7 Practical Ways to Handle Loans with High Interest Rates
What happens when you can’t pay back a loan? What if the interest rate on your student loan keeps increasing, and you can’t make your payments? If you’ve ever found yourself in this situation, these seven practical tips will help you handle loans with high-interest rates—and get out of debt once and for all.
Tackle student loan debt
If you have high-interest loans, the first step is to identify them. You can do this by sitting down and looking at all of your financial information.
From there, you can decide how you want to handle those loans in the future. One option is refinancing, which means taking out a new loan with a lower interest rate to pay off the higher-interest loans more quickly.
You can also make an extra monthly payment to bring down the balance on those loans. If they are federal student loans, you may qualify for income-based repayment plans that could reduce monthly payments or extend the life of the debt by as much as 25 years (though this would come with increased monthly payments).
Alternatively, if you’re struggling to afford even these lowered payments, there are options such as deferment or forbearance for federal loans. State and private loans typically offer less flexibility than their national counterparts regarding managing costs.
Consider refinancing your mortgage
if you’re looking for ways to handle loans with high-interest rates. This will give you a lower rate, which can save you thousands of dollars over the life of the loan.
You’ll also be able to lock in a rate for 30 years, which may make it easier on your budget. If this is an option for you, now is a great time to do so because interest rates are low!
Many websites will allow you to compare quotes from different lenders. Consider this tip and more on how to handle loans with high interest.
Use a balance transfer credit card
If you have a credit card with a high-interest rate, you may be able to transfer the balance and get a lower interest rate.
This is called a balance transfer credit card. If you plan on sharing the balance, it’s essential to remember that this move will usually involve an application fee and a percentage of the transferred amount as an initial offer (usually 3% or 5%).
Once you make your decision about how to handle loans with high-interest rates, don’t hesitate. The longer you wait to take action, the more difficult it can become.
The best way to start taking control of your finances is by understanding what options are available and which ones work best for you!
Invest in peer-to-peer lending sites
Peer-to-peer lending sites can be a great way to manage loans with high-interest rates. Sites like Lending Club and Prosper allow you to take out a loan, usually at a lower interest rate than banks will offer, backed by other individuals who have been approved for loans on the site.
This means you can borrow more money and pay back less. There are also different levels of risk, so you can invest in lower-risk loans if you want.
There’s even a personal guarantee option if your credit score isn’t perfect. The downside to this is there’s always a chance you could lose money if the borrower defaults.
The significant upside is that it doesn’t matter how long the loan term is or what type of asset you’re investing in – peer-to-peer lending sites typically let investors diversify their portfolios for low fees and high returns.
Try Dollar Cost Averaging
Dollar-cost averaging is a strategy for investing a fixed amount of money into an investment at regular intervals.
The investor purchases more shares when prices are low and fewer when prices are high. It helps avoid the problem of being out of the market during high-growth periods.
It also eliminates the guesswork in deciding how much money to invest in a particular time frame.
The only caveat is that determining how much money you should invest with this method can be tricky, so work closely with your financial advisor to find the right balance between risk and reward.
If you have trouble budgeting your monthly income, choose automatic withdrawals from your checking account, so you don’t spend what’s left over on interest payments.
If these simple steps aren’t enough, ask your lender about consolidating debt or refinancing with a lower interest rate.
Find a Better Investment Alternative
The best way to handle a loan with high-interest rates is to find an alternative investment. It cannot be easy, but some alternatives may work for you. One option is investing in stocks and bonds through a 401(k) or IRA.
It will allow you to invest without having the risk of getting your funds locked up in an account with high-interest rates. You’ll still have the chance to grow your money while avoiding the temptation of accessing it before retirement.
Make More Money: If possible, try working on earning more money to pay off your debt sooner rather than later. You might need to look for ways to save money by cutting back on some expenses to have more monthly money available.
Find a Better Job: It’s important not to focus on paying off debt when considering how to handle loans with high-interest rates.
If you don’t take care of other financial goals first, you will likely wind up right where you started – feeling like your finances are out of control.
One thing many people overlook when trying to figure out how to handle loans with high-interest rates is focusing on their long-term financial security instead of thinking about what needs to happen this year alone. After all, do you want to spend the next 20 years living paycheck-to-paycheck? No!
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Take Advantage of Credit Counseling Services
It can be beneficial to seek credit counseling services to help manage your debt and stay on top of your bills.
Counselors will meet with you and look at your financial situation to devise a plan that works for you. They can also advise you on handling loans with high-interest rates.
For example, if the loan is more than three years old, the counselor might recommend refinancing or consolidating the balance into one lower-interest loan.
If they find any fraudulent activity, they’ll report it to the proper authorities, so you don’t have to worry about dealing with criminals.
You may have heard this tip before, but these services are free, so why not take advantage? The last thing you want to do is wait until things get worse before taking action.
Refinance/Consolidate: If your current loan has an average interest rate of 10%+, you may want to refinance or consolidate. Refinancing means taking out a new loan and using the money from the previous one towards it. Use these strategies to handle any loan with high interest rates. Have you tried out one before? Let’s know in the comments section!