Personal finance advice for the average American.

Tuesday, April 7, 2009

Paying off a Direct Loan student loan

My wife and I just parted with some cash that was burning a hole in our pocket. We considered some home projects like scrapping the carpet in the bedrooms for hardwood and installing recessed lighting in the living room. But at the end of the day when we couldn't agree, we settled on paying off one of her student loans.

Logging in to our trusty finance tool, mint.com, we saw that the smaller loan had the highest interest rate of all of our debt (7.9%). So I went to www.dl.ed.gov and easily made an online payment.

But a word of advice: if you have multiple loans with the Department of Education, make your payment online, but be sure to log in again to make sure it was applied how you would like it to be. I had to call and clarify because there wasn't a place for me to choose which loan the payment was to be applied to. The day after the payment was made, I saw that the it was distributed based on loan size. 60% of the payment went toward the loan that made up 60% of my balance and 40% went toward the smaller loan that I was trying to pay off.

You'll always want your payment to go toward the loan with the highest interest rate!

If you want to be sure that your loan with the highest interest rate is paid off, call customer service at 1-800-848-0979 after your payment is made and give them instructions for how to apply it.

Are you sitting on a few thousand bucks and not sure what to do with it? Instead of getting a new computer, hot tub, car, or home improvements, consider paying down some debt. At the end of the day, it feels great!


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