Digging yourself out of debt can seem like a daunting task, but luckily, you have a lot of options at your disposal when you try to work your way out of past mistakes. Keep in mind, however, that working yourself out of debt requires some smart decision making. If you misuse the tools at your disposal, you can undo your efforts to improve your situation and make things worse.
So how do you make personal loans work for you instead of against you when you’re trying to pay your old loan? Simple: take advantage of good situations when they arise and take the time to make the right calculations. Here are a few tips to help you do exactly that!
Know Your Interest Rates
Failing to know an interest rate is a common mistake people make when trying to get themselves out of debt. But when you’re dealing with similar sums of money, the interest rate is vital to deciding which loan you should pay off first. If you ignore a larger interest rate, you’ll end up paying more in the long run.
By the same token, if you have a loan of $10,000 at 6 percent interest and you can reduce it to 4 percent, you can save yourself a few hundred dollars over the remaining life of your loan. But if you don’t know what interest rate you’re paying, you won’t know if you can save money with a new offer!
Borrow a Little More
When you take out a new loan to repay an old loan, it makes sense to borrow a little extra to make sure that you can cover any fees. Some loans have prepayment penalties or other fees attached, and if you don’t borrow enough to cover them, you’ll find yourself a few dollars short of paying off your old loan. Having to make two different payments isn’t an ideal situation, and it’s best to avoid it if possible by knowing what you need to pay and borrowing slightly more than enough to cover it.
Borrow What You Can Repay
Being honest with your finances can help you avoid compounding past mistakes. Make sure that you borrow only what you’re sure you can repay over the course of the loan. If you’re not certain about your finances, refinancing might not be right at this time.
Achieving financial success isn’t something that happens overnight but using personal loans responsibly can speed up the process. By knowing the facts and being honest with yourself, you can make a loan work for you and help you get out of debt, permanently!