@CluelessCredit wrote:
So I've started up my debt snowball. I made a significant payment on my Sallie Mae loan. I send payments through billpay via Well Fargo, which allows me to attach memos to the payment. On the payment I stated, "IMMEDIATELY apply all excess funds to principal balance." I thought this message would instruct Sallie Mae to apply the excess (beyond interest) to the principal balance immediately and update future payments to reflect that is had been done. What actually happened was that Sallie Mae applied the payment and then pushed my next scheduled payment 3 years in the future. I had to call and have the loan redisclosed (their words, I'd never heard of it and still don't know exactly what it means) to get my payment lowered. So my questions:
1. Does paying more (double payments) on the loan drop the next payment? Or rather is it supposed to drop month to month as you pay on the principal or is that only done annually?
2. Would it be better to just save up a monster lump sum payment to have the loan redisclosed on a yearly basis?
3. What do I need to memo on a payment to get them to apply excess funds to the principal and update my next payment to reflect that change?
I guess I just don't understand why it seems like Sallie Mae is trying to make it difficult to pay over the minimum and see progress reflected in the monthly statement. Motivation is king while in debt repayment and I'd like to see progress even if it's just a 10 cent drop.
In my experience - with my student loan, an old auto loan, and a home equity loan - making extra payments reduces your principal, but does not actually lower the amount of the next scheduled payment. It does, however, move up the date that the loan will be paid off.
So, for example, if you have loan balance of $10,000 and a scheduled monthly payment of $100, even if you make a lump-sum payment of $5000, your monthly obligation will still be $100. But instead of paying it off in 15 years (I'm not using actual calculations, just using round numbers), you might pay it off in 6 years and save a ton in interest payments.
I had previously not heard of getting a loan "redisclosed" to reduce the monthly payment after a large principal payment. This, however, will ultimately result in higher interest payments than otherwise would have been achieved if you continued to pay the original scheduled amount, because instead of being paid off in 6 years, it might not be paid off for 10 years at the lower payment. You'd still be doing better than the original loan terms, but you'd be partially offsetting the potential interest savings by doing so.
With regard to the next payment due date being pushed out by 3 years, I think it should still be possible to make regular monthly payments for the next 3 years if you want to. I'm not familiar with how Sallie Mae works, but I can't imagine that they can prevent you from paying your loan if that is your wish. Because interest is still accruing on the remaining principal (assuming that there isn't any interest deferment at this time), any monthly payment will be divided between accrued interest and principal.
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