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How to Manage Student Loan Debt

June 10, 2019

Tip of the Week

If you have student loan debt, make sure you pay off a portion of your principal each month.

1 min read

Student Loan Debt Repayment Strategies:

Jargon Hack

What is principal?

Principal

Principal is the original amount that you borrowed on your loan. It’s different from interest, which is a percentage charged annually and added to the principal.

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Principal

Principal is the original amount that you borrowed on your loan. It’s different from interest, which is a percentage charged annually and added to the principal. (Special note: Principal can also be a sum of money that you save or invest, on which you earn interest.)

Example: Say you borrow $30,000, with an interest rate of 5%. The principal of the loan is $30,000. The interest rate is 5%, and your loan will accumulate interest charges on a daily basis.

To calculate your daily interest, divide the interest rate by the number of days in a year: 0.05/365=0.000136986.

Then multiply that number by your outstanding balance: 30,000 x 0.000136986=4.1. (So, $4.10 is approximately how much interest you owe per day.)

Next, multiply that amount by the number of days in the month: 4.1 x 30=123, or $123. That’s roughly how much interest you will owe each month.

If you had the option of making minimum payments of $123 per month, you’d only be paying interest and not paying down any of the $30,000 of principal. To pay off your loan with interest  in ten years, you’d have to pay $308 per month, according to the federal student lender Sallie Mae.

Good to know: As you pay off your principal, the dollar amount of interest you owe will also decrease each month. (You can see how that works with this calculator.)

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By Stash Team

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