Taking out a loan online without tweaking your budget isn’t a good idea. After all, a loan or line of credit adds another expense to this spending plan. When it comes time to pay it all back, you need to make sure you can handle its cost on top of your usual bills.
You can’t expect to carry on spending like you did before borrowing, so don’t — adopt these smart habits while you borrow money online.
1.Use Credit Like it’s Cash
You don’t want to add credit card debt to your plate when you already owe an installment loan or line of credit. It’s another responsibility that takes a portion of your finite cash each month.
Keeping debt off your credit cards can be challenging in this day and age, as most people rely on the plastic in their wallets to pay bills, shop online, and make in-store purchases.
You can still use your cards this way. In fact, it’s a good idea if you have cash-back bonuses or store discounts. Just make sure you can pay off each purchase you make by the end of the month.
Treat your plastic like it’s cash, so you don’t accidentally charge something you can’t afford.
2.Pay More Than the Minimum
As you can see at MoneyKey, online loans include revolving accounts such as a line of credit. If you have outstanding debt on a line of credit, your billing statement will include a minimum payment. It’s usually a flat fee that’s a fraction of your full balance. By paying it, you keep your account open and avoid late fees.
While you’ll avoid late penalties by paying the minimum, you won’t make a significant dent in your outstanding balance. As just a small portion of what you owe, the minimum will leave most of your balance to carry over into the next month.
When you carryover a balance, you’ll accrue interest and fees that add to what you owe. That means you’ll gain extra debt, even if you don’t use your line of credit again.
Aim to pay off your full balance whenever possible. Barring that, try to make the largest possible payment above and beyond the minimum. Budgeting so that you sink more money into your line of credit may reduce how much interest you pay.
3.Put a Momentary Hold on Non-Essentials
Paying more than the minimum gets easier when you free your budget from the non-essentials. Sit down with your budget, looking at your usual fun spending.
Is there anything you’re willing to part with while you pay off your debt? Sacrificing the fun stuff can be hard, but you only have to control this spending while you repay what you owe; you can celebrate with something fun when you close your account.
Listing your expenses from the past three months will give you a good idea of what to avoid during your term. Check out this list for ideas if you’re having trouble:
- Edit your streaming services to one account.
- Pause all subscription boxes.
- Limit takeout to once a month.
- Learn how to mend clothes before buying new items.
- Cut out alcohol.
- Drop brand names and buy generic.
- Check the library for games, movies, music, and books.
The Takeaway:
Don’t carry on as normal after you borrow money. Follow these tips to help you handle the extra expense of a loan or line of credit.