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#### mamamilkers

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So I have one student loan that I owe about \$10,000 on. It has a 9% interest rate. I pay about \$100 per month on this loan.<br><br>
Last time I checked my loan balance online, maybe 5 months ago, I owed X amount on the loan. Today I only owed \$50 less than I did last time I checked!<br><br>
So how does that work?! I guess I just don't understand interest rates.

#### llamalluv

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It sounds like you have a student loan that is supposed to take 180 payments to pay off, which is a 15 year loan, in which case, yes, you are only paying \$10 in principle every month.<br><br>
Are your payments going to stay at \$100, or are they going to increase as you go? (level vs. graduated)

#### normajean

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9% is your annual interest rate, which in the terms of your loan is compounded at a certain time interval. Whenever interest is compounded, that percentage is multiplied by the outstanding balance on your loan and that is added to your loan. Then your payment comes off that total amount. So if your loan is compounded monthly (.75% each month), it works like this:<br><br>
Month 1. 10,000 x .0075= 75 (this is your interest accrued over the month)<br>
10,000 + 75 (interest) - 100 (payment)= 9975 (new balance)<br><br>
Month 2. 9975 x .0075 =74.81<br>
9975 + 74.81 (interest) -100 (payment) = 9949.81<br><br>
And so on. Only often the interest is compounded on a daily rate, which means they divide the annual rate by 375 days and multiply it in daily, and then the interest capitalizes (you pay interest on the interest accruing between payments) so your balance comes down even more slowly.

#### huggerwocky

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Most of your payment is going to interest.<br><br>
9 % p.a is 0.75 % per month<br><br>
Interest on that is 75 \$ the first month. So you owe 10 075, you pay 100, leaves 9975, only 1/4 of your payment went to pay down the principal.<br><br>
Next month you owe 9975 plus interest, so it goes up again by 74.8 \$, so at the end of the 2nd month you owe 10 049.8 \$.<br><br>
See how it's just 50 \$ less after a few months?

#### mamamilkers

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Ah, I see. Thanks for the explanation. Man, I hate student loans. How come I didn't pay more attention when I was in college to how badly they could screw up my life later on? <img alt="" class="inlineimg" src="http://www.mothering.com/discussions/images/smilies/greensad.gif" style="border:0px solid;" title="greensad">

#### llamalluv

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<div style="margin:20px;margin-top:5px;">
<div class="smallfont" style="margin-bottom:2px;">Quote:</div>
<table border="0" cellpadding="6" cellspacing="0" width="99%"><tr><td class="alt2" style="border:1px inset;">
<div>Originally Posted by <strong>mamamilkers</strong> <a href="/community/forum/post/10260472"><img alt="View Post" class="inlineimg" src="/community/img/forum/go_quote.gif" style="border:0px solid;"></a></div>
<div style="font-style:italic;">Ah, I see. Thanks for the explanation. Man, I hate student loans. How come I didn't pay more attention when I was in college to how badly they could screw up my life later on? <img alt="" class="inlineimg" src="http://www.mothering.com/discussions/images/smilies/greensad.gif" style="border:0px solid;" title="greensad"></div>
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</tr></table></div>
Well, what are you going to DO about it now? That's what is important. Don't beat yourself up for getting tricked by people whose job it is to trick you. <img alt="" class="inlineimg" src="http://www.mothering.com/discussions/images/smilies/hug.gif" style="border:0px solid;" title="hug">

#### mamamilkers

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<div style="margin:20px;margin-top:5px;">
<div class="smallfont" style="margin-bottom:2px;">Quote:</div>
<table border="0" cellpadding="6" cellspacing="0" width="99%"><tr><td class="alt2" style="border:1px inset;">
<div>Originally Posted by <strong>llamalluv</strong> <a href="/community/forum/post/10261513"><img alt="View Post" class="inlineimg" src="/community/img/forum/go_quote.gif" style="border:0px solid;"></a></div>
<div style="font-style:italic;">Well, what are you going to DO about it now? That's what is important. Don't beat yourself up for getting tricked by people whose job it is to trick you. <img alt="" class="inlineimg" src="http://www.mothering.com/discussions/images/smilies/hug.gif" style="border:0px solid;" title="hug"></div>
</td>
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Yes the sad part is this particular debt is pretty far down on the list of debts that we're trying to pay off as quickly as possible. Turns out my DF made much worse financial choices than I did!<br><br>
The one thing I'm truly glad about is that we can teach our children to learn from our mistakes.

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