How to Lower Monthly Payments

Learn how to reduce your debt and lower your monthly payments

Trying to build up your savings? Lower monthly payments may be the key. You can save big by paying less every month on expenses like your mortgage, car and home insurance, credit cards, and student loans.

When you lower your monthly payments on your credit accounts and loans, you save money every month. These little adjustments can add up to major savings by the end of the year.

How can you get lower monthly payments? Just follow these simple tips.

How to get lower credit card payments

One way to lower your credit card bill is to consolidate the payments for each of your credit accounts into a single monthly payment. Be careful about fees and rates. Fees and rates add up and a debt consolidation can cost you instead of saving you money if you don’t do it right. The key is to get as low interest rates and as short a term as possible. If the interest rate for your new, consolidated account is lower than the rates of the old accounts, you could pay less every month. Consider these methods.

No interest and low interest credit card balance transfers

If you have good credit (670+), you may qualify for a credit card with a better interest rate. Some credit cards even offer a 0% APR for a promotional period of 6 months to a year. If you’re able to pay off your balance within that no-interest promotional period, you will save a ton on your monthly payment.

Typically, this option is available to you if:

  • Your credit score is 640 or higher.
  • You have a debt to income ratio of 43% or less.
  • You owe less than $10,000 in credit card debt.

It’s also important to check the credit limit on the new card. In order to consolidate your debts, the limit must be high enough to contain the balance(s) you’re carrying on your existing cards.

You should also confirm that your savings will be greater than what you lose in balance transfer fees.

Personal loan

If your credit card has a high interest rate, you might want to pay off the card with a personal loan. Personal loans usually have lower APRs than credit cards, with fixed interest rates and set repayment terms.

You can use this option if:

  • Your credit score is 670 or higher.
  • You have stable income.
  • Your debt to income ratio is 43% or less.
  • You owe less than $10,000 in credit card debt.

Home equity line of credit (HELOC)

If you own a home and have built up some equity, a HELOC can let you lower or eliminate your monthly credit card payments. In other words, you can withdraw money from the equity in your home to pay off your credit cards.

HELOCs charge a variable interest rate. But because a HELOC is secured by the equity in your home, that interest rate is typically lower than credit card interest.

For this option to work, you need enough equity for a credit line large enough to pay off your credit cards completely.

To qualify, you generally need a good credit score (670+) and solid payment history.

But be aware: with a HELOC, you’re use your home as collateral. If you fail to pay off the HELOC, you could lose your home.

How to lower your mortgage payments

Since your mortgage is likely your biggest monthly payment, lowering this bill can save you a ton of money. Here are some options.

Refinance your mortgage

Refinancing your mortgage is a great way to lower your monthly payments.

Refinancing is when you take out a new loan to pay off an outstanding balance. Ideally, the new loan should have more attractive terms than the old.

If you lock in a reduced interest rate, you’ll save money every month and overall. For instance, if you currently owe $200,000 on your home and have a 6% interest rate, your principal and interest payment is $1,199 per month, according to Zillow.

The same loan at 4% interest would cost you $955 in principal and interest each month. That’s a savings of $244 per month and $2,928 per year.

Alternately, if you’re struggling to make ends meet, you can refinance your mortgage loan for one with a longer repayment term. In the long run this will cost you more, but it will lower your monthly payments.

Note that there are upfront fees associated with refinancing. However, given the long lifetime of mortgage loans, you’ll likely make this money back in the long run.

Eliminate private mortgage insurance (PMI)

If you bought your home with less than 20% down, you probably have PMI. That’s because lenders consider mortgage loans with low down payments to be risky, and PMI protects their investment.

PMI is usually paid as part of the mortgage payment. It costs between 0.5% and 1% of the full mortgage loan each year. For instance, if you have a $200,000 loan and a PMI of 0.5%, that will cost you $1,000 a year (about $83 per month).

If you’re current on your payments when your loan balance falls under 78% of the home’s original value — that’s when your equity reaches 22% — your lender will terminate the PMI. However, your lender isn’t necessarily motivated to be prompt about making this change. When your equity reaches 22%, take the initiative to contact your lender and request the removal of your PMI.

How to lower your auto insurance payments

You need auto insurance to cover you in case of an accident. But there are ways to get a lower monthly payment while still staying protected.

“It’s possible to lower the cost of your auto insurance without sacrificing coverage,” says Thomas Ayres, a partner at Daigle & Travers Insurance Agency.

Ayres shares the following tips for getting a lower monthly car insurance payment.

Shop around with an independent agent

Every few years, Ayres suggests gauging the auto insurance market. “Ask an independent agency for their recommended carrier’s full proposal. Also, ask for premium numbers from as many additional carriers as possible.”

Avoid filing small claims

Say you’re in a minor accident. If, after the deductible, the most you’ll get from insurance is $1000, Ayres advises against filing the claim. “The net cost in additional future premiums will be greater,” he says.

Bundle your insurance

Bundling your insurance in a package with other insurance policies, like homeowners insurance, can cut down on your premiums.

Says Ayres, “Packaging your auto and home insurance together opens up an even broader number of insurance carriers.” This could mean 10% to 35% lower auto insurance payments.

Watch your credit score

Depending on the state you live in, insurance carriers can use your credit score when determining auto insurance premiums.

According to Ayres, when your credit score is higher than 720, that’s the best time to shop for lower auto insurance premiums.

“The scoring systems vary by carrier and are different than a FICO score,” he says. “Always be sure to list the spouse with the better insurance score first. Also, only shop for insurance when your score is on the rise, not when it’s plummeting.”

If your credit score recently rose, Ayres suggests having your insurer rerun your credit for a possible price reduction.

Ask about discounts

Most auto insurers offer a variety of potential discounts. These include discounts for good students, alumni affiliations, AAA membership, drivers training, owning a car alarm, and setting up auto recovery systems.

Also, according to Ayres, some insurers now offer the use of Telematics to lower monthly auto insurance payments.

“Many insurers give huge discounts to monitor driving with a cellphone app or in-car plug-in device,” says Ayres. “Usually, you must agree to monitoring for at least six months to a year. Then the credits generated during the monitoring period become permanent.”

Drop collision coverage for older cars

There comes a time when the cost to insure a car for collision becomes more expensive than replacing the car. Says Ayres, “collision is the second highest premium bearing part of the auto policy. When the value of the car reaches $3,000 or less, drop collision for the savings.”

Lower home insurance payment

You can’t do anything about many of the factors that affect your homeowner’s insurance payment. According to Brent Thurman, president of Bear River Mutual Agent: Keystone Insurance Services, “such factors include distance to fire hydrant, fire station rating, ZIP code, and size of the home.”

However, there are steps you can take to lower your monthly home insurance payment, especially if you’ve had the same policy for at least two years.

Mind your credit score

According to Thurman, almost all U.S. insurance companies use credit scoring as a predictor for future claims. “It may not seem fair, but it’s proven to be an accurate forecast of whether customers will file a claim in the next several years,” he says.

If your credit score improves, Thurman suggests asking your agent to reevaluate your insurance score to give you a better rate. He warns, though, that “If your score is worse than it was prior, you could receive a rate increase instead.”

Verify your home’s replacement cost

Each year when your home insurance policy renews, your coverage often increases. According to Thurman, “This increase is a standard percentage and doesn’t consider actual market conditions. That means you may end up with more coverage than needed to rebuild your home. This unnecessarily raises your monthly payment.”

If you’re insured for replacement costs of $400,000, but it only costs $300,000 to fix or replace your home, that’s all the insurance company will pay, says Thurman. “Any upgrades during construction must be paid out of pocket,” he says.

Ask about discounts

Ensure you’re receiving all possible discounts. If you have more than one type of insurance with the company, you could receive package discounts. You can also get a discount if you have an alarm, or if you recently replaced your roof.

How to lower your student loan payments

Whatever you can do to lower your student loan payments frees up money for other financial goals. Try the following tactics.

Pay student loans when in school

You can cut back on student loan interest if you start paying while you’re still in school. Even just paying the interest will lower your payments further down the line.

Sign up for student loan auto pay

Using auto-pay to make student loan payments lowers your interest rate. Even a small drop in interest rate will lower your monthly student loan payment. Usually, you’ll get a drop of 0.25%. Over the next few years, this can save you a significant chunk of cash.

Refinance your student loan

Refinancing student loans can result in lower monthly payments. In refinancing, you’ll renegotiate the terms of your loan. This gives you the opportunity to get a better interest rate and lower monthly payment. And if you’re consolidating multiple student loans, you’ll streamline your bills to a single monthly payment.

Keep in mind that the federal government only consolidates federal loans. If you want to refinance both federal and private loans, you need to go to a private student loan lender.

Use a mortgage refinance

If you’re a homeowner with student debt, you can consolidate your student loans with a mortgage refinance. Because mortgage loans have some of the lowest interest rates around, you’re almost sure to lower your APR, which means lower monthly payments.

But for this to work, you need enough equity in your home. Also, consider that adding the student loan to your mortgage will cause the balance to rise.

Ready to get started?

Lower monthly payments can help you climb out of debt faster and reduce financial stress. Visit our savings page for more tips to lower monthly payments.