In 1969, Elisabeth Kubler-Ross introduced the five stages of grief in her book “On Death and Dying”: denial, anger, bargaining, depression, and acceptance. If you have a large student loan balance, then you’ve probably experienced some “pain” and are no stranger to the five stages. If you are in the “Acceptance” stage, this article is for you!

Being in the Acceptance stage is a good place to be. It means that: you have discovered that procrastination and indulgences are not forever (denial stage), you have stopped blaming others for getting what you assumed was a “free ride” (anger stage), you have learned that you are not You can discharge your loan through bankruptcy (negotiation stage), you have stopped binge drinking and Gilmore Girls reruns (depression stage), and now you accept your financial responsibility and are ready to do something about it. You won’t find any “magic bullets” in this article, but you will find an effective strategy to pay off your loan in the shortest time possible.

Step 1: organize the loan in a spreadsheet

To better manage your student loan, you need to fully understand what you are up against. Creating a spreadsheet will give you an idea of ​​how your loan works and show you the positive results of making additional principal payments. To create a functional spreadsheet, you need to understand the terms of your loan and know how to organize this information in a spreadsheet. If you are not a spreadsheet user, you will find that learning the basics is easy.

To start building your spreadsheet, you will need the following information about your loan: current balance, interest rate, payment amount, and how interest is calculated. This will allow you to create an interactive spreadsheet that will calculate how much interest increases daily and provide you with a daily balance.

How interest is calculated may require some research. You will find this information by reviewing your loan documents, visiting the lender’s website, or calling your lender’s customer service number. The number of days used to calculate the interest on a loan is known as the base. For example, a mortgage is typically calculated using “30/360”, which means that a year is assumed to have 360 ​​days and a month to have 30 days. Therefore, when you make a mortgage payment, your interest will be based on 30 days. Student loans typically use the actual number of days in the month and a year with 365 days (actual / 365). Some loans may use a current / 365.25 convention; every loan is different. On a loan with a real basis / 365, you will pay less interest in a short month (one that is less than 31 days) than in a month with 31 days.

Do you feel lost yet? Don’t worry, because once we put it all together, it will make sense. I’ll also explain how to test your spreadsheet to make sure it’s working properly. The initial setup of a spreadsheet is the most challenging step.

At the top of your spreadsheet, insert key information regarding your loan, such as: beginning balance, interest rate, monthly payment, payment due date, and interest rate factor. The interest rate factor is the interest rate divided by the number of days in the year. Again, every lender and type of loan is different in terms of how many days of the year they are used. The informational part of the spreadsheet is important because you want to clearly see the variables that affect your loan.

After entering the key information, you can begin building your interactive spreadsheet. Your goal is to create a spreadsheet that shows when each payment is recorded, how much of each payment is applied to principal and interest, and what the ending (or current) balance is. The names of the columns you will create are (from left to right): Payment Date, Principal, Interest, and New Balance. Below is a more detailed explanation of these columns:

• Payment Date – This is the date your payment is actually posted to your account. This is critical, as the interest on your student loan is likely to be based on the actual number of days between payments.

• Principal: it will be a formula that will equal the amount of your payment minus the interest part of your monthly payment. It is the part of your payment that will be applied to reduce your balance.

• Interest – You need to know how your lender calculates the interest on your loan. It is usually based on the actual number of days multiplied by the previous month’s balance multiplied by the interest rate factor. Your Excel formula will be: (current payment date minus previous payment date) x previous month’s balance x interest rate factor.

• New Balance – Equals the previous month’s balance minus the principal portion of your current payment.

If your lender has a website that allows you to view information about your loan and / or make payments, establish online access immediately. Print your loan balance history and start building your spreadsheet using your first payment as a starting point. The balance history should show how much of each payment was applied to principal and interest. Here’s how you can test your spreadsheet to make sure it’s working properly. Check if your formula results match the history on the website. If they don’t match, you’ll need to troubleshoot to find out why. The lender may have made a mistake, but the mistake is most likely on their spreadsheet. If you have a friend or family member who is an Excel user, see if they can help you. The web is also a great resource.

The true power of a spreadsheet is that it can easily simulate what-if scenarios. For example, let’s say you receive a large cash win. You can enter this figure into your spreadsheet and easily see what the results of such a large payment would be. You may know that if you make this additional principal reduction payment, your loan will pay off in ten years instead of 15. You may find this very motivating. However, if you don’t have a tool like a spreadsheet to generate this kind of information, you can choose to do something else with your money.

Step 2) – Strategies to speed up the reward

Congratulations on creating a spreadsheet where you can keep track of your student loan balances and payments. Tracking a loan in this way gives you control over the loan. Getting a statement in the mail every month and not really understanding why your balance moved so little is not motivating and adds to a sense of hopelessness (and you really don’t want to go back to cheap beer and reruns of Gilmore Girls). Here are some specific strategies to help you pay off your loan quickly:

Pay a Little More Every Month – We’ve all heard this before, especially when it comes to mortgages. Well, the same goes for student loans. When you make a monthly payment, part of that payment is applied to interest and the rest to principal. My suggestion: Pay the amount of additional principal that will result in your loan balance having two zeros at the end. For example, if your balance will be $ 37,845.21 after making your next payment, pay an additional $ 45.21 to bring your principal balance to $ 37,800. Getting your $ 100 loan is a strategy to encourage you to pay more each month.

To facilitate this strategy, I suggest that you pay your loan electronically. You have no control over when your payment is posted when you mail it. When you make a payment online, you typically select the date the payment is posted. Also, there will likely be a section to enter the additional amount of principal you want to pay.

The benefit of paying more than your minimum payment is that when you make your next loan payment, a larger portion will be applied to principal and less to interest (compared to if you didn’t pay more the previous month). If you continue to pay more than the minimum due, this effect will worsen each month. The result is that you will pay off your loan significantly faster than if you only made the minimum payment. This is because as your balance decreases, the amount of interest you pay decreases. More of each payment will be applied to reduce principal. This effect is easy to see when you track it on a spreadsheet, so doing so is an effective strategy.

Make a plan to pay “a lot more” on a regular basis: If you get a tax refund every year, apply it to your student loan balance. This will have a tremendous impact on how quickly your loan is repaid. If you get a bonus every year, apply it too. Any windfall, or instance of “found money,” should be used to reduce your balance. It is not uncommon for people to treat “found money” differently. The “found money” is often wasted on “splurge” items. Resist this urge! Use the extra money, no matter where or how you got it, to pay off your student loan balance!

In summary, the steps necessary to help you pay off your loan faster are:

1) Use a spreadsheet to keep track of your loan so that you can see how much of each payment goes towards principal and interest. Run what-if scenarios so you can see the impact of paying off your loan and formulate a strategy for doing so.

2) Pay a little more each month. One strategy is to pay an additional amount so that your balance is an even increase of $ 100.

3) Commit to making big payments when you have a cash windfall, such as an income tax refund or bonus. While this may not provide an immediate payoff, the long-term consequences will be considerable. Time really does fly, and what may seem like a great balance can now be reduced to zero in much less time than you think, but only if you make it a priority and a goal.

Paying off a student loan can seem overwhelming. However, if you use the strategies provided here, you will learn that you can be successful faster than you ever imagined. You can apply these same ideas to your mortgage and other loans. Getting control of your finances is empowering. And by the way, I started this article by referring to the five stages of grief. If you die, know that in most cases your loan will die with you, unless you consolidate with a spouse. In that case, unfortunately, the loan will live!