Do you think you can still increase your monthly debt payments? According to reports, those who are paying off their student loans have to use 20% of their monthly net income to fund it. This might even go higher if you consider credit card debts. A lot of Americans own a credit card. There is a high chance that the people paying off their student loans have credit card debts as well.
If your current debt payments are already making you pay 20% of your net income, can you manage to increase it further?
For most people, this might seem impossible. With the rising cost of living, there are just so many factors working against them. Not only that, it can be frustrating to think that you have to make more sacrifices just so you can pay off your debts. It is bad enough that you have to worry about debt. Will you really let it put more strain on your budget?
Reasons to increase your monthly debt payments
If you really want to improve your financial future, you need to do what it takes to be free from debt. It is possible to increase your monthly debt payments. Unfortunately, it will be very hard to do so. This is why you need to understand why it is beneficial to do it. When you know why you need to do it, you will feel motivated to keep moving forward despite the difficulty of the task you have to do.
So what will happen if you succeed in increasing the debt payments you send each month?
You save money because you pay less interest
Obviously, you will pay off your debts faster. When you shorten the repayment period, you will save money in the process. There are many ways to save money on what you owe. One is through the interest rate. It is a common rule that the longer the repayment plan, the more interest it will cost you. So if you shorten that, it will help you save more. That money can be put aside and be used on something else – like an investment that you can use to grow your personal finances.
You improve your debt-to-income ratio faster
As you increase your monthly debt payments, you will also improve your debt-to-income ratio. This is because you are paying off your balance in bigger amounts. You are also doing it at a faster rate. This will be good for your credit score. It will make your score rise because of your credit utilization rate. It will improve your credit reputation – allowing you to grab financial opportunities. For instance, if there is a need to apply for a loan, it will increase your chances of getting a low-interest on the loan. Your debt-to-income ratio will not be a threat to it.
You feel less stressed
Finally, increasing your monthly debt payments will lessen the stress that you feel about your finances. According to one survey, 56% of American adults admitted to losing sleep at night because of issues with their finances. While there are a lot of financial reasons that cause this, credit card debt is the main one.
By paying more of your debt each month, you are not just decreasing the debt amount that you owe. You are also making yourself feel more confident about your financial situation. When you know that you are able to pay more than enough towards your credit obligations, you get to feel more in control over your debts. It will eventually motivate you to complete your payments so you can completely be free from debt.
How to increase your monthly debt payments
There are two ways for you to increase your monthly debt payments. You can either spend less of your income or you can opt to start earning more. Both of these will require a certain level of sacrifice. And while these are effective in their own way, you need to understand that there is no need to choose what you will do between the two. You have the option to do both to maximize the extra payments that you will get each month.
The challenge is how can you accomplish both to help secure your debt payments?
The key to financial success is to live below your means. Regardless of your financial situation, you have to find a way to spend much less than what you earn. Some people think that living within their means is enough. This is not true. You want to live below it because it gives you the extra money to work on financial security. You can use that money to either invest, save more or pay off debt.
Of course, spending less is easier said than done. One way to make it easier is to live a frugal lifestyle. This is not about restricting your budget. It is more of identifying what is important. Whatever is important to you will be prioritized and everything else will be cut off.
Don’t worry because this is only temporary. As soon as you have paid off your debts, you can opt to stop living a frugal life. That does not mean you will live extravagantly again. You still have to make smart financial choices with where your money will be spent.
Another option to increase your monthly debt payments is to look for ways to earn more money. You have a lot of options to make this possible. You can ask your employers for a raise. This way, your income will increase and you do not have to add more work hours.
You can also opt to get a second job. While this will make you feel more tired since it means additional hours, it will also secure your source of income. You have two sources now. If you can maintain both, you do not have to worry when you lose one. There is still another job that will finance your needs. It will not be a total loss.
Apart from that, there is also the option to sell some of your stuff. This will only provide a temporary increase in your income. However, it can help you get immediate funds that will allow you to increase your debt payments for a couple of months.