So if I know one thing to be true it’s if you only pay the minimum balance on your student loans, credit card, car payment, or the mob, then you likely will end up hurting yourself in the long-term; the interest will continue to add up and in some cases the minimum balance is only paying off the interest each month vs. the principal.
I wasn’t making a lot of money right when I graduated, but I knew that even if I was able to pay a little extra each month towards my loans that tiny difference was at least a difference in the right direction. However, I wasn’t seeing the impact that I would have liked so I found myself getting discouraged and there was this sinking feeling of, “Am I going to have these loans forever–forever ever?”
I envision that some young professionals may find themselves in a similar boat, but there is a silver lining and that is to contribute money outside of your monthly paycheck to your loans. You may be like, I don’t have anything else to give! And you likely do, it’s called a tax refund.
In my situation, I had two potentials, my tax return and my yearly performance-based bonus.I have contributed both to my student loans for the past two years. As a result, the spring is the time of year where I really make a dent in my loans.
Below is a summary of what I contributed to my loans in 2018 and 2019 from the regular monthly payments plus tax refund and bonus money (this does not include any additional payments I made during this time period):
**You’ll note the bonus amount increased in 2019, that was due to an increase in my base pay and it was my first full year at the company so I was eligible for the full amount.
While contributing your yearly bonus to your loans is not as fun as using the money for an elaborate vacation or whatever else you’ve been dreaming up, this choice has made the most impact on my student loan balance and seeing that change has been very rewarding and what I am most proud of financially.
I have been tempted to use my bonus for things other than my loans, and I find it is best to pretend the bonus and/or your tax refund doesn’t exist. Don’t think about the bonus/refund and once you receive the bonus/return, immediately put it towards your loans. This will avoid any temptation and trust me, you’ll be smiling like you just went on vacation when your loan balance decreases significantly–or at least significantly considering what your typical monthly payments are.