We are approaching the end of the year and it is not long before CLT employees start receiving the long-awaited 13th salary. In addition, there are those that also have year-end boxes, PPR (Profit Sharing Program), among other bonuses.
Extra money for some may mean unburdening the budget and getting rid of some debts, for others it may be the opportunity to save money and there are still some who reserve these amounts for year-end accounts. But what we are going to discuss today is when it is worth taking this extra money to prepay debt .
Anticipating Debt Payment
There are situations where the early repayment of debts is not a worthwhile matter but a necessity. If you have overdue accounts, don’t even think twice about renegotiating debts and settling your situation. Interest on account arrears is often high, and the lack of payment can lead to negation of your name.
But what if the debts are not overdue? Well, in this case the experts indicate that before thinking about anticipating your debts it is important to evaluate what your reserves are. Do you have at least three months of salary saved in case you become unemployed or in case of an emergency? If the answer is no, perhaps the best option now is to start doing so.
Now those with emergency reserves can take advantage of the opportunity for extra cash to pay off discounted debts. In the case of loans, for example, the anticipation of installments generates interest rebates.
But what is the advance payment?
Debt payment is considered in advance whenever a partial or full payment is made before the due date. In some cases, to get a discount, the consumer should contact their lender to issue a new ticket. This happens in loans and financing, for example.
How to get money to pay off or anticipate debts?
In addition to the extra money we mentioned here, another way to pay off debt and save what you would pay in interest is to look for other cheaper forms of credit. If you have a debt on revolving credit card, for example, personal loan will surely be a better option.
In addition, there is also the possibility that you already have a loan and find a better solution with lower interest rates. In this case, taking the new credit and paying off the first can give you advantages. Mainly because, by law, you will be entitled to the early loan discount. But it is important to remember that the Total Effective Cost of your new credit must be lower than the CET of the previous credit.
Save money or pay debts in advance?
If you have received unexpected money and are unsure whether you are paying an unpaid debt or investing the money, the answer is simple: It’s time to do the math. You need to know how much you earn from the investment and how much you would earn by anticipating the repayment of your debt. This calculation is critical to your decision. And without forgetting the factor of consideration about whether you already have financial reserves or not.
Whenever the return on an application is lower than what you save on anticipating debt, opt for the anticipation.
I finished paying off a debt, now what?
Well, if you were paying off your debt on time, now is a good time to take advantage of this and start saving. Get information on the best investments and make plans for the financial reserve. If you already have emergency savings, it may be time to start a new long term investment to realize a dream.