyandcredit.blogspot.com/2007/05/how-to-calculate-interest-on-consumer.html . I look forward more about loan interest calculations when you have more info.
In my experience, people confuse daily interest accrual with monthly amortized interest. Maybe this is something that you can address for us? Thanks again!

By: NCN

NCN — Tue, 18 Mar 2008 14:51:52 +0000

@Matthew – I have seen this as well.
@reinkefj – Step “A” – Stop using credit cards!
NCN

By: Matthew

Matthew — Tue, 18 Mar 2008 14:16:47 +0000

Interestingly, I had a car loan at a credit union that both prepayed and paid down principal all at once. Any extra payment applied to the loan was immediately applied to the principal, but it also made my next due date later. I know it applied to the principal because the principal on the account kept showing lower and lower, but by when the loan was finally paid off (~3.25 years on a 60 month loan), it showed the next due date for the loan was over 12 months away!
I am sure however that this is not standard for most banks.

By: reinkefj

reinkefj — Tue, 18 Mar 2008 13:29:12 +0000

May I point out that there’s an old Wall Street canard “when in a hole, stop digging”? All to often, I see folks prepaying one debt while incurring another. I saw one youngster on a program to make double mortgage payments while sloppily handling their credit card incurring fees and extra interest. Sort of like moving the water from the shallow to the deep end of a pool. Also, I see some prepaying “good debt” (i.e., a low interest primary mortgage) with zero in emergency or retirement funds. It’s important while one is lowering the over all level of the “debt” lake, that one is preparing for all sorts of things. Don’t kid oneself in this critical effort of improving one financial health; it all about balance and making smart decisions.

By: Jonathan @ Master Your Card

Jonathan @ Master Your Card — Tue, 18 Mar 2008 08:54:29 +0000

Great post.

One thing I would add is be sure to ask them how they will distribute your payments – oftentimes credit card issuers make all of your repayments go to your lowest-interest debts first!

By: Funny about Money

Funny about Money — Tue, 18 Mar 2008 06:05:24 +0000

Thank you! This is such an important subject.

It’s really crucial at the time you’re applying for a loan to determine whether you’re even allowed to prepay, and whether you’ll be hit with a penalty if you pay off the principal early.

I was amazed when my credit union applied a $350 check to interest, after I had written ON THE CHECK and physically taken the check in to a teller and said it was to be applied to principal only. She assured me that would happen. When I discovered they’d used about 95% of it to “prepay” interest, I was furious.

Then they tried to tell me it’s against the law for them to accept payments toward principal. I assured them it was not. They then tried to say it was against the credit union’s policy. I told them THAT probably violated the law. By now my voice was rising. When I remarked (perhaps a bit too vocally) that I was going to complain to the federal banking commission, magically the entire dilemma evaporated.

Turns out there’s a secret code to write on the check–”LOPC”–that will speed the payment on its way toward principal reduction.