3 Very Good Reasons to Automate Your Student Loan Payments


With all the talk of job-killing robots and self-driving car mishaps, “automation” has become a dirty word in certain circles. But when it comes to personal finance, automation is magic—making it easier to do everything from hit savings and investings goals to pay bills on time. As I’ve learned first hand, it can also help take the sting out of paying down debt.

Here’s how it’s helping me wipe out my student loans and inch ever closer to financial freedom.

1. I'm protecting my credit score.

Right after college graduation, staying on top of my loans was pretty far down on my list of priorities. I ended up missing my first three loan payments—either completely forgetting or paying late when the due date fell on a weekend. Each time, I called up Sallie Mae and begged for late-fee forgiveness. Surprisingly, it was granted each time, but I get the feeling my luck would have eventually run out.

So when a Sallie Mae rep suggested I sign up for autopay in order to break the cycle, I agreed—and haven’t missed a payment since. Not only does this relieve the pressure of remembering due dates and trying to wiggle out of fees, it’s undoubtedly saving my credit score from some ugly blemishes. (On-time payments count for 35 percent of a FICO score.)

2. I'm paying less in interest.

Using autopay came with another benefit: It lowered my interest rate by .25 percent. That may not sound like a lot, but it adds up. Over the life of my loans—$60,000 at 6.8 percent interest, knocked down to 6.55 percent—it equals about $1,000 saved. That may not seem like much compared to the total amount I owed, but it cost me nothing to sign up. And every dollar saved counts when it comes to reducing debt and building wealth.

3. I'll be debt-free sooner.

Once I landed my first full-time job, I wanted to start contributing more than the minimum payments on my loans. However, I knew that, left to my own devices, I’d either forget to submit the payment or accidentally spend the money elsewhere. Enter autopay, which allowed me to apply an extra $80 each month directly to the principal.

Over the last two and a half years, it’s helped me pay off $2,500 ahead of schedule. Now that I have more wiggle room in my budget, I’m planning to bump up that amount to $120 to make even faster progress toward being debt-free one day. That translates into both peace of mind and, ultimately, an extra $600 in my pocket each month—incentive enough for me.