At any given point in life, you have various types of debt that you have to pay off. However, if you are using the same debt management strategy to pay off debt of all kinds, then it can potentially cause financial distress. Therefore, it is important to understand how to pay off different types of loans.
How to Pay Off Different Types of Loans
In your financial portfolio, you can have different types of loans. They can be a mortgage, a car loan, your student loans, and even your credit card debt. So what’s the best method for paying off different types of loans?
The most typical and recommended way to pay off your mortgage is to pay it off month by month, usually over a 30 year period. Given that you have a low-interest rate locked with your lender, this is great. This way, you can budget your income and contribute to savings as well. However, if you are looking to pay off your mortgage debt faster, then you need to consider making consistent extra payments on your principal every month. You can also consider refinancing options if the interest rates are in favor of you.
Credit Card Balances
When it comes to paying off credit card debt you need to be highly disciplined. Paying your statement balances every month on time and in full wins the race. Your credit rating largely depends on how responsible you are with your credit cards. The interest you pay on making only the minimum payments or missing out a payment altogether is not worth the risk! If you have multiple credit cards that need to be paid off, it is always better to tackle the one with high-interest first! Our credit counseling advice is to always pay more than the minimum balance.
Debt such as car loans and mortgages are usually considered good debt, given that you make timely payments on each of those. Slow and steady just like the mortgage is the best approach. You can tackle your car loan bi-weekly to add an additional payment every year. This way you can speed up paying off debts faster.
Paying them every month is the best way to go. If there is a possibility to make a little extra payment every month go at it! That extra amount goes to reducing the balance of the loan, so your total interest expenses over the life of the loan will go down. But equally important is ensuring you don’t make mistakes in paying your student loans. One common flub is consolidating federal loans with a private lender.
If you’re struggling to pay off debt, ACCC can help. Schedule a free credit counseling session with us today.