Posted On: September 10, 2018 by Peoples Bank in: Budgeting Financial Education Savings
Tips for managing your debt
Having debt is never easy. Paying a monthly bill can be a nuisance, whether that be a car payment, mortgage or student loans. And for some people, having too much debt is a real problem.
According to Pew Charitable Trusts, about 80 percent of Americans have some form of debt. While debt is essential in big life events, like buying a house or a new car, they don’t have to be crippling. Use some of these loan managing tips to own your debt and actually use debt to your advantage.
Pay bills on time
Obviously, this is the first tip and the most important one. Debt can actually be a benefit if you pay your bills on time. Your credit score will rise — missed payments or accounts in default account for about 35 percent of your credit score — and healthy debt shows lenders that you can manage loans properly, leading to more borrowing opportunities in the future.
If you’ve missed a payment, you still have time. Most lenders don’t report a missed payment until 30 or more days after a past due. Set up automatic payments, if possible, to ensure you never miss a due date.
Pay down when you can
Of course, the first priority is to pay the minimum amount due each month, but when you can, you should throw more money on top of the payment. Doing this can help you pay down the loan faster and save you money in the long run. Having a lower balance means less accrued interest over the life of the loan.
After you’ve paid off one loan, use the extra money to pay off the next debt — preferably the one with the highest interest rate — and so on. This is called the avalanche method, and it’s the most effective way of paying down your debt besides a payment in full.
Monitor your credit score
This goes hand in hand with the first point. Look for errors on your credit report or for areas where you can improve. If you’ve missed a few payments and it shows on your score, make it a goal to string a consistent chain of payments on time.
Consolidation can be a good tool
Sometimes debt can be too much, but there are other ways to lower interest rates or payments. Consolidating your loans can be helpful if you’re looking to make one monthly payment. Consolidation is taking one loan to pay off several other loans. This way you owe money to one creditor.
Be careful, though, as consolidation can lead to higher interest rates. Make sure if you consolidate you are getting a rate that’s the same as or lower than your current loans.
Peoples Bank is here to help. If you have any questions regarding your loan through us, please reach out to your local branch.