Imagine you have a lot of loans for various things, from your latest car emergency to your schooling. Before you resign yourself to drowning in debt for life, consider how to make loan repayments.
Paying your loans back can seem overwhelming, but it’s so worth it. Read on for tips on how to incorporate loan payments into your budget.
One of the first things you should do is review the loans you currently have. Make a list and include the type of loan, loan balance, and interest rate.
You should also write down the monthly minimum payment amount for each loan. Adding up the minimum payments will tell you how much money you need to set aside from your budget every month.
Of course, you can put more than the minimum toward your loans. However, knowing the minimums gives you a place to start when developing your loan repayment plan.
Next, you need to figure out how your loan repayments fit in with the rest of your budget. That way, you can avoid late payments that often come with higher fees or penalties.
Go over your bank statements and look at how much money you make each month. Then, think about your non-negotiable expenses, such as your rent or mortgage as well as food and transportation costs.
After those non-negotiable items, see how much room you have for loan payments. You may have a lot of room, so you might have money left over after paying back your debt.
But if you don’t have that much cash, you’ll need to make some tough choices when paying off your loans.
If you can put more money towards repaying debt, one way to do so is to use the debt snowball method. This is where you start by paying off the loan with the smallest balance first.
Make all of your minimum payments on your larger loans. For the small loan, put any extra funds towards that loan to help pay off the interest and principal.
After you pay off the first loan, allocate those extra funds to the next smallest loan. Continue this process until you pay back all of your debt.
Another way to make loan repayments is with the debt avalanche method. Instead of starting with the smallest loan balance, start with the loan with the highest interest rate.
This can be an excellent choice if you have one loan with a significantly higher interest rate than the others. Once you get rid of that loan, you can repeat the process with the next-highest interest rate loan.
You’ll do the same thing as with the snowball method regarding other loans. Don’t ignore those loans and let the interest pile up, so make sure you have enough to cover the minimum payments.
But for the rest of your loan repayment budget, you can make a dent in one loan.
Paying back multiple loans at once can be hard to keep track of. If you’re not good with remembering payments, you may want to get a personal loan to help consolidate the debt.
Use the new loan to pay off the balance of your existing loans in one go. Then, you’ll only have one monthly payment to worry about, so you don’t have to choose between the snowball and avalanche methods.
You’ll still need to set up a repayment plan for the new loan. However, you’ll have less paperwork to stay on top of from month to month, so you can lower your stress and save a bit of time.
If you’re still struggling to make loan payments, you might want to review other areas of your budget. Aside from housing, food, and transportation, try to reduce some of your expenses.
For example, you may decide not to go out to eat and to cook at home each day. Or perhaps you choose not to buy any new clothing or go on trips until you pay off your debt.
Take the money you were putting towards those things and add it to your repayment fund. That will give you more money to use whether you prefer the snowball or avalanche method.
You may even have enough funds to pay off a couple of loans at once.
Sometimes, you can’t completely get rid of an expense, but you may be able to lower it. If your lease is up, you might look for a smaller place with a lower monthly rent.
You could also look for a different place that you can split with a roommate to lower your costs. If you spend a lot on gas, you could look into working from home once or twice a week or carpooling with a coworker.
Try to get creative with finding ways to lower your bills. Then, you’ll have more money to use for loan repayments, and you won’t have to sacrifice entire categories of your budget, such as eating out.
You might start making loan repayments now, but your budget and circumstances could change. For example, you might get a raise at work, which is a great way to beef up your loan payments.
Or maybe you pay off your first loan and only have one left. You can put the money that went toward the first loan to the one you have left, so you could pay it back sooner.
Look over your budget every month, and pay attention to any changes in your spending. Then, you can make sure you’re using your money as best as you can.
Making loan repayments can be stressful, especially when you’re in a lot of debt. Luckily, you can try different methods, like the snowball or avalanche, to help.
Be sure to consider your overall budget, and try to reduce costs when you can. You can even consolidate your debt with a new loan to save on paperwork.
If you want to get a new loan to help pay back your current ones, apply today.