I never expected that my monthly payments on my Caribbean student loan would go to interest only. After all, I made sure to read my promissory note and started making my required minimum monthly payments, as scheduled, 6 months after graduation. That's why I was completely shocked to find out that almost all of first-year of payments, totaling $4,000, only to interest.
In spite of that $4,000 setback, I was still able to pay off my Caribbean student loan two years early and shave off $6,000 in payments by using these 7 steps.
1. I Made Sense of My Caribbean Student Loan
When I started my first full-time job after graduate school, I decided to take the time understand how my student loan worked, instead of just making my minimum monthly payments, without giving much more thought to what was going on with my loan account. From that point forward I wanted to be more proactive.
I requested that my lender send my statements directly to me at the US address, and not to my parent's house in St. Kitts and reviewed my student loan statements to determine exactly how much of a principal balance I had outstanding, the annual interest rate and how many payments were remaining.
2. I Paid Attention To The Accrued Interest
After learning that how loan interest accrues, is capitalized or negative amortized, can increase the cost of my debt and the length of time it takes to pay it off, I started to pay particular attention to the interest on my own Caribbean student loan. And I honestly wished I had done so sooner.
Related Article: How My Caribbean Lender's Dysfunction Messed Up My Student Loan
I determined what the daily interest rate factor for my student loan was, double-checked that the amount of accrued interest on my account statement matched up to my own projections and confirmed that my payments were applied to both principal and interest.
3. I Communicated With My Lender Often
Caribbean student loan lenders have a peculiar practice of providing quarterly account statements to borrowers, even though transactions are recorded monthly. This, of course, leaves borrowers in the dark about their outstanding principal and accrued interest balances and how their payments are applied to their account.
Although I could not change how often I received my statements, I made a commitment to requesting updates on my account after each payment I made, to stay informed.
Related Article: The Caribbean Development Bank Student Loan Scheme Assessment
As a borrower based in the United States, this involved spending hundreds of dollars on international calls and enduring a sometimes frustrating process or multiple follow-ups with bank staff to get my account information. The upside though, was that I could keep on top of my student loan account, and position myself to limit confusion about my loan transactions.
4. I Tracked My Transactions & Loan Documents
Student loan lenders process a high volume of transactions, on numerous loan accounts, which means there is a good chance of at least one error on any given loan account.
This is why I created my own tracking worksheet to make note of each payment I made, including when the payment was submitted and processed, how much of the payment went towards principal and interest; and whether the principal balance decreased by the amount I had projected.
Requesting copies of past statements and completing a close review, also helped me identify errors on my account, like when I was charged late fees during an approved period of deferment.
5. I Set Up My Own Pay-Off Plan
Like most student loan borrowers, there were two important questions that came to my mind when thinking about how to tackle my student loan:
- When will I be done paying off my student loan?; and
- How can I pay off my student loan faster?
My amortization schedule listed my required minimum payments over a 10-year period, with my last payment ending in the year 2017. In 2012, I opted out of that default repayment plan, and create one that would place me on track to pay off my Caribbean student loan, as soon as I could, by adding an extra $2 per month to start.
I then went on to create my own pay-off plan to increase the size of my extra payments, and to make extra payments as often as I could.How Melisa Shaved $6,000 Off Her Student Loan After Paying $4,000 in Interest-Only PaymentsClick To Tweet
6. I Disputed Errors on My Loan Account
When mysterious fees showed up on my student loan statement, I identified my Lenders chain of command, filed disputes with my own supporting documentation, escalated the issue when the fees weren't reversed, followed up and requested and received credit for these unexplained charges.
7. I Refinanced Some Of My Debt To Save Interest
As I got closer to making my last student loan payment, I refinanced about $1,000 or so on a 0% credit card that reduced the amount of the cost of paying back my Caribbean student loan, a bit more.
If you have a Caribbean student loan you can slash the high-interest costs of your own loans, even after a four-figure back, using these 7 steps that I detail in my book Student Loan Answers.