Stop Paying Your Student Loans Down So Fast

Follow the Allocation Crossing Point & Step-Down Method instead

That is the wrong question.

Instead, all borrowers with student debt should ask: “how do I optimally *minimize* my interest payable?”

It doesn’t roll off the tongue as beautifully, I know. But when you will see, for example, that you can pay off your debt just as quickly while saving yourself $10,000 over the next few years, which you can use towards other investments or savings goals, I don’t think you’ll care how the “interest payable” question sounds.

I’m here to tell you DEBT IS NOT INHERENTLY BAD. Debt is only as bad as its daily interest is high!

Notice that I did not reference the interest rate, but rather the daily interest. This is because the interest rate is one set number, but the daily interest decreases every month as you pay down your debt.

Therefore, daily interest is a function of your interest rate AND your loan balance, and it represents your key towards getting the most value out of every extra dollar you pay towards your loan.

For this article, I am assuming that you already know that in order to minimize your interest payable, you need to continue making your minimum monthly loan payments plus pay extra whenever possible. Therefore, all references to payments in this article relate to the extra payments.

This article will introduce a new repayment method that is more personalized and will help you get the most value out of every additional dollar that you contribute towards your loans.

Introducing the Allocation Crossing Point and Step-Down Method to Loan Repayment

Earlier this year, I wrote “Should You Pay Off Your Student Loans or Invest?”. I explained that common advice around debt repayment is costing people money because it is too generic and overly simplified. In today’s digital and personalized world, we need financial advice that is easy to follow but also based on our unique situations. That is why I developed the Allocation Crossing Point (ACP) and Step-Down method.

Allocation Crossing Point (ACP) is defined by the month when less than 50% of your minimum monthly payment starts being allocated towards interest, meaning every additional $1 contributed towards your loan will save less than $1 of interest.

Step-Down Method represents the repayment technique that you may seek to employ after the ACP is passed. Since the ROI of every additional $1 drops below 100%, you should start contributing less than your maximum available net cash flow if you want to optimize repayment.

The money that you do not contribute towards your loans can go towards other investments or savings goals so you avoid getting into crippling debt again.

Example of Loan Repayment Schedule & Allocation Crossing Point

If You Have Multiple Loans

Consolidating or refinancing a loan is not always the right option. In these situations, a borrower is left with multiple loans that have different principle balances, interest rates, loan terms, and monthly minimum payment amounts. How should a borrower determine which loan he should pay more than the minimum towards?

The way to follow the Allocation Crossing Point method when you have multiple loans is simple:

  1. Calculate the daily interest that accrues on each loan. Remember, the daily interest is your key to getting the most value out of every extra dollar that you contribute towards paying off your loan.
    Daily Interest = (interest rate / 365.25) * current loan balance
  2. Apply your extra funds to the loans that have the highest daily interest
    (Example: if the daily interest on each of your four loans is $7.10, $6.90, $2.50, $2.45, and you have $1,000 of extra money to contribute, then you may want to pay an extra $600 towards the loan that accrues $7.10 and $400 towards the loan that accrues $6.90 of daily interest.)
  3. Repeat steps 1 and 2 before each payment to determine which loans are accruing the most daily interest. This means you will have to do some simple math every month, but it could save you tens of thousands of dollars.

If you would like free access to a spreadsheet that formats this information for you, please email me:

If You Have One Loan

The approach for optimizing repayment of only one loan is very similar to the multi-loan approach. The only difference is that it’s simpler because you do not have to decide which loan to allocate more towards!

Therefore, you can skip over calculating the daily interest accrual and move on to determining if you should either maximize or step-down additional payments.

As mentioned in the last section, this is based on the Allocation Crossing Point which can be determined in two ways.

If you would like to talk through the step-down method and how to apply it to your unique loan scenario, you can email me at

Emotional Health | Student Debt | Career Advice. Repaying my student loans w/ a proprietary method & helping others save tens of thousands too. Let’s talk debt!

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