4 Smart Ways to Pay Less Interest

Of all the things you would love to do with your money, paying down debt is probably low on the list. Perhaps the only thing lower is paying interest on that debt. Interest payments cut into the portion of your payment that goes toward principal, lowering the total amount you owe. So by paying less interest, you can put more toward your debts and pay them off faster. But how can you cut down on the amount of interest you’re paying? Here are four tips to get you started.

Consolidate Your Debt

Start by making a list of all your debts and the interest rates for each. If you have multiple credit cards, you can save on interest by making a balance transfer from a card with a high interest rate to a card with a lower one. It is important, however, to make sure the move makes good financial sense. Credit card companies usually charge for balance transfers, either in the form of a flat fee or a percentage of the amount you’re transferring. Make sure the cost doesn’t wipe out what you’ll save in interest.

Take Advantage of Low-Interest Offers

You’ve probably noticed that credit card offers often include promotional rates that allow you to pay little or no interest on purchases for a period of time — anywhere from a few months to a year or more. With a bit of planning, you can use those offers to take the sting out of big purchases. Calculate how much you need to pay per month so the debt will be paid off before the promotional rate expires.

Refinance Long-Term Loans

When is the last time you reviewed the interest rates on the loans you pay every month? You probably already know you can refinance a mortgage, but did you know you can also refinance student loans? There are many student loan consolidation companies that can help lower your interest rate and even change the term of your loan to get it paid down faster. Make a point of reviewing the rates on your long-term loans every few years to make sure you’re getting a good deal.

Put More Toward Principal

If you can afford it, additional principal payments are a smart way to cut down on the interest you pay over the life of a loan. For example, say you have a $25,000 auto loan with a 4 percent interest rate and a term of five years or 60 months. If you were to pay an additional $100 per month toward the principal, you’d save $496 in interest over the life of the loan and have it paid off a full year sooner. Not all loans allow for this type of payment, so check the terms of your loan before making a decision.

When it comes to debt, interest may be a necessary evil, but that doesn’t mean there’s nothing you can do about it. Make a note to periodically review your loans and credit cards to make sure you aren’t paying more interest than necessary. Then use these tips to make smart, money-saving changes that will help you get rid of that debt once and for all.