Last updated on September 30th, 2022 at 09:30 pm
No one wants to be burdened with loans. However, it’s inevitable at times to borrow money for important purchases such as a house, a car and the like. If you’re reading this article, you may be struggling with debt and want to get out of it. However, it’s important to remember that getting rid of debt is a process.
In order to solve your debt problems, your first task is to fully understand the nature of the loan by conducting a thorough assessment. You’ll also want to analyze your financial situation and come up with an effective loan repayment plan.
To guide you, this article is divided into two parts: the first will detail the bad habits that can increase your debt, while the second will discuss strategies to help you pay off loans quicker.
7 Bad Habits You Need to Get Rid of for Improved Financial Health
Being able to provide for your family beyond the necessities may be your goal. However, life’s unpredictability can force you to borrow money from lenders. Choosing the right type of loan is the key during tough situations.
If you’re currently in a stable financial situation, take this opportunity to save money for a rainy day. But if you’re in debt because of a loan and wish to regain a strong financial position, you need to get rid of bad habits that can contribute to poor financial health. Here are seven bad habits to shake:
Do you use shopping as entertainment or do you shop when you’re stressed? This is a dangerous spending habit that sees people purchase things they don’t need and can’t afford.
As a mom, you might be tempted to buy something for the house or for your kids that you don’t need, only to justify the purchase later by coming up with excuses. Sometimes, you might find it hard to resist the temptation of purchasing a product because of a discount and end up spending more than your allocated budget.
Do you really need what you’re buying? Ask yourself this question before taking out your wallet.
Inappropriate Use of Credit Cards
Credit card companies are cunning. They have plenty of ways to make you spend more than you can afford. This isn’t to say that all credit card rewards are bad, but you need to be aware of how much you’re spending for reward points.
Many people who unwittingly misuse their credit cards tend to increase their monthly expenses and consequently, their credit card debt. You might get some small financial rewards by using credit cards, but you will always lose in the long run.
There are different types of loans on the market. Banks and financial institutions present a lot of choices for consumers, and each loan has its conditions and a specific interest rate.
Before applying for any loan, you need to do a careful study of the pros and cons of each type. Then, you need to select the most appropriate option for your situation. If you need immediate cash, you can opt for quick online loans from alternative sources.
It’s natural for anyone to desire a better lifestyle, a bigger house, an expensive car or other fancy things. However, some people purchase excessively when they think their income is stable.
Having a lavish lifestyle might not be a good idea as it can drown you in debt and affect your family life. Some luxuries can be good to indulge in from time to time, but don’t overdo it.
Not Paying Bills on Time
Avoiding utility and credit card bills is never a good idea. Unfortunately, postponing them can become a bad habit. Not paying bills on time can force you to burn extra cash on late fees and penalties. These may seem small at the time, but eventually, they’ll equate to a significant amount of wasted money.
Maintaining an Unhealthy Ratio Between Debt and Savings
The amount of interest you’re paying on your loan should never surpass the interest you’re receiving from your savings or fixed account. If this is the case, you’re not developing healthy financial habits.
Inability to Anticipate Emergencies
Most of us spend as if bad days will never arrive, and many have the mindset that they may never need a substantial sum of money tucked away for unforeseen events. Because of this, they may have to borrow money from others in times of recession or dire circumstances. As a mom, always use your foresight and keep in mind that there will be times when you need money on hand.
Tips to Pay Off Loans Quicker
Getting rid of bad financial habits is essential if you want to pay off your loan. Now, let’s take a look at specific tips that can help pay off your debt more quickly:
Make a Budget
Before anything else, you need to work on making a weekly or monthly budget. There are apps that can make this task easier. It’s also possible to use an Excel spreadsheet to create a list of your monthly income and expenses.
Having a budget allows you to carefully track your monthly expenses and cut out any unwanted costs from your income. This may also serve as a warning whenever you open your wallet to buy something. If you’re thinking of spending money, you can check first to see whether it fits within your allocated budget or not.
When possible, try to spend less than your allocated expenses so you can accelerate your debt payments.
List Your Debt
There’s a good chance you have more than one type of debt. You need to list all your debts, such as personal loans, auto loans, and credit card debt. Make sure to include their outstanding balances, minimum payments, interest rates, and due dates.
By outlining all your debts and their accompanying information, you can get an idea of what you need to do next. Avoid signing up for new loans if possible. Learn about what an amortization schedule is to get a detailed plan of how you can gradually pay off your debt.
Get Rid of the Most Expensive Loan First
Writing down all your debts with their details can show you what you’re facing. It’ll also let you compare the loans by their outstanding balances and interest rates. Then, you can plan your payment for each loan.
The best way to deal with loans is to pay more than the minimum for the most expensive debt, thus helping you get rid of it quickly. While paying off the costliest loan, you should pay the minimum for your other loans.
Don’t Pay Only the Minimum Required Balance
Remember that your aim is to get rid of your debt, not become a slave to it. The best thing you can do is to pay more than the minimum required balance.
Commit to paying more than what is required by the lender. Do it regularly by making a weekly payment for your loan. Even an extra $50 allotted to repayment can help you reduce the balance long term.
Use Balance Transfers Strategically
You can also save a lot of money by using a balance transfer strategically. If there’s a high-interest card in your portfolio with a balance you can pay off within a few months, you can transfer its equivalent to other cards with a zero-interest balance transfer.
However, you need to clear your debt before the balance transfer expires. Not doing so will only cost you extra money, but that said, you can save a considerable sum if you manage to pull this off.
Allocate Funds From Your Work Bonus
If you’re a working mom, you’ll know that it’s a great feeling to receive a bonus at work. Don’t give into the temptation of throwing away your work bonus for unnecessary things. Instead, allocate a portion of this bonus to paying off your debt. It will help you get rid of your loan quicker.
You can always buy a fancy designer bag or go on a vacation with your family later. You should prioritize getting rid of your debt first, because it will only continue to grow if you ignore it.
Sell Unwanted Household Items
You may have a lot of unwanted items in your house, like old electronics or outgrown children’s toys. If you have a lot of these, it’s time to declutter. Then you can your unneeded items on eBay or Craigslist. Getting rid of unwanted household items will not only bring in extra money, but it will also help free up additional space in your house.
Consider Consolidating Your Loan
If you have multiple personal loans or credit card debts, you may have the option to consolidate your loans. Reach out to your bank or credit union to find out whether this option is available to you.
You may be able to combine all your loans into one loan with a lower interest rate, and by doing so, you will be saving a lot of money on interest, which will enable you to get rid of your debt faster.
Try to Become a One-Vehicle Household
It takes thousands of dollars to maintain a single car. If possible, you should consider selling your second car unless your debt is clear. Instead of using a private vehicle, you can use public transportation or walk to nearby destinations. Now and then, you can use an Uber to reach places that are farther away—it will still save you money in the long term.
Reward Yourself for Every Milestone
Life won’t be much fun if you’re solely dedicated to just paying off your debt. There will be times when you feel as if you’re punishing yourself by being extremely determined to clear your loan balance. To get rid of these negative feelings, you could reward yourself for every milestone; just make sure you don’t exceed your budget.
Consider it a milestone if you manage to get your loan down from $25,000 to $20,000 within a month or two. For this, you can take a trip to the spa or the salon. Don’t be excessive in your reward by going on a week-long vacation unless you can afford it.
Work Extra Hours if Possible
If you’re an employee, you know that you can’t always ask for a raise. It all depends on your company’s policy and your work performance. If you’re still able to manage a reasonable schedule, you could consider taking on additional shifts. If you’re working for a wage, you might consider working extra hours or finding a second employer.
For some, it might not be possible to work a second job; particular if you’re a mom. However, flexible alternatives like freelancing can give you an extra income source. Every dollar you earn from extra work will help you pay off your debt quicker.
Once you pay off your loan, it will feel like a massive load has been lifted from your shoulders. Keeping a loan unpaid over an extended period only adds to your financial and mental burden. If you apply the strategies listed in this article, you’ve got a great chance to pay off your loans ahead of schedule.
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