An emergency loan can be an essential tool in helping people get through a financial rough patch. Medical problems, car trouble and home repairs don't wait for you to build your emergency fund.
However, once you take on debt, paying it down can be its own struggle. Balancing debt repayment and daily bills can be a challenge, especially if you're tackling multiple forms of debt — such as student loans, credit card bills and an emergency loan. It can also be emotionally challenging to put money towards debt and feel like you're not making an impact.
But while debt repayment is a process, there are ways to make it feel more rewarding and manageable. Here are some tips for how to handle your debt like a pro.
Saving for the Future
A key tool in any financial arsenal is an emergency fund. This can help you escape future financial scrapes without needing to take out another loan.
However, if you've heard of the 3-to-6-month salary goal, it may feel impossible. Instead of worrying about the end goal, try to put away a small, manageable amount such as $5 a week. Having a savings of even $500 can help solve a lot of problems that might otherwise require an emergency loan fix.
Prioritizing Repayment
Here are some tried-and-true techniques to make debt repayment easier:
- The snowball method: The snowball method is a great way to tackle debt because it can be highly motivating. With the snowball method, you focus on your smallest balance first. Then, once that balance is paid off, you put that money towards the next smallest balance. This money continues to grow until you're focusing on your larger balance. Seeing your smaller debts wiped away can be highly rewarding.
- The debt avalanche: This method is a good strategy for avoiding interest. Paying off debt with the avalanche method means that you first target the debt that has the highest interest rate. This makes sense because that debt is more "expensive" than other debt, as it accrues more interest. For example, while your student loans may weigh heavily on you, if they have a low interest rate of 3-4%, they cost you much less in annual interest than a credit card with an APR of 25%.
- Restructure existing debt: Interest rates are currently at historic lows, so restructuring auto and student loans, refinancing your mortgage, or taking out a home equity loan are all good strategies to help you lower your debt. Consolidating debt also makes it simpler to pay off every month, as it turns multiple forms of debt into a single bill.
Emergency loans exist to help out people with an immediate need for money to get through difficult situations. If you go this route, prioritize repayment and try to avoid taking on new debt. Getting out of debt can be a challenging process, but the end result is worth it.
Notice: Information provided in this article is for informational purposes only. Consult your financial advisor about your financial circumstances.
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Original Source: Got Debt From Emergency Loans? How to Think About Repayment
