Acquiring debt is inevitable for most of us, whether it is a student loan, mortgage, credit card debit or a car loan. At some point in our lives taking out a loan becomes a necessary tool; serving to aid us with life’s larger purchases. However, paying back debt is vital to establishing good credit, as well as establishing creative ways to pay a debt sooner than later. It’s important to remember, the more quickly your debt is paid; the more you will save during the life of the loan.
Start by designing ways to help you pay off your debt faster than the standard repayment plan. Keep in mind that interest is earned on the principle of the loan until it is paid in full, so early repayment is always in your best interest.
Here are some tips to consider when “paying back” your debt. Look over these tips, and write down the ones that work for you, and then design your own repayment plan. Consult with a financial advisor if you have questions or concerns.
- Pay more than the minimum payment each month. Paying the largest amount you can afford each month will shrink the interest significantly over the life of the loan. When you can afford it, aim to pay at least twice as much as the monthly minimum. By cutting the interest in half you will save even more money in the long run.
- Create a budget of your monthly earnings and expenses. Keeping track of every dollar you spend can show you where you need to reduce or stop spending.
- Avoid buying luxuries and put that money towards your debt. We all spend money on things we don’t really need, whether it be a specialty cup of coffee, happy hour drinks, appetizers, or a weekly shopping spree. Give up your luxuries for a month (or two!) and put that money towards paying off debt. You’ll be surprised how much you’ll save and how much you don’t need those luxuries after all.
- Make saving money a priority; put at least 10% of your paycheck into savings, more if you can.
- Each year, try to make a larger payment on your loans. Being able to drastically cut out a chunk of the loan at least once a year, will not only make the loan go away faster, it will also make the monthly payments and interest lower!
Saving money should always be a priority in your life and will help you establish financial and emotional security. We all have to make sacrifices, and we feel more comfortable when we are financially secure. Make sure to sacrifice the right things in your life and you won’t even miss the money you’ll be “paying back”!
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