Wednesday, October 29, 2008

How to Make Extra Payments

I'm remembering why I don't like checks. All of my bills either get charged on a credit card (and paid off that month) or auto debited/transferred to the bill collector. I love auto debits/transfers because they're easy, I don't have to find an envelope or a stamp, and most importantly there is near instant gratification. Usually by the second day the new, lower balance (or higher for savings) is there for me to look at.

This month we decided to make an extra payment on the car loan with our mid month surplus. I started to send it the usual way and then remembered another way lenders make it harder to pay off debt sooner. Generally you make a make a monthly payment. When you make an extra payment it can either be applied to future monthly payments or the account principal.

If you have a small windfall but are not sure about your ability to make monthly payments in the coming months having the money applied to future monthly payments makes sense. But when you're trying to pay down debts, you want the money to go towards the principal right now. This reduces that principal owed and the interest you are charged on said principal.

We had just over $1850* to play with. I called my loan folks and they said sending the money in to the normal place would just push my next due date to April. If I want the money applied to principal I have to send a check to a special processing center.

ING sent the check on Monday. It's Wednesday. And I want the difference to be reflected now. I know that it will be more like next Wednesday so that's why I don't like checks.

*Snowflakes I'd accumulated but saved before buying the house in case if emergency and Gameboy had great commission.

1 comment:

Cathy said...

I love paying bills online--only bad thing is trying to remember all those passwords. I recently changed my password for my credit card and didn't write it down! So of course I forgot it and just sent them a paper check.