3 Reasons Not to Pay Off Your Loan Early

Posted on May 20, 2021 by VP of Marketing and Business Development Jessica

You may hear acclaimed financial experts talk about the benefits of paying off your loan early, and what they say is right…mostly. However, are there circumstances when paying a loan off early could be more hurtful than helpful?

Let’s take a look.

While paying loans off early can have some benefits like freedom from debt and money saved in interest, there are times when paying a loan off early isn’t to your benefit.

Here are three instances when it benefits you to keep a loan and put your extra funds somewhere else:

1. You waited too long. Maybe paying off your loan early would have been a good idea … years ago. Some loans (your mortgage for example) have you paying the largest chunk of the interest in the early years of the loan. If you’re many years into your mortgage, while you might choose to pay off the loan a little early – you’re not really going to see the great financial benefits of paying extra each month toward the end of the loan.

2. You’re not financially prepared. Paying off debt should not come at the expense of larger goals – such as saving for retirement, making investments, or funding college for your kids. Even more important is growing (or replenishing) your emergency savings. Too often people pay off debt, only to have an unexpected expense come up soon after and have to take out another loan to cover those expenses.

3. You could be penalized. If your loan is subject to pre-payment penalties, you’ll be charged a fee if you pay it off early. Not all loans come with pre-payment penalties and even if yours does, the penalties vary depending on the loan and the lender. Be sure to check your loan documents and terms to make sure that the loan you want to pay off is not subject to pre-payment penalties first.

Wondering if paying off your loans is the best use of your money? Just ask! We’ll be happy to review your credit report, help you do the math, and layout the options that will most benefit you.

What to Do After Paying Off Debt

Posted on June 16, 2020 by VP of Marketing and Business Development Jessica

Depending on the amount of debt you have, paying it off can feel like a huge accomplishment. If you use your credit card regularly, paying on the bill each month may not be an activity you think too much about. If your credit card debt is on the larger side, finally paying it off can feel like a big weight off your shoulders. Besides being an accomplishment, it’s also time to be proactive so going into debt doesn’t happen again. Here are some steps you should take after paying off a large debt.

Step back and take a look. Paying down on your debt each month is something to be proud of. It probably wasn’t easy, but you did it. In order to make this happen, you probably had a budget in place that maximized your debt payments in order to pay it off. Now that you no longer need to make payments on this bill, it’s time to look over your budget again and figure out what needs to be changed moving forward. Maybe you had to cut back in other areas while you were working on paying down that debt. Or maybe there’s a big ticket item you’ve been waiting to save up for. Now you can adjust your budget and you’ll probably find that you have a bit more wiggle room.

Save money. When sacrifices are made to become debt-free, your savings can often take a hit. If things weren’t too tight while you were working on paying down your debt, it might be a good idea to take that same amount of money – but now put it into your emergency savings account. If you have direct deposit, you can even take that monthly amount and set it to go right into your savings account so it’s automatic.

Set a goal. Whether you’re thinking about planning a future vacation or making a big home improvement that you’ve been putting off, using the money you’ve already budgeted for your previous debt payments is an easy way to save quickly. Consider opening up a separate savings account just for this goal, and keep transferring the money in until you have enough saved.

Stop going into debt. Don’t pay off one large debt and then start racking up more. Every time you log into your mobile banking app or check your account balance online, let it remind you to stay out of debt and how good it feels to pay it off. Stick to your budget and be disciplined!

Article Source: John Pettit for CUInsight.com

How to Stay Out of Debt this Year

Posted on January 24, 2020 by VP of Marketing and Business Development Jessica

Are you one of those people who continually carries debt into the new year? Let this be the year you really say goodbye to lingering debt. Here are a few tips for not racking up any new debt and paying off previous debt.

Forget about any extra money: It’s a new year, so more than likely your paycheck just got a little bump. If you do have some extra money in your paycheck due to a new year’s pay raise, do something productive with your extra cash before you can spend it on things you don’t truly need. Set your new year’s budget as if you are still making the same salary as last year. Put the extra money into your 401k or into your emergency fund. Another idea is to open a new savings account that will help you save for trips or entertainment plans for the year ahead that you’d normally put on a credit card. Even if you only got a small raise, over time it all definitely adds up.

Set goals and keep them: Money goals are key to keeping your finances on track. Your budget is probably your most important money goal. You know how much you make, and if you haven’t set a strict annual budget for yourself yet in the new year – it’s time to map out your monthly bills and truly stick to your spending allowance. Automating bills and direct deposit right from your paycheck is an easy way you can help yourself stay on track.

Stop using your credit card: Of all the cards in your wallet, your credit card should be the one you reach for last. If you’d like to see your debt disappear in the new year, you’re going to have to start telling yourself no. Sure, shopping is fun – but how often are things that aren’t necessities worth having more debt over?

If you need help creating a budget this year, check out our easy budgeting worksheet. For more tips on managing your credit and reducing debt, view our credit management and debt reduction guidebook.

Article Source: John Pettit for CUInsight.com

3 Obstacles You’ll Encounter While Paying Off Debt

Posted on July 30, 2019 by VP of Marketing and Business Development Jessica

Debt can feel like a mountain that can take years to climb. The only thing you can do is take it one day at a time. There are some obstacles you may encounter on your way however, so here are three to keep an eye out for – and to make sure you don’t continue to fall victim to your debt and get yourself offtrack.

The unexpected: When you’re trying to pay down debt, you may be tempted to push your budget to the limit along the way. While it’s great to be more frugal, never forget that unexpected expenses can come out of nowhere. Your car may be great today, but tomorrow your transmission might call it quits. If your emergency fund isn’t in great shape, make sure you’re still setting aside a little extra cash each month for any expenses that might pop up.

The good life: It’s nice to have a budget that allows you to treat yourself every now and again, but if you’re serious about paying down your debt, you may need to take a closer look at your budget and reassess. There may be some areas of your budget that will have to be cut while you’re attacking your debt mountain. Need a budget guide? Check out this one.

The hole in the boat: If you’re not careful, paying down debt can sometimes be a little like bailing water out of a sinking boat. You’re on your way, your debt is decreasing a little each month, and then suddenly you find a reason to justify a purchase that puts you back to where you were a few months ago. If credit cards are the cause of your debt, you need to either cut them up or put them away until you’re ready to begin a new, healthy relationship with them. When you’re making a plan to tackle your debt, make sure that you and your significant other are also communicating so that you’ll be on the same page about spending habits.

Be sure to check out our debt payment financial calculators here. The most important thing to remember is to stay the course and don’t fall into any traps that will set you further back. Be strict with your spending and stick to a budget!

Article Source: John Pettit for CUInsight.com

5 Types of Debt – What to Pay Off Now and Later

Posted on February 17, 2015 by VP of Marketing and Business Development Jessica

You often hear that there’s good debt and bad debt. That’s probably because it would not sound too great if financial experts went around referring to bad debt and even worse debt.

After all, it’s challenging to live without owing somebody something – right? If you want to buy a house with cash, by the time you save up enough, it may be time to retire. If you’re saving up to buy a car free and clear, you may have to spend a lot of years riding the bus first. Most people get through life by borrowing money.

So sure, there’s good debt (the kind you probably can’t avoid carrying) and there’s bad debt (the kind you should try to get rid of sooner rather than later). One key to determining which debt to pay off now versus later is the interest rate: the lower it is, the longer you can carry the debt without it becoming a burden. Here are some guidelines to help you prioritize your debt.

Mortgage: Pay off later.

If you have a large mortgage and you win the lottery or come into an inheritance that allows you to pay your house off easily, doing it now is probably not a bad idea. But if you make it your main goal to pay off your mortgage, you might end up sacrificing other goals like saving for retirement or your kids’ college education.

Revolving credit card debt: Pay off now.

With the steep interest rates on credit cards, this one’s a no-brainer. Revolving credit card debt is not good, and should be paid off as quickly as you can.

Not only is paying all of that interest expensive, it’s a result of a lifestyle people can’t yet afford. Once you establish a pattern of increasing expenses for your lifestyle, it could be impossible to catch up.

Did you know you can transfer your high-interest credit card balances to First Financial’s Visa Platinum Cash Plus Credit Card, which has a great low rate and no annual fee?*

Student loans: Pay off later.

Let’s just stress that if you have a choice between buying a sports car or retiring that student loan debt, you know what the smart decision is (hopefully you were thinking to pay off the student loan first!).

In most cases, you’ll be just fine if you make the monthly student loan payment and don’t stress over paying it off any faster. Student loans typically tend to have a lower interest rate and an extended payment period. In most cases, if you have an extra thousand dollars, you’re better off using it to pay down your revolving credit card debt than putting it toward student loans (unless this is your only source of debt and your goal is to be debt-free).

Car loans: Pay off sooner rather than later.

If you can buy a perfectly good used car and borrow less, or buy a car without a loan, that’s ideal. But if you’re going to go into debt when you buy an automobile, try not to get stuck in a lengthy loan. Experian Automotive recently reported that in the second quarter of 2014, the average new car loan, for the second quarter in a row, was 66 months. That’s an all-time high. And that’s just the average. Approximately a quarter of new car loans are between 73 and 84 months long. Those are six and seven year car loans.

Historically, the average car loan has been around four to five years, with three years considered to be the sweet spot. Consumers are naturally attracted to an 84 month loan because the monthly payment is far lower than it would be if you took on a 36 month or even 60 month car loan. But you’ll likely pay thousands more with a lengthy loan. You may also find that your warranties will run out long before you make that final payment, and your car may not even last seven years depending upon what you bought.

Did you know at First Financial, our low auto loan rates are the same whether you buy new or used? Be sure to check them out today, and if you like what you see – you can apply for an auto loan online 24/7.**

Car insurance premiums: Pay off now, but only if you can.

This is small potatoes as far as your financial obligations go, and it may not be fair to call it a debt, since you pay as you go with insurance. Still if you have car insurance, it’s a financial obligation that you’re generally stuck paying indefinitely, so it feels like a debt.

If you can pay six or 12 months ahead of time instead of just once a month, you can avoid installment fees, which generally run between $5 and $9 dollars month. These additional costs, although relatively small individually, can add up over a 12 month policy period. Moreover, you’ve not only saved some money – you have one less monthly bill to worry about as you deal with your bigger debt.

On the other hand, if you’re going to have trouble making your car payment because you’re paying for a year’s worth of car insurance, stick with the monthly plan. Paying debt off successfully is really about successfully managing your cash flow.

*APR varies up to 18% for purchases, when you open your account based on your credit worthiness. The APR is 18% APR for balance transfers and cash advances. APRs will vary with the market based on the Prime Rate. Subject to credit approval. Rates quoted assume excellent borrower credit history. Your actual APR may vary based on your state of residence, approved loan amount, applicable discounts and your credit history. No Annual Fee. Other fees that apply: Cash advance fee of $10 or 3% of the total cash advance amount—whichever is greater (no maximum), Balance transfer fee of $10 or 3% of the balance—whichever is greater (no maximum), Late Payment Fee of $29, $10 Card Replacement Fee, and Returned Payment Fee of $29. A First Financial membership is required to obtain a Visa® Credit Card and is available to anyone who lives, works, worships, or attends school in Monmouth or Ocean Counties.

**APR = Annual Percentage Rate. Not all applicants will qualify, subject to credit approval. Additional terms and conditions may apply. Actual rate may vary based on credit worthiness and term. First Financial FCU maintains the right to not extend credit, after you respond, if we determine you do not meet our guidelines for creditworthiness. A First Financial membership is required to obtain an Auto Loan and is available to anyone who lives, works, worships, volunteers or attends school in Monmouth or Ocean Counties.

Article Source: Geoff Williams of money.usnews.com, http://money.usnews.com/money/personal-finance/articles/2014/12/11/5-debts-you-should-pay-off-now-or-later