You might be surprised to learn that the journey to financial wellness can be exciting. Granted, analyzing your spending and learning how to adhere to a precise budget isn’t much of a thrill for most people, but if you focus on what you’re working toward, you’ll feel inspired. The payoff is the joyful boost you get from having the confidence and freedom that a solid foundation of financial wellness makes possible.
Why wait? You can jump-start your financial wellness plan by paying off debt, small and large. Here’s how:
Loans can move our lives forward. They help us buy what we need today but cannot pay for all at once. Since few of us can afford to buy a house, a car, or college degree with cash, it’s fortunate that we can access mortgages, auto loans, and student loans.
Other loans, like credit cards, payday loans, and personal loans help us buy what we want when we don’t have enough cash on hand. We use them to pay for stuff we want, stuff we need, emergencies, and entertainment, among other things.
Carefully chosen and managed, loans can help us live more expansive lives. If we take on too much debt at high interest rates, however, we’ll actually limit our financial freedom and future. Understanding the mechanics of loans can help us make solid decisions that keep our lives moving forward.
Knowledge is power, so let’s look at how loans work.
Loans have two components, called principal (the amount you borrow) and interest (the additional money you’ll pay over time.) With every monthly payment, you pay off a portion of each.
Here’s the catch: you always pay back more than you borrow. After all, lenders are in business to make money, and they do so by charging and collecting interest. How much they charge—and you pay—depends on your interest rate and type.
Credit cards, cash advances, and payday loans tend to have high interest rates. Mortgages, auto loans, personal loans, and student loans tend to have low interest rates. All interest rates, however, depend in part on your credit score.
Your credit score may seem like a magic number you have no control over, but it’s based on three things you can control:
When you make a late payment or incur more debt, your score goes down. On the other hand, when you pay on time or decrease your debt load, your credit score improves.
Lenders, renters, and others will look at your score—ranging between 300 and 850 points—to assess the risk of extending credit to you.
Ethical lenders will not offer you credit they know you can’t afford. Predatory lenders, on the other hand, target people who have low credit scores and struggle to make it to the end of each pay period. They charge extraordinary amounts of interest and steep penalties for late payment. Avoid these loans at all costs.
As you look more closely at your financial wellness situation, you might determine that despite your best efforts, you need some help boosting your financial power and prowess. You’re not alone in that, so don’t be too hard on yourself—on average, each household with a credit card carries $8,398 in debt.
Whatever your situation, lifelines are available. PayActiv is one. The PayActiv app gives you access to your wages as you earn them and offers budget management, savings, bill-paying, and other tools. It also gives you access to Uber, Amazon, financial counseling, and other tools to help you live, grow, and connect with what’s important to you. You can also use our worksheet to assess your debt load, prioritize payments, and get on the road to becoming debt- and financial stress-free.
If after completing the worksheet you feel you’d like more support, we recommend that you contact American Consumer Credit Counseling, a nonprofit service that can help you consolidate your loans and negotiate payment arrangements with your lenders.
Whether you work with American Consumer Credit Counseling or not, PayActiv can help you cultivate financial wellness and eliminate debt.
At PayActiv, we can’t predict what life has in store each week, but we can help you navigate it.