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Vehicle manufacturers or dealers will often offer incentives to purchase a specific vehicle in the form of a low rate loan or a cash back incentive. While a low rate loan sounds attractive, you might be better off taking the cash back, using it to add to your down payment and reducing the loan amount for the vehicle. Evaluate which option is best. A lower loan amount will mean a lower monthly payment and you might find that the interest savings you’ll gain by the low rate loan is less than the cash back amount.
Like many credit card holders, there are times when you might have overdone it on the spending and are now facing the task of paying off your credit card balance. The length of time it will take is largely driven by the interest rate you’re paying on the outstanding balance, how much you continue to use the card and what you pay each month in terms of a monthly payment. A good rule of thumb is to try to pay off any card balance in 36 months, but you might want to see what it will take to pay off the balance in shorter or longer increments of time.
If you’ve received a lump-sum payment from an inheritance, tax refund or commission off of a large sale, you might be wondering what the best use of that money is. One thing you should consider is paying off debt, whether it be a mortgage, auto loan or credit card debt. When you pay off debt, you’re receiving a guaranteed return on your money — you’re saving the interest you would otherwise be paying on the loan. Depending on the type of the loan, and especially for credit cards, that return might be greater than anything you could receive by investing the money. In addition to saving interest payment, you’ll also repay the loan sooner, freeing up extra cash at the end.
Having savings is important, especially when the savings are part of an emergency fund or a hedge against loss of income. But when you also have debt, in the form of an outstanding credit card balance or loan, you might want to consider whether you’re better off using the money you have in savings to pay down debt. Whether it makes sense or not is determined by the interest rate you’re earning on your savings versus the interest rate you’re being charged on your outstanding loan balance. The difference between earning interest and paying it should give you a good indication of where you can get the best return.
One popular strategy for accelerating the payoff of a loan is to make ‘bi-weekly’ payments. Under the bi-weekly plan, you’ll make payments to your lender every two weeks instead of monthly of half of your monthly payment. One important thing to note here is that this method will result in you making 26 payments each year, which are two more than you would make if you made a payment on the 1st day of the month and middle of the month, so you’ll have to budget accordingly. By making bi-weekly payments, you’ll comparatively make an extra monthly payment each year which will reduce your amount owed. By making payments every other week, you’ll also save a bit on interest charges for the outstanding loan balance that would normally still be there until the end of the month.
The term of your vehicle loan can make a big difference in what your monthly payment looks like. It can also have significant on the amount of interest you’ll pay over the course of the loan. You pay interest each month on the outstanding balance of the vehicle loan, so the longer the term of the loan the more interest that you’ll pay until the loan is paid off.
As you determine which vehicle to buy and which loan terms to choose, the choices you make can have a big difference in terms of what your monthly payments will be and what the costs of the loan will be once the loan is paid off.
At some point in time, you’re likely to receive an offer in the mail. Transfer an existing credit card balance to a new card and receive a promotional interest rate for a set number of months. Are these offers worth it? It depends on the promotional interest rate, the length of the promotional period, what the standard interest rate is once the promotional period expires and what the fee is to transfer your balance from one card to another. During the promotional period you might be paying a lower rate, or 0% depending on the offer. Are the interest savings greater than the balance transfer fee? Whether they’re a good deal or not also depends on how long it takes you to pay off the card balance once you transfer it to a new card.
If you’re trying to pay down some debt, you might be wondering what the impact would be if you simply increased your monthly payment each month by just a little, or even a lot. When you increase your monthly payment, the amount of the increase gets applied directly to reducing the amount owed, or principle. Reducing the amount of money you owe will reduce your interest charges each month, as the interest rate will be applied only to the outstanding loan balance. An increase in your monthly payment will lessen the amount of interest charges you will pay over the repayment period and shorten the number of months it will take to pay off the loan.
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