Every time I make my payment for my student loan I always apply the extra toward the principal because I want to reduce the amount that I will pay on the loan. I know that this method reduces your overall payment but I don't understand how it works. Could someone explain this please?
How does paying principal reduce amount owed on a student loan?
you owe 10,000 say at 10%, so you pay 1,000$ a year, so say you can make apayment of 1500$ instead, 1000$ pays the interest, 500 goes to the pricipal repyament so next year you just owe 9,500. A at year end you pay 950$ interest and again you can pay 1500$ but this year you can pay down by $550, so next year you owe just 8950$ .. this way you accelerate your repayments and save a ton of money....
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