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Debt-Reducing Strategies for Aspiring Homeowners
If you’re struggling to find money to save each month after paying on your student loans, credit card payments, car payments and other debts, you’re not alone. With some guidance and self-discipline, you can take charge of your personal finances and start building significant savings.
Prioritize Your Expenses
One of the easiest ways to increase your savings is to prioritize your expenses by identifying necessary costs, such as food and rent, and areas where you can cut back, such as dining out and entertainment. Check your bank statements and list out all of your monthly expenses. Financial experts recommend using that information to make a reasonable budget that allows you to put a good amount of money into your savings each month.
Cutting expenses doesn’t mean you have to give up the goods and services you enjoy. Instead, you can simply find cheaper alternatives. For example, you can start making coffee at home rather than buying it from a coffee shop, opting for generic brands when grocery shopping and finding recipes to make your favorite restaurant dishes at home rather than dining out. Additionally, you may be able to reduce monthly bills by making small lifestyle changes, such as turning off the lights when you leave a room, waiting to wash clothes until you have a full load of laundry and taking shorter showers.
Know Your Mortgage Options
You shouldn’t plan to buy a house without knowing exactly how much money you need to save. One key factor in determining that amount is knowing the kind of mortgage you need. Different mortgages have different payment schedules, monthly payment amounts, down payment requirements, interest rates and more.
One option for lowering your mortgage’s interest rate is to purchase points. You can buy these points by paying more money at the time of closing. These points then reduce your interest rate and your monthly payments. This will save you money if you intend to own the home past the break-even point. Use a mortgage point calculator to figure out if this is the best option for you.
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Pay Extra When You Can
In addition to the regular monthly payments you make on your loans, it can be helpful to make extra payments when you can. Whenever you obtain extra money that you didn’t budget for, such as tax returns or holiday bonuses, put them towards the principal of your loans. This will reduce interest expenses and help you pay off the loan faster. For credit cards, you can check your statement to see your 36-month payoff amount, or you can contact your loan company to see how larger payments will make an impact.
You can also put extra money into your savings account to build up your savings faster. Applications such as Acorns can even round up your purchases to the nearest dollar and deposit the extra change into your savings. They may seem like small deposits, but they add up fast.
You can also do this with money you have left over from the previous month. If you spent less than you budgeted for, you may want to consider splitting the remaining amount between your savings and increasing your next loan payment. If this happens consistently, you can adjust your budget and your loan payments to reflect that.
Owing money can make it feel like you will never be able to get out from under the weight of your debt to achieve your other financial goals, but that doesn’t have to be the case. Following these tips will help you start paying off what you owe and saving towards your goals faster.
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Guest Post by Brittany Fisher
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