Federal credit unions are financial cooperatives that provide banking services regulated by the government, or more specifically, the National Credit Union Association (NCUA). Federal credit unions usually lend money with lower interest rates and fees. Essentially, these federal credit unions offer cheaper and more manageable debt for its members. Debt isn’t necessarily bad if it helps you manage your cash flow. However, things might get out of hand, and it might turn into bad debt.
The first step to manage your debt is to reduce your debt. To prevent good debt from turning into bad debt, here are some federal credit union tips for reducing your debt and saving more:
Prioritize Your Debt
If you have taken out several types of debt, federal credit unions advise prioritizing your debt depending on the importance to start reducing them. Begin by listing down your debts and decide which one you will get rid of first.
For instance, for most people, car loans and mortgages are usually on the top of the list since these are necessities. For other people, it may be personal loans that might be easier to eliminate first. The order of importance will solely depend on you. Once you’ve organized your debt, start by paying one-off first if you can’t pay all of them off together.
Compute and Check Your Interest Rates
Instead of your money going to interest rates, it would be better if that amount could go to paying off your principal debt. Because of this, you might want to compute for the interest payments that you are making.
If you find that this is too high, you can ask creditors directly and request for lower interest rates. There are some federal credit unions that are willing to do this for you if you historically pay on time. It won’t hurt to ask, so it is better to do just that.
Creditors prefer if you are able to pay for your principal payments rather than just the interest rates. In some cases, federal credit unions create a debt management plan not to completely eliminate interest rates but possibly lower them down. At the same time, the debt management plan might also require you to close your existing accounts and attend debt management counseling.
Don’t Spend More than What You Can Afford
Having a credit line or credit card might give you the illusion that you can spend more. When you are already in debt and struggling with monthly amortization payments, a federal credit union advises that it’s better if you start saving more than spending. As a rule of thumb, don’t spend more than what you can afford. You can do this by following the tips below temporarily until you can pay off your debt:
- Create a budget plan every month and stick to it
- Spend on essentials and not luxury
- Buy items you need during sales
- Leave credit cards at home
- Track expenses and income
- Pick the less expensive alternatives when buying essentials
Find Another Income Stream
At times, the reason why you can’t pay off your debt is that you are not earning enough. A common solution people resort to is to get a second job to pay off their debt. There are many jobs available that will allow you to work short-term until your loan is paid off. For instance, you can search online for some freelance jobs available for you. These freelance jobs can range from graphic designing, writing, editing, accounting, photography, to tutoring, becoming a virtual assistant, and more.
Having another job is not the only way to gain another income stream. A federal credit union also provides investment products that you can get to earn passive income. For instance, investing in mutual funds can allow you to earn some money on the side compared to leaving your cash sitting in a bank account. For investments offered by federal credit unions, you can check here on the website’s investment tab.
On top of that, you can also start using what you currently own to generate some extra cash for you. For example, if you have an extra room in your home, you can start putting it up for rent on Airbnb. Aside from that, you can also start selling things that you no longer use during a garage sale.
Pay off Your Credit Cards in Full
Credit card interest rates are usually higher than a regular loan. So, if you want to save money, you should pay your credit cards in full every month. This will prevent you from paying additional interest rates that you don’t need.
Lower Your Daily Expenses
By tracking what you are spending your money on, you can identify areas that take up a large part of your income. Once you’ve identified this, you may begin to think of ways on how you can lower the expenses in that category and budget well. For example, if it’s food and dining that you spend a lot for, you can start lowering it down by bringing packed food for lunch instead of going out to eat at a restaurant.
By organizing your finances, you can focus on reducing your debt and saving by following the steps above. There are many ways to reduce debt and save if you put your mind to it. Just follow the tips above, and you will be well on your way to reducing your debts.
Brian is a dad, husband, and an IT professional by trade. A Personal Finance Blogger since 2013 who, with his family, has successfully paid off over $100K worth of consumer debt. Now that Brian is debt-free, his mission is to help his three children prepare for their financial lives and educate others to achieved financial success. He blogs at Debt Discipline.