Three Unique Ways to Save on Your Loans
When it comes to finances, we’d all like to save up enough to cover our expenses and keep our loans to a minimum, but most of us have some form of debt. The good news is that there are easy ways to save on your loans that you might not have considered, and they could save you thousands of dollars a year.
#1. Pay More and Pay Often
One way to save money on your debt, even if your loans already have low rates, is to make your payments bi-weekly instead of monthly. By switching a loan such as your mortgage or auto loan to be paid every other week as opposed to once a month, you’ll add an additional month’s payment toward your loan every year, saving you interest and helping you pay down your loan’s principal balance faster.
Something to keep in mind is that some lenders charge fees for bi-weekly payment services or don’t offer true bi-weekly payments, meaning you may submit your payments to your lender every other week, but they only apply the payments to your loan once a month. If your lender does not offer true bi-weekly payments, or if you do not want to commit to that type of payment set-up, making additional principal-only payments is another interest-saving alternative. Every little bit of extra money you can put toward your loan’s principal will save you money in the end.
#2. Think Beyond “Like for Like” When Refinancing
If you have higher-rate loans, it’s always worth checking to see if you can lower your rates by refinancing. Think beyond just refinancing “like for like”— for example, moving your credit card debt from a higher-rate card to another credit card with a lower rate. Instead, determine where you have equity and use it to your advantage. Loans secured by collateral, such as vehicles and homes, typically have lower rates than unsecured loans.
If you have a vehicle that’s paid off, either completely or partially, you may be able to refinance it and use that additional equity to pay off higher-rate loans. Need extra motivation to refinance? According to Bankrate.com, the average credit card rate is more than five times higher than the average rate for a 48-month auto loan! Imagine how much you could save by refinancing even $5,000 worth of credit card debt to a lower-rate auto loan.
When refinancing, look out for application fees and be very diligent about paying your loans. If you default on a secured loan, you run the risk of losing your home or vehicle —whatever was used to secure the loan.
#3. Know the Score
We always hear that it’s important to have a good credit score, but we don’t necessarily realize how big of an impact our score has on our finances. Access your credit report for free once a year at www.AnnualCreditReport.com and become familiar with it. Most lenders base your loan rates, at least in part, on your credit score. Improving your score and maintaining it can save you thousands of dollars over the life of your loan and could provide you with better terms when refinancing.
Know which factors have the largest impact on your credit score: payment history and the amount owed on your loans, especially the amount of revolving debt you have available vs. what you are currently utilizing. Make your payments on time, every time and if you have credit cards, be careful not to “max out” your cards as having more available credit helps your score. Think twice before closing any credit cards, even if you pay the balances in full and don’t plan to use them. Closing a credit card removes that card’s credit limit from the total available credit on your report and could wind up hurting your score.
One concern many people have is that getting their credit report pulled — for example, when they apply for a loan — will hurt their score. These inquiries, called “hard inquiries,” typically do not have a major effect on your credit unless you already have other negative factors impacting your score. It’s best not to have an excessive amount of inquiries, but these are not going to impact your score nearly as much as your payment history and credit utilization.
For more ideas on ways to save, visit www.msufcu.org/library, and contact your financial institution to find out about ways they can help you save interest and minimize your debt.
Tags: Financial Facts, loans, msu federal credit union, Savings
Christina Minnis is the Vice President of Sales and Marketing at Michigan State University Federal Credit Union (MSUFCU), the world's largest university-based credit union, where she loves finding innovative ways to help members achieve their financial goals and dreams.