The older you get, the easier it is to see practical reasons why so many of us use a credit card or borrow money for a car, house, vacation or any other major expense. Debt can eat into our paycheques and savings for months or years on end.
Instead of letting these debts eat away at your money, you can use these tips to take control of them.
Credit card interest rates can be high and extra charges can add up quickly, so it’s important to get on top of your balance (or balances) as soon as possible. Here’s what to do:
Make regular repayments
Always make at least the minimum payment before the due date. If you’re someone who tends to be forgetful, use the autopay option to ensure you never miss a payment.
Usually you’ll have to pay between 2% to 10% of your total balance. However, since interest is calculated based on your daily balance, you can actually reduce the amount of interest that’s charged each month by making additional repayments.
How much can you save by changing payment frequency?
Let’s say your credit card debt is $5,000 and your minimum repayment amount is 2%, or around $100 per month. If your card’s interest rate was 18%, here’s the different interest charges you’d get depending on your payment options:
Monthly payments of $100: $45.86 in interest per month
Bi-weekly payments of $50: $44.83 in interest per month
Weekly payments of $25: $44.64 in interest per month
When compared to monthly payments, you can save around 3.3% by making payments bi-weekly and 3.6% by making weekly payments. The more you pay overall, the better the savings could be.
Pay more than the minimum
It would take years to pay off your credit card if you only paid the minimum amount each statement. Check out the example:
Total cost with interest
Years to payoff
Minimum of 2% monthly
1 year and 7 months
It would take 33 years to clear the balance paying only the minimum. However, if you paid $300 per month, your credit card debt would be paid in 1 year and 7 months and cost a total of $5,698. That’s big savings.
0% balance transfer
Consider moving your debt to a card that offers 0% interest during the introductory period, which can typically last anywhere from three to 12 months. Balance transfer credit cards give you a window of time to make repayments without accruing extra interest.
The only thing to be aware of is that at the end of the promotional period, the 0% interest rate reverts to a higher standard rate. So ideally, you’ll want to be able to clear your debt before that happens.
Whether it’s your first set of wheels or a shiny new upgrade, a car loan is a popular way to finance the purchase. Since vehicles depreciate within a few years, you could find yourself stuck making repayments on a car that’s not worth half as much anymore. Here’s what you can do about it.
Make additional repayments
Depending on the type of car loan you have, you might be able to make additional or lump sum repayments to help pay it off faster.
Car loan amount
Total cost with interest
Years to payoff
3 years and 8 months
That’s a total savings of almost $2,000 by making an extra payment of $180 each month.
Find out what restrictions your car loan has: Lenders may have limits on additional or lump sum payments, especially for fixed-rate car loans. These loans also often have early termination fees that could cost you hundreds of dollars.
Check if you’re paying for extras
Some car loans provide extras that could attract additional fees and charges. If these features are voluntary, you could save money on your loan by opting-out of them.
Always compare features and fees that will increase the cost even if the interest rate seems low. To put this in perspective, paying just $20 per month in administrative fees would cost you $1,200 on a 5-year loan.
Consider refinancing your car loan
If your current car loan is costing you too much, it’s possible to refinance your loan by switching to a cheaper loan offered by a different lender. This can help you save on interest, additional fees and even offer more flexibility with repayments.
Be sure to weigh the costs first, as refinancing could lead to exit fees from your old loan and origination fees for the new one. Compare your options to see if refinancing will help you save money and payoff your car faster.
How to cut down your student debt
There are lots of financial factors that can lead to debt when heading off to university or college. From student loans, credit cards, personal loans and car loans for students, here’s what you need to know.
Student loan debts
Unless you pay your tuition upfront, you’ll likely be taking out a student loan to help pay for college or university. Whether it be a government or private student loan, there are a few ways to score better interest rates and get out of debt faster.
Consolidating. Consolidating is essentially the same process as refinancing, except it involves multiple loans. This could simplify two or three different payments into one single monthly repayment.
Student credit cards
Getting a credit card when you’re a student can help you pay for textbooks, supplies and food. However, if you use the card irresponsibly, it can have a serious impact on your debt. So, if you do decide to get a card, use the following tips to manage it responsibly:
Compare cards and choose one with low rates and fees.
Always budget for your repayments.
Aim to pay off the full amount by the due date on your statement.
Only use it when you know you can afford to pay it off by the due date.
Student car loans and personal loans
Students can also apply for personal loans and car loans through private lenders and banks. If you’ve never had a loan before, here are the key details to help you make it work for you:
Compare your options before you apply to find a loan that suits your circumstances and needs.
Check the fees and budget accordingly.
Always make repayments before the due date to avoid penalties and extra fees.
See if you can make additional repayments.
Contact your loan provider with any questions — it’s their job to help you.
How to manage your mortgage
While the dream of owning a home or a bunch of investment properties is very appealing, mortgage repayments can quickly bring us back down to earth. Still, your dream for property can become a reality and stay affordable with the following tips.
Pay the principal and interest rate
This type of repayment – sometimes referred to as “P&I” – covers the cost of both the principal amount you borrow and the interest. P&I repayments are more expensive than interest-only repayments, but they help save you money in the long run.
Home loan amount
Est. total cost of loan with interest
$2,838.95 ($700 more towards principal)
By making P&I payments with more towards the principal, your total savings on interest would be more than $300,000 over the 30-year term, or around $10,000 per year.
Change your payment frequency
Interest on your mortgage is calculated daily and paid monthly. This means you could be able to save some money on interest charges by choosing to pay in bi-weekly or weekly installments. Be sure to check the restrictions and terms based on your payment frequency.
Pay more than required
If your loan allows it, you could save a small fortune by paying extra on the monthly amount. There’s a few different ways you could do this:
Lump sums. If you come into a large amount of money, you could put a chunk of it towards your home loan to shave off some of what you owe.
Higher repayments. Paying more than what’s required for the month will help you reduce the cost in the long run.
Even a small amount can have a big difference over the long term. Always check the terms and conditions of your loan to make sure extra payments won’t attract additional fees or charges.
Paying off a personal loan
Personal loans can be used for just about anything from financing a vacation to paying for large purchases or consolidating debt. Depending on the type of loan you get, you could consider some of the following strategies to keep your debt at bay.
Make additional repayments. Usually available on variable rate or unsecured personal loans, this strategy allows you to save money on interest and pay off your loan faster and earlier.
Choose a short repayment term. You’ll pay less each month with a longer term, but it’ll end up costing more over the life of the loan. By opting for the shortest loan term you can afford, you’ll keep costs down. You can always contact your issuer to request a longer or shorter loan term.
Set up automatic payments. Personal loan repayments are usually the same each month, which makes them easy to budget for. To simplify repayments even more, you could look at setting up an autopay so you don’t have to do it manually every month.
Move the remaining debt to a 0% balance transfer credit card. If you have a small balance on your personal loan, you could save money by moving it to a credit card that offers 0% interest on balance transfers for a promotional period (usually between 3 and 12 months). Before you apply, make sure you compare your options and consider whether you’ll be able to pay off the balance during the promotional period.
What if I can’t manage my debts?
If you’re seriously struggling with some — or all — of your debts, try to stay calm and follow these steps.
Contact your provider/s and let them know your situation. They will be able to help you find a solution that works for everyone.
Consider debt relief. Debt settlement companies work on your behalf to negotiate your balances and set up payment plans — and could save you up to 30% on your debt.
Along with bills and taxes, dealing with debts can be a major part of adult life. However with these tools at hand, you should be able to get on top of the money you owe and pay off your balances in a way that’s affordable for you.
It’s still possible to qualify for lower rates than what you’re currently paying, especially if your credit score has improved since you incurred the debt. There are loans for people with bad credit. However, these options usually mean higher interest rates and charges.
When you consolidate your loans, not only are you simplifying multiple repayments into one, you’ll likely get a lower interest rate too if you have good credit.
While it varies between providers, 0% promotional periods typically last from 3 to 12 months, sometimes longer.
Kyle Morgan is a producer for finder.com who has worked for the USA Today network and Relix magazine, among other publications. He can be found writing about everything from the latest car loan stats to tips on saving money when traveling overseas. He lives in Asbury Park, where he loves exploring new places and sipping on hoppy beer. Oh, and he doesn't discriminate against buffalo wings — grilled or fried are just fine.
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