Saving money to buy a home can be difficult when you’re also working to pay off debt. Whether you owe on student loans, previous mortgages, personal loans or any other type of credit, these tips will help you pay off your debts and accomplish your goals.
If you plan to buy a home, you should first research the types of mortgages available to you to help determine how much money you need to save. In addition to picking the type of mortgage that best fits your needs, you will want to look for a loan with a low interest rate. This will reduce the total amount of money you pay over the life of your mortgage.
One way to lower your mortgage’s interest rate is to pay discount points upfront. In other words, the borrower can choose to pay the lender an additional percentage of the principal amount, known as a point, at the time of closing. Each point will reduce the interest rate by an amount determined by the lender. This in turn lowers your monthly payments. Depending on your loan, your finances and the length of time you plan to own the home, this may be a great option for you. You can use a mortgage points calculator to help determine if it is a good choice and how many points you should pay.
CREATE A BUDGET
A budget should serve as a roadmap that helps you know what you can spend without stretching your money too thin. Knowing how to make a budget is a crucial skill when trying to pay off debt, save money and cover monthly expenses. You should start with your monthly income after taxes and deduct required fixed expenses, such as rent and payments towards loans. Then, you should deduct the average amounts you spend on required variable expenses, such as utility bills and groceries.
Once you’ve subtracted all of the expenses you must pay and determine how much money you have left, decide how much of that amount you can put into your savings account each month. Next, you can list out payments that are not necessities, such as gym memberships or subscriptions to websites, and determine what you should keep paying for and what expenses to cut from your budget to save money. You can use the remaining money to increase loan payments, increase savings, create an emergency fund or invest.
MAKE REGULAR PAYMENTS
For any type of debt, you should be making fixed monthly payments and making sure you are paying towards the principal and interest. Each loan is comprised of two parts: principal and interest. The principal is the amount that you actually borrowed. The interest is the extra percentage that you pay to the lender so that they can profit off of loaning you money.
Many people make the mistake of simply agreeing to the minimum monthly payments and not looking at where their payment is really going. If all of your payment is going towards interest, the principal amount is not decreasing. You should look at your monthly statements to make sure you are reducing the principal and not just the interest rate. This will help you pay off your loan much faster and greatly reduce the amount of interest you pay over time.
If the sum of your individual loan payments are overwhelming and don’t allow you to pay more towards your balance, you may want to look into consolidating them with a personal loan. This can reduce your interest rate and monthly payment amount, allowing you to pay the balance more quickly and save more money. In many cases, you can even apply for a personal loan online.
Paying off your debts and saving enough money to buy a home takes planning, hard work and research. It may seem like a daunting task, but it is worth it in the end.
Article written by Emma Grace Brown
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