Amortization Schedule

Every borrower has his own definition of amortization schedule in mind. An amortization schedule is a table that reveals how the debt is going to be paid back and at what cost. For most repayment plans, the table will have a few columns: date, scheduled payment, interest, principal, end balance and cumulative interest.

The amortization schedule depends on the repayment plan chosen by the borrower or imposed by the type of loan. So, a borrower may choose from different repayment options such as:

• Standard repayment plan - equal monthly payments, but the interest is higher than the principal and decreases in time. Most types of loans and mortgages come with a standard repayment plan.
• Graduated repayment - suitable for borrowers whose income will grow in the future. In this case, the monthly payments increase every 24 months.
• Extended repayment plan - available only for those who have a balance of at least $30,000 on an FFELP (Federal Family Education Loan Program) loan or a Direct Loan. To make payments easy, the repayment period is prolonged up to 25 years.
• Income-Sensitive repayment plan - payments change depending on the borrower’s incomes.

Amortization schedules are tailored on these repayment plans, but basically, they all look the same.

Amortization schedules are printed by the lender. The first payment is due in the first month after the loan had been granted. Failure to keep up with the amortization schedule will put the borrower in financial difficulties, so (s)he will have to prepare a second amortization schedule (at home, by her/himself) in order to catch up with the missed payments. Or there is always the option to refinance the loan and get a lower monthly payment and a longer repayment period, usually at a higher cost.  

Not every debt comes with an amortization schedule, so if you have just received your new credit card, chances are that you don’t have an amortization schedule for it, but a minimum monthly payment. It is very important to prepare an amortization schedule yourself for all the debt for which you don’t have a debt reduction table. This way of approaching personal debt is proof of financial maturity so stick with your own amortization schedules and if possible, try to add a few more dollars every month towards debt reduction. You will get out of debt sooner, but you will also be able to access another loan with a low interest given your good credit score.