Living within one’s means is essential to ensuring adequate financial management. Practicing this is crucial in multiplying our resources and achieving financial freedom. It will also help us master self-discipline, self-control, self-efficacy, delayed gratification, and intense focus. In the long run, we can expect success in our goals and ventures.
However, income may not always be sufficient to meet our needs and wants. This lack of funds can be more challenging during a recession or hyperinflation.
It may be challenging to ask for a salary increase, look for high-paying jobs, and cope with elevated prices and interest rates. We saw it in the past two years as inflation and interest rate hikes depleted pandemic-era savings. Even worse, many people had to borrow from banks or payday lenders to cover their monthly expenses.
Now that the economy is expected to recover, we are seeing sparkles of hope. Although the promise of a rate cut is not guaranteed, our confidence about lower borrowing costs increases.
Amid all these, we should track our existing loans to take advantage of a potential rate cut and regain our financial capacity. That way, we can find ways to handle this and improve our wealth management. Hence, we give you some techniques to manage your loans effectively today.
Refinancing loans today may be advantageous since you can access more favorable payment schedules and interest rates. You can pay your loans with a new loan at a lower rate and a later maturity date.
So, you can save more money in the bank and make extra loan payments. In turn, your credit score will remain or even increase. This high credit score will help you find the best personal loans. Additionally, you can borrow from more reliable lenders and avoid subprime and payday lending, which can be predatory.
More interestingly, banks, credit unions, and other financial institutions offer low-interest personal loans today. Their maturity date is typically earlier than usual, but their interest rates are much lower than the market average.
For instance, the average personal loan interest rate in the US is about 12%. It may increase or decrease considerably depending on your credit score. However, low-interest personal loans can go as low as 5% – 8%.
Suppose you borrow $10,000 with a 10% interest rate over five years. The total interest you will pay is $2,646, equivalent to about 26% of the principal amount after five years. However, with low-interest personal loans, your interest payment may be as low as 5% or $1,322. This interest payment is only 13% of the principal amount and half the value you will pay to typical lenders.
Also read: The Five Best Free Cattle Record Keeping Apps & Software For Farmers/Ranchers/Cattle OwnersYou should not become too complacent about making minimum monthly or annual payments only. You must realize that most of your payments in the first few months or years go to interest.
You can get stuck in the loan quicksand without access to refinancing or low-interest loans. Even if macroeconomic indicators are improving, you must stay on the watch today. Although the Fed maintains rate hike pauses, it may not proceed with rate cuts soon.
Given this, we recommend that you make extra payments for the principal. These will be separate from your usual monthly payment.
Suppose you have an existing loan of $20,000 with a 10% annual interest over five years. After adding the interest rate, you must pay $370 monthly.
However, only $200 goes to the principal amount since $170 ($2,000/12) is automatically allotted to the interest. After a year, the remaining amount is $16,600. But after it bears another 10% annual interest, it increases again to $18,260. So, the principal amount only decreased by $1,740 after a year.
But if you make an extra monthly payment of $100, it will go directly to the principal amount. After a year, $1,200 ($100*12) will be deducted from the remaining balance of $16,600. After it bears interest, it will only be $16,940.
Hence, your $100 extra monthly payment will allow you to save $1,320 ($18,260-$16,940) after a year. Even better, you can complete your payment sooner and cheaper than expected.
Your job could not cover all your needs, so you borrowed in the first place. Your income may be sufficient today, but another inflation and interest rate uptick may become problematic. That is why you should consider looking for side hustles.
You can start your venture by offering freelance services. However, you can create an account on freelance job websites like Upwork and Fiverr for easier client access. You can capitalize on your work experience and additional skills to find another job and make extra income.
The best thing is that you don’t have to do it eight hours daily, so it will not affect your main work. Often, you will get projects within a specific timeframe, allowing you to manage your time effectively.
You can do it during lunch breaks or commuting to work or home. You can also spend your free time earning more. You can also do it over the weekend so you can focus more.
You can use your extra earnings to cover your monthly loan repayment and make additional principal payments.
Also read: 50+ Cool Websites To Visit When Bored | Best Fun Websites To Visit In 2024With autopay, you may enjoy a lower loan interest rate, so a more significant part of your monthly payment automatically goes to the principal. Many loan providers provide a 0.25% reduction so that you will accrue a lower monthly interest. The auto-pay rate discount is not included in the loan payment calculation.
Before borrowing or applying for loan refinancing, you must examine macroeconomic indicators. Observe inflation and interest rate changes since they substantially impact your loans. An increase in inflation may push loan rates upward.
Right now, you must wait for the Fed’s decision to maintain or cut rates. That way, you can access more favorable loan rates and payment schedules to help you save a higher amount.
Also read: Top 10 Job Search Websites of 2024Effective loan management may not be as easy as it seems, given that inflation and interest rates are still elevated.
The global economy has yet to recover, so you must remain cautious. It may take more effort and control than you imagine. But if you equip yourself with the right borrowing techniques and spending habits, you can succeed in your financial journey.
Monday October 7, 2024
Friday September 20, 2024
Tuesday August 27, 2024
Monday August 26, 2024
Thursday August 22, 2024
Tuesday June 11, 2024
Thursday May 16, 2024
Thursday April 18, 2024
Monday April 15, 2024
Thursday April 11, 2024