Amortization Schedule with Extra Payments

Amortization schedules can be extremely helpful in understanding how your loans work.  They break out each payment one by one and list how much interest you pay each month.  Amortization schedules can be a useful tool in analyzing your debt so you can get rid of it.  I have developed an excel amortization schedule with extra payments to show you how fast you can pay off your debt.

Now, this might seem less fun than the debt thermometer I previously provided but please give this a chance.  It can be eye opening and just as motivating, if not more.

I previously explored how to calculate interest on a loan.  The same logic applies except with this excel amortization schedule it does the work for you.  I heavily encourage you to learn the math as it is simple but this spreadsheet is great for quickly understanding how paying extra can make a huge difference.

It’s Going to Take Me How Long?!

One of the first eye opening moments I had when we started to pay off $107K of debt was looking at amortization schedules.  I input each loan that we had (around 15) and looked at each payment I was set to make.  For the first time, I started to see the difference between a 5-year loan and a 25-year loan.

It is one thing to know that it takes longer, it is another thing to see each payment spelled out.  I saw that I was going to be paying my student loans while I was in my early 50’s and trying to put a kid through college.

…. And It Costs How Much?!

I then realized what it cost me when I previously changed my student loans from a 10-year payoff plan to a 25-year payoff plan.  It might have lowered my monthly payments but I also added on thousands of dollars over the life of the loan.

When my Sallie Mae loans started repayment, I had a plus $400 a month minimum payment that I felt was too much.  I can’t say that I couldn’t afford it but I just think it would have inconvenienced me too much to afford it in hindsight.

I had heard that I could lower my payment so I called them up to ask about my options.  They told me they could get the payment as low as $252 but it would be on a 25-year plan.  I happily agreed and glossed over the point they said it would increase the amount I pay overall.

At that time, I was all about living for today and not the future.  I was oblivious to how loans worked so I didn’t realize what I had just done until 3 years later.  I figured if I just make the minimum payment then all is good, right?

By lowering the payment, it resulted in less principal being paid off each month.  Since I was lowering the principal amount less each month there was a greater amount of principal accruing interest as a result.  It is simple, but it makes a big difference that can cost you thousands.

Progress

What causes true progress when paying off debt is paying down principal.  The more you lower the principal the less interest you have to pay.  The next payment accrues even less interest and thus more of your money goes towards principal.

By looking at an amortization schedule with extra payment options you will see how those extra payments make a difference.

In the article about learning how to calculate interest I used the example of a $10,000 loan with a 5% interest rate and a $100 monthly minimum payment.  If you paid just the minimum payments you would end up paying a total of $12,962 when all is said and done.  That would take 129 months to do so.  Or 10 years 9 months.

If you were to pay $1,000 extra each month you then reduce that time from 129 months to 9 months.  You also end up only paying $10,216 total which allows you to save $2,746 in interest paid.  That is $2,746 that you can now invest and make money with.

Who wants an extra $2,746?

Freedom

That extra money back is nice but the big win to me is the length of time you pay off the loan in.  Instead of 10 years and 9 months you finish it in 9 months.  That leaves you 10 years of being able to use that minimum payment for whatever you want.   You not only save money but you buy yourself freedom.

It might only be $100 but carrying loans around for 10 years is exhausting.  It has become so typical to just accept these payments.  Honestly, until I heard the debt free screams on Dave Ramsey I thought that the only option was to just go along and make the minimum payments.

Before that I never felt it was worth it to pay off any of my loans early because the minimum payments seemed insignificant to my budget.  I had just accepted them as truth.  Well, I can tell you, when you pay off a loan and you have a plan to pay more off, it changes you.

You get the benefit of it right away with increased cash flow and a bigger shovel to dig out of the next loan.  More importantly, you feel a sense of relief that you haven’t felt in a long time.

Amortization Schedule with Extra Payments

So, that brings us to this awesome new tool for you guys.  I really hope that you find it as helpful as I did.

It is simple to use.  Just fill in the information required in the blue cells D8-D12 and the spreadsheet will do the rest.

The top schedule (Minimum Payment ONLY) assumes the minimum payment is made each month.  It literally shows every payment you will make if you don’t pay extra.  Look at each payment and notice how months turn into years.  It can be a bit depressing so don’t let it bother you.  Let it motivate you!

Also notice that it tells you exactly how much you will pay by only paying the minimum.  It is easy to think we are just paying off the balance you originally agreed to.  When you calculate the interest paid you see that it is more that you probably thought.

It is one of those things that you know is occurring but you don’t want to exactly know.  Well, if you want to get rid of your debt, you should know exactly what you are paying.  Let’s get it all out there.

Additionally, by providing your loan information it will tell you when the loan will be finished.  This can be a scary number but, once again, let it motivate you.

The next part is more fun.  This is the part that shows you how much of an impact you can make by paying extra each month.  Keep in mind, this is a tool for estimating.  Each month will be different in terms of how much you have extra.  Ideally, all extra money you have left over will go towards these loans.

Make It Reality

It is fun to dream about being debt free.  It seems life would be easier without debt payments.  Guess what?  It is!  And there is no reason why you can’t be debt free too.

These charts are fun when you see the pay off period cut significantly by extra payments.  They are more fun when you live it.  Use these charts as a tool to motivate yourself to reach a bit further.

It shows that for each dollar extra you pay towards your debt you will save money in the process.

We can’t change the past.  Our decisions have led us to where we are today but we can empower ourselves to make good decisions going forward.

Let’s make it reality and start paying off this debt!

Download

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