Do you know why banks and lenders are getting richer and us borrowers getting poorer by the day? It’s because of the hefty interest rates they slip in on our personal loans and other debts such as credit cards. Credit cards, in particular, when used irresponsibly can drown us in high interest rates. Toss in interest rates from your other personal loans and you have a very expensive and large amount of debt on your plate.
Fortunately, there are ways to reduce the cost of your loans. Follow the tips and tricks below and you’ll be surprised at how much you can save in the process.
Repay high interest loans first
When it comes to lowering your debt, you need start by paying off loans with the highest interest rates first. You’ll have to make a list of your outstanding loans with one column reserved for the amount and another column for the interest rate. Arrange them according to interest rates with highest at the top and decide to pay off the maximum amount you can afford to reduce the interest and your financial burden.
As you pay high interest loans first, the amount of total interest you owe is also reduced in the process. A few months or so of this strategy should show you significant reduction on your loans’ total costs.
Aim to pay more if possible
If you can still afford it, you should aim to increase your repayments. In some instances, it might even be wiser to use your savings to bump up your loan repayments. Doing so will make sure your debt is repaid faster than if you stick with minim repayments. Just make sure the early repayment charges are not going to cancel out the savings you’ll earn by paying extra.
You should also only use your savings to repay your loan if you’re sure that the interest you’re earning is lower than the interest rate charged on your personal loan. While you’re at it, make sure to inform your lender that you intend to pay extra each month for your loan.
Consider credit card transfers
If you have good credit and have been paying your balance diligently, you may be eligible for credit card balance transfers. This type of strategy lets you transfer money from your credit to your bank account at low interest rates. You can then use the money to repay your high interest loans thereby reducing your debt and your interest rates.
Before transferring balance, however, make sure you figure out that this is a more cost effective option in the end.
While tricky and may be confusing, consolidating debt is another way to reduce the cost of your personal loans. If you have multiple loans with varying interest rates, keeping track of your debt is a challenging task. You can resolve that by consolidating your debt wherein you combine several loans into one.
Here’s how debt consolidation work. You apply for a loan with a much lower interest rate and use that to repay several loans in full if possible which will then leave you with a single loan to repay each month. Repayment is now more convenient and easier not to mention that your interest rate is also reduced significantly.
There’s a downside though. To consolidate debt, you’ll need to take out a secured loan so you can available a larger amount. This means putting your property at risks so thinking this over twice through is recommended.