The greatest benefit of a loan is the ability to pay back the money over
time. Some people simply pay the minimum payments on their loans each month. If
you’ve taken out a loan, making more than the minimum payment each month can be
Interest is the payment you give a bank or other lender for the privilege of using their money to pay for your debts. Whether you’re accruing interest on a home loan, a car loan, or your student loans, you’re essentially paying for the ability to keep using their money. Generally, interest is added to the balance of your loan every month–and it’s based on the balance of your loan at the time the interest is added. Every time you make an extra payment or a payment over the minimum amount, you take the amount of interest you’ll have to pay on the life of the loan down.
You don’t want to pay any more than you have to for that privilege of using someone else’s money–especially if you have additional money in your budget that can be used to pay that debt off. No, you don’t have to spend every extra penny you have on paying down that loan; but by budgeting a little extra money to get your debt paid down, you can decrease the amount you’ll have to pay for your loan–and that can help you have a brighter financial future.
Most of the time, if you make an extra payment on your loan, it’s just that: an extra payment. If you make two payments in January, your lender will still expect you to make your regular payment in February, since the extra January payment will simply have been removed from the principal amount of the loan. That doesn’t mean, however, that making those extra payments has no extra benefit if you come up short later. If you make regular payments, it may make you look better to your lender–and as a result, if you do come up short one month in the future, you’ll be better positioned to negotiate with them. Your lender may be more lenient with you, or they may be more willing to work with you as needed.
You know that making early payments can help you avoid additional interest, but have you really thought about how those extra payments can help you get out of debt sooner? If you make a duplicate payment on your loan each month, you could be out of debt in less than half the time (since you won’t have additional interest piling up, which can amount to months of extra payments over the life of the loan). When you’re able to live debt-free, you’ll find that your money is yours: you can make it work for you, rather than constantly feeling as though your paycheck is trickling away one payment at a time. Not only does that offer an incredible sense of financial freedom, it means that you’ll be in a better position to purchase things that you need or want in the future.
Do you need advice about how to pay your loans down sooner? Do you need extra help to manage your finances effectively? Contact us today to learn more about how we can help you manage your finances.
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