How To Pay Your Loans Faster
Let’s face it: it’s never fun to have outstanding debts. Debt clearly creates one of the biggest causes of stress in life and it always makes sense to repay that debt as quickly as possible. There are practical reasons for this, as well. Faster repayment means lower interest costs over the long term. In some cases, early loan repayment will mean that you incur additional penalties. But when this is not the case (as with most credit cards), your debts should be paid back as quickly as possible. Here, we will look at some of the best tips to repay your debts ahead of schedule.
Make More than the Minimum Payment
One mistake many consumers make is to pay only the minimum monthly payment. But what most people don’t realize is that this is exactly what your bank wants you to do. This is how they ‘keep the fish on the hook’ for the longest amount of time. This is how the bank makes the most money. As long as your debt balance remains active, interest rates are accruing. This means that money is flowing out of your savings account and into the coffers of your lender. You might think that paying the minimum means you are able to hold onto more of your own cash. But nothing could be further from the truth. Always make an effort to pay more than the minimum.
Debt Consolidation
If you have debts from multiple lenders, consider loan consolidation. This can help you to combine all of your loans into a single entity — and often obtain a more favorable interest rate at the same time. This main advantage here is that it is much easier to manage your debts and avoid the mistakes that are involved when specific payments are missed.
Focus on High-Interest Rate Loans
Are your loans associated with different interest rates? If so, it always makes sense to pay off the loan (or credit card) with the highest interest rate first. In many cases, it is even a good idea to transfer the balance from a higher interest rate loan to a lower interest rate loan. For example, assume you have two credit cards. One has an interest rate of 8%, while the other has an interest rate of 18%. You could transfer the balance from the latter card to the bank that is giving you the better interest rate. This will help you to cut interest costs significantly over time.
Renegotiate Your Loan Terms
Lenders are always willing to work with borrowers to avoid default, as this is the worst possible scenario for all parties. If you think you are unable to repay your bills on schedule, call your lender. In many cases, you can organize a deferment or a reduced interest rate in order to avoid defaults.
Consider Bankruptcy
In cases where all other options are exhausted, bankruptcy might be your best course of action. If you simply cannot repay your debt, a bankruptcy can help you discharge the debt and free you from the constant calls from your lender. This should be used as a last resort, however, as it means you will have a period of up to 10 years where it will be difficult (or impossible) to obtain any sort of financing.
Tips
As a business owner, you are usually busy with the daily running of your business and that's one of the main reasons why you should get a professional Accountant to do your books and take care of your paperwork for you. Read this informative blog post on The Importance Of Accounting.
