Managing your finances along with loan payments is no easy feat. You will start feeling overwhelmed in no time if you have more than one loan to repay. Instead of panicking, take it as an opportunity to develop habits of managing your money when things get rough. That is what I learned from my friend who was also my mentor.
It is a real juggle when you a large amount of debt and you cannot figure which one to pay off first. However, hold on tight, with these tips, you will be able to survive the tide and still make your bill payments:
#1: Pay Your Bills on Time
It gets hard to pay off your debt when you are paying your bills late for no reason. Why? Because with late payment comes penalty. Plus, if you miss two payments in a row, it raises your interest rate.
The best way to avoid late payments is to use a calendaring system. It’s convenient to mark the due dates on your smartphone. Also, follow this rule. Whenever you miss a payment, don’t wait till the next due date. Send the payment as soon as you remember. Don’t forget that late payments also affect your credit score.
#2: Make Additional Payments
Whenever you can, make additional payments. This strategy lets you save on not just interest but pay off the loan earlier.
Don’t keep the debt around by choosing to bank that extra money in your emergency fund. No matter what kind of debt it is, it can be a thorn on your side. It’s hence wiser to get rid of the obligation as soon as you can.
#3: Make the Minimum Payment (At Least)
If you cannot afford to pay more, then just make the minimum payment. Although it’s not going to solve all your debt problem, it will keep your debt from growing. Your accounts will hence be in good standing if not great. On the other hand, when you are missing the payments, it will get hard for you to catch up. There is always a fear of going into default.
#4: Decide Which Debt You Want to Tackle First
You have to set your debt priorities straight. Usually, it’s recommended to pay off your credit card debt first. Why? Because they have higher interest rates. You might have more than one credit card debts. If that’s the case, pay off the one with the highest interest rate. Otherwise, it is going to cost you a lot of money.
Prepare a debt list and prioritize or rank your debts in the order you want to pay them off. It also sounds good to pay off the lowest balance first.
#5: Use Your Emergency Funds (If Any)
If you are running your business, then you need to have emergency funds in place too. While you are already struggling to manage debt, whenever you need money to meet some unnecessary expense, use your emergency fund. After all, that’s what these funds are set up for. There is no point in taking a loan when you can access those savings.
Of course, this would only help if you have an emergency fund set up in the first place. Make sure you have at least $1,000 saved for emergency needs. Once your financial situation gets stable, you can always start reserving more.
#6: Consolidate, Consolidate, Consolidate
This one’s for those who have too much debt on their hands. Consolidation, as the name implies, combines all your loans. It’s a good idea if you are up to pay the debt in a short time.
Here is how consolidation works. You take a new loan to pay off multiple debts. This new loan will have a lower interest rate. Fortunately, you will get rid of the loans that were breaking your financial back. Other than this, you will have to make fewer payments each month. Best of all, there will be less likelihood of making late payments.
#7: Make Lifestyle Changes
When it comes to keeping your finances in fettle, little things can make a huge difference. Although we have discussed ways to reduce the loan burden already, there is another thing you can do. It is making lifestyle changes. For instance, instead of spending money on takeout, cook food at home. The money you save here can go into loan repayment. This lifestyle change can prolong until your debts are repaid. You can also cut down on luxuries or any other unwanted spending.
For some people, making lifestyle adjustments can be hard. If that’s you, keep the bigger picture in mind i.e. you will get rid of the loan earlier.
If you don’t take care of your debts, they will take control of your financial life and that’s no brainer. You have to keep your priorities straight just like in the case of live trading. Do not feel shy to ask for help if you aren’t able to juggle the payment of your loan(s).