It is almost a given that you will have to borrow money at some point in your life, especially when you’re first starting out. Whether you need money to go to school, buy a home or make an emergency repair, there are many situations in which you may have no choice to ask a lender for help. What are some ways in which you can pay back the money that you owe in a timely manner?
What Type of Loans Are Most Commonly Used?
While there are dozens of different loan products available to borrowers, mortgage and auto loans are among the most common. Student and payday loans are also widely available and used by tens of thousands of people each year. Payday loans are typically used to pay for emergency or unexpected expenses such as car repairs or a trip to the dentist. Payday loans in Houston, TX and other areas are especially attractive because they don’t require a credit score like auto or mortgage loans. Unlike mortgage, auto and student loans, though, they can be used for multiple purposes.
The Snowball Method Helps You Get and Stay Motivated When Repaying Loans
The snowball methods says that you start with the lowest debt balance and pay it off first while making minimum payments on your other debts. While this may cost more in the long run, paying off an entire balance may be the motivation that you need to get serious about paying down your debt. Once the first balance is paid off, you start on the next lowest balance until all of your debts are repaid.
The Avalanche Method Saves More Money
The avalanche method says that you pay the debt with the highest interest rate first. In most cases, this would be your payday loan. Once that balance is repaid, you start paying the balance with the next highest interest rate until the debt is repaid. While you may not see progress as quickly with this method, it saves you more in the long run because you pay less interest.
Debt Payments Are a Good Investment in Your Financial Future
Imagine that you had an extra $100 in your paycheck this week. Your first instinct may be to put that money into your 401k or another investment account. However, it may be a good idea to put that money toward your payday loan or credit card debt. While you may not get a traditional return on that investment, you could save hundreds of dollars a year in interest. That may be a larger benefit compared to the 7 percent compounded that $100 would return over a period of several years.
Make Two Payments Each Month
Instead of making one monthly car or mortgage loan payment, you should make half a payment every two weeks. Over the course of a year, you would make the equivalent of 13 payments. This allows you to pay your loan off early, which will save thousands or even tens of thousands in finance charges over the course of the loan. Making extra payments may advance the due date of your next minimum monthly payment or reduce the minimum due in a given month. That could be helpful in the event that you can’t make a payment or can’t make a full payment at some point in the future.
The longer that you let your debt linger, the more that you ultimately pay to your lender in interest charges and other fees. Therefore, it is in your best interest to start thinking of ways that you can reduce your debt and start keeping more of your hard earned money.