Managing Your Money and Loans in the New Year

New Year, New Goals (1)
A new year is always a natural time to look back at past spending behaviors and looking forward to making new financial habits. Good financial habits equal a good financial standing which lets you live the life you dream of. Nothing causes more stress or relationship grievances than poor finances. Follow the tips below and start making strides towards living your best life!

One good way to kick start the good financial habits is to take small steps at a time. Without a clear picture or framework and organization of your debt, it is very hard to accomplish other money goals like spending less, saving more and maybe even investing the difference.

Below we have some tips to help you resolve your debts and get them in order.

7 Steps to Organize Your Loans

1. Gather all your debts.
This includes student loans, personal loans, credit cards and so on. Get all the information in one place. This means hard copies of statements in a binder or folder, keeping copies online like Evernote, or keeping it together in a different way.

2. Spreadsheets
Once you have all the statements in front of you, for each loan or source of debt, write down its balance, the loan service provider (and their contact information) the interest rate, how long is left on each loan, and the monthly repayment.

Remember, student loans and fixed-rate personal loans usually have set terms and the same minimum payment requirement each month (provided you haven’t missed payments or made late payments). On the other hand, with revolving credit, like a credit card, the monthly minimum payment can go up and down, depending on how much of the available credit is being used at the time.

3. Adding Up Your Monthly Payment
This part is easy, but it’s important you know how much you’re spending on debt repayment each month. Once you get a total monthly expenditure amount, you can begin to build a budgeting framework.

Depending on the types of loans and debt that you have, and your preferred budgeting technique, you may want to add the balances up by category (student loans, personal loans, credit cards, etc.) or as one. Either way, you should always know how much you’re making in loan payments.

4. Build Debt Payments into the Budget
Now that you know exactly how much you are spending on debts, it’s time to look at this figure in terms of your overall budget.

To finish building a budget, look back on your spending for the last several months. Identify how much you’ve been spending in each of the essential categories like rent, groceries, utilities, food, and so on. Then add your debt repayment total to get your complete spending picture.

First, understand how much you’re actually spending in each category, and look at whether or not it leaves you with money left over at the end of each month. If the answer is no, how are you making up the difference? Are you dipping into savings? Using more credit?

Finally, once you understand your spending, you can identify your problem areas where you’d like to cut back so that you can free up more money for saving or putting toward debt.

5. Calculate How Much You’re Paying in Interest

It’s always a good idea to know exactly how much you are paying in interest on your debts, if for no other reason than because it is a total eye-opener. Sometimes you can see this within a monthly statement. If you don’t have a breakdown easily on hand, using a tool like a credit card interest calculator can help you out.

If seeing how much you’re paying in interest gives you a mini heart attack, there are options for taking action to reduce this figure. You could make additional or larger payments towards your debt. You may have a set term for a loan, but no one says that you have to take exactly that long to pay it back. Just make sure to account for any prepayment penalties to know for sure if it’s your best option.

6. Refinance Your Home Loans If It Makes Sense

Refinancing is the process of paying off old loans with a new loan, ideally at a lower interest rate. You can also sometimes take out extra cash to pay down personal loans.

With Network Capital, refinancing is easy, and it takes only a short time to see if you qualify.

Remember earlier, when you calculated how much you were paying in interest on your loans? Take another few minutes to look at a loan refinancing calculator to see how much you could save by refinancing.

Through refinancing, it is possible to consolidate multiple loans, which can make managing debt and monthly debt payments that much simpler—that’s in addition to the (hopefully) lower interest rate. This is a key tip to lowering financial stress if you land a lower interest rate and consolidate your loans.

7. Identify Sources of Debt You Want to Pay Off

At this point, you probably have a good understanding of how your loans fit within the framework of your overall budget, and can identify whether you have any other sources of debt that you would like to pay down.

Credit cards are a great place to start. Making only minimum payments on credit cards can cost you quite a bit in interest. In general, when it comes to accelerated debt repayment methods, there are two popular strategies. The first is called the “debt avalanche method,” where the borrower aggressively works to pay down the balance of the debt with the highest interest rate first (while making minimum or monthly payments on all other debt, of course).

With the “debt snowball method,” the borrower picks the loan with the smallest balance, and works on paying this balance off first (while still paying other debts), securing a psychological victory.

Not everyone will have debt repayment they want to expedite, but if you do, you can simply pick one of the methods and go with it. If you go with the debt avalanche method, either highlight or move to the top of your budget spreadsheet the loan with the highest interest rate. If you decide for the debt snowball method, highlight or move to the top loan or card with the lowest balance.

8. Build an Emergency Fund

This last one might seem unrelated to a post on how to keep track of your student loans, personal loans, and credit cards, but it’s really not. An emergency fund—is a “cushion” of three to six months worth of savings set aside for expenses—it’s important for a lot of reasons, but it’s especially important to people who have to make regular debt payments.

Say, for example, a person is laid off from their job. Ideally, they should have enough money stashed away in their emergency fund that they are able to afford all of their debt payments, as well as pay for other necessities like rent, utilities, and food. This way, they don’t rely on more forms of credit or debt to get them through a period of unemployment, putting themselves further in the hole.