How to Efficiently Pay Off your Loans
How to Efficiently Pay Off your Loans
Loans: most of us are going to have them at some point in our lives.
According to Business Insider, Georgia owes about $60 billion in student loans. The current amount of federal student loans owed by students is around $1.6 trillion. The rising issue of student debt leads to many young people postponing many traditional milestones of life, such as buying a house, marriage or starting a family.
There are many tips on how to deal with loans like living frugally (TLC literally has two shows following various people who cut down their expenses through couponing and budgeting), consolidating and refinancing your loans in order to lower the interest rates, paying more than the minimum payment and taking out loans, such as student loans, that offer forgiveness programs.
One of the first steps to consider before even taking out a loan is to compare and contrast as many loan options as possible– looking at how long you will be paying it off, the amount you’d be expected to pay every month, and most importantly, the dreaded interest rate of the loan. You want to be as well informed as possible in order to get the best loan you can possibly get. You want to aim for a loan with a very low APR, which is the interest rate, and with a manageable length of payment. Ideally, it should feel like a Netflix or Spotify subscription, where you hardly notice the amount deducted from your bank account.
If you have multiple loans, then there are several ways you can take a handle on your finances.
A good method to pay off your loans that will save you more on interest throughout the duration of your loans and will allow you to pay them off as quickly as possible, is the avalanche method.
The avalanche method of paying off your loans is when you focus on paying off the loan with the highest interest rate as quickly as possible while paying the minimum payments on your other loans. When you’ve finished paying off the loan with the highest interest, you then focus on the loan with the second highest interest, and you keep going until you’ve paid off all your loans. The avalanche method is very effective at paying off your loans as quickly as possible, but you may not see the results of it as quickly as you would like, which can cause people to lose motivation in paying off their loans.
Another method of paying off your loans is the snowball method.
This method is better for people who need more motivation and a sense of accomplishment in paying off their loans. This method involves paying off the loan with the smallest balance as quickly as possible first, while paying the minimum payments on the other loans. It may take longer for you to pay off your debt, but you will see results quicker and you will be able to get rid of those smaller loans until you can work your way up to focusing on the larger ones.
Both of these methods are work, so the important thing is to pick the one that works best for you.
Having to grapple with loans is one of the harsh trials of adult life. It can feel very demotivating at times, but there are tried and true methods for tackling them. Make sure you read the terms of your loan extremely closely before you sign up for it; don’t be afraid to ask as many questions as possible until you feel like you truly understand your loan’s terms and conditions.
For many people, loans are inevitable in order to afford things that are normally out of their reach. Due to rising tuition costs, it is one of the only ways many students can hope to achieve their academic and professional ambitions, and therefore it is important that you go into it with the best deal you can get, such as a super low interest rate and a manageable payment timeline. There are companies that prey on students taking out their first loans, so your biggest defense is being as financially literate as possible and understanding exactly what you’re getting into.
Today, going to college, starting a business or buying a house requires taking out a loan for most people. It is more important now than ever to be financially literate. Hopefully, the tips and tricks that have been mentioned will make navigating the complex world of loans a bit easier. Taking out a loan doesn’t have to be scary!
As long as you are responsible and fully understand what you are getting into, it can be a way to make your hopes and aspirations more achievable.