Should You Pay Less Towards Your Debt Every Month?
For many people, one of the best features of a debt consolidation loan is the fact that they immediately get a lower monthly payment on their debt. For people who were unable to make their payments before getting a debt consolidation loan, that lower payment is the only way that they’re going to get their finances back on track without resorting to bankruptcy. If you can afford your debt, though, is that lower monthly payment really a good idea?
The lower monthly payment that comes from a debt consolidation loan is the result of a lower interest rate, the elimination of minimum payment charges, and the extension of the loan term. While lowering the interest you pay is always a good idea, many people are a little worried when it comes to stretching out the amount of time that they have to make payments.
While extending the payment term means that the loan will be paid off in more payments than your old loans, it doesn’t mean that you have to take that long to pay the loan back. It simply gives you more flexibility to pay your loan.
Because you can pay extra every month on a debt consolidation loan, there is not a lot of reason to worry about a longer payment term. The lower monthly payment gives you the ability to pay just a little while you’re building up your savings or paying other bills. Once you’re back on track financially, you can start putting extra money towards the loan. This will reduce the amount of interest you have to pay.
If you go through another period of financial hardship, you’ll have the ability to go back to making just your minimum payment for a while until the hardship passes. In fact, many people with debt consolidation loans use them to help them balance their budgets. In months when they make extra money or are able to save money in other places in their budget they are able to put more money towards the loan. When their hours are cut at work or they have an unexpected bill, they pay the minimum amount.
p data-sp-element=”content”>Either way, they’re still current on their loan, and those extra payments that they made in good times will help them to get out of debt entirely in a shorter amount of time. In fact, some people are able to use their new-found stability to get them out of debt faster than they would have with their old loans.