Ways to Save Money with a Personal Loan
We’ve all been there: you find yourself in a tough financial situation but don’t know how to get out of it.
At some point, most of us will have to use a personal loan. This guide will explain how you can use your loan wisely and get out of debt without sacrificing your lifestyle. You can use the following ways to save money with your loan.
Consolidate your credit card debt
One of the best ways to save money with a personal loan is by consolidating your credit card debt.
This means getting one loan, paying off all your outstanding credit card balances, and then transferring that money into your new personal loan.
Doing this means you can pay off high-interest-rate debt first and avoid paying interest on the rest of your credit cards.
For example, if you owe $7000 on one card with a 25% interest rate and $2000 on another with a 10% interest rate, it makes sense to focus on paying off the first card before moving on to the second one.
Save money on interest
Paying off your loan early is another way to save money on interest. The sooner you pay it off, the less you’ll owe in interest, so if there’s anything you can do to make that happen, then do it.
For example, let’s say you have a personal loan with a fixed interest rate of 6%. If you pay $5,000 per month for six months and then stop paying completely (which means no more payments), then at the end of those six months, your total accrued interest will be $3,600.
But if instead of stopping payments after six months and letting the remaining balance accrue even more interest over time (and potentially ending up paying much more than originally anticipated), instead continue making payments as planned until all debt is paid off—in this case, 12 months—then in this instance that same $5K balance would end up costing only about half as much in accrued interest: $1,800!
Create a savings cushion
The first step is to create a savings cushion. This can be used for anything from paying off debt, saving money for a rainy day, or saving for a big purchase.
It’s important to start small and then continue building on that amount when you reach your goal.
For example: if your goal is to save $1,000 over one month, start by setting aside just $100 per week. Once you’ve reached that goal, increase it again by another $100 until you reach your desired result.
The second step is to start working toward your goal. This can include increasing your income or cutting back on unnecessary expenses.
Improve the credit score
Your credit score is a number that represents your creditworthiness. The higher your credit score, the better your chances of getting a loan and the lower interest rate you’ll receive.
A higher credit score can also save you money on insurance, utilities, and other services that use a person’s FICO scores in their decision-making process.
Avoid the pesky hidden fees
While most personal loans are straightforward to understand, a few things to watch out for when applying.
The first is hidden fees. Many lenders will tuck in extra costs that you won’t realize until you’ve signed on the dotted line and gotten your money, and these charges can add up quickly.
To avoid this, read everything carefully and ask questions about anything you don’t understand.
If something seems unclear, ask the lender if it’s just a mistake in the fine print or an intentional bonus that they don’t want to advertise (like late fees). Make sure all your questions have been answered before signing any documents.
These are just some ways to save money on a personal loan. If you’re looking for more ways to cut costs, there are plenty of resources out there that can help.
Do your research and make sure whatever option you choose will save money in the long run.