5 Do's and Don'ts of Juggling Multiple Loans
Juggling multiple loans isn't easy. It requires budgeting, attention to payment due dates, and possibly even a plan to pay off existing debt. However, paying off your loans successfully is possible as long as you follow a few tried-and-true rules.
How to Juggle Multiple Loans
- Consider debt
With debt consolidation, you consolidate all of your various debts into one monthly payment. You'll only have to worry about one payment each month, and since multiple payments are combined under a single account, you can have a better sense of how much you actually owe. Debt consolidation can also help you obtain a lower monthly payment by securing a lower interest rate. Using a debt consolidation calculator can help you estimate how much you'll save.
- Set payment reminders
Setting payment reminders can help ensure that you don't miss any payments. Keeping track of one due date can be challenging enough, let alone trying to remember when several bills are due. Setting up a payment reminder or automatic payments can make sure that bills don't slip through the cracks.
- Pick a debt
You'll be able to better manage your loans if you can reduce your debt. Two popular strategies include the debt snowball and debt avalanche methods.
With the debt snowball method, you'll make minimum payments on all of your loans, but you'll put extra money toward your smallest debt. Once that's paid off, you'll tackle your next smallest debt. The debt snowball method is great for building momentum and motivation.
With the debt avalanche method, you'll make minimum payments on all of your loans, but you'll put extra money towards the one with the highest interest rate, such as a car title loan. Once that's paid off, you'll pay off the loan with the second highest interest rate and so on. The debt avalanche method can help you save money overall since you'll be paying less in interest.
- Don't forget to
Sticking to a budget can help you avoid unnecessary spending and discretionary purchases. And by saving more, you'll have more cash to put toward your loans. To create a budget, you should first estimate your post-tax monthly income, and then create a list of your monthly expenses. Include fixed expenses that stay the same every month (such as your rent) and variable expenses that change each month (such as groceries). From there, you can compare your income to your expenses. Are you making more than you spend? If not, you might need to adjust your spending to ensure that you're fully covering your expenses.
- Don't take on more
debt to repay a loan
It's never a good idea to take out a new loan to repay existing debt. It can trap you in a vicious cycle of constantly needing to borrow to pay your bills. If you find yourself falling behind in your loan payments, focus instead on creating and sticking to a budget (see above).
- Installment Loans
With the debt avalanche method, you'll make minimum payments on all of your installment loans, but you'll put extra money towards the one with the highest interest rate. Once that's paid off, you'll pay off the loan with the second-highest interest rate and so on. The debt avalanche method can help you save money overall since you'll be paying less in interest.