One of the best feelings in the world is having extra money accessible to you. It could be from a birthday or graduation present, from last year’s tax refund or just having spent less money last month than you took home. Having this extra cash is great but only if you use it properly. You see, when many people receive any windfall of money they see it differently than the money they get through their paycheck and this tends to sway them into using it for frivolous items. However, spending irresponsibly will never get you ahead financially and as such, here are seven amazing ways to use an extra $1,000 you may come across!
Option #1: Pay Down Debt
While this first option is not as exciting as buying a new phone or gaming system, it could very well be the most financially beneficial way to use your extra $1,000. What I recommend is focusing this cash on your highest interest debt and for many people this is their credit card balances. You see, debts like mortgage loans and car loans tend to offer low interest rates since they’re secured by collateral, so continuing to carry these debt burdens won’t be as costly as the ones attached to your credit cards. The average credit card rate in the U.S. is over 17%, which makes credit card debt an extremely high priority.
Like I said, spending that extra cash on debt isn’t exciting but it is a way to stretch that money further. Consider this. If you carry a $1,000 balance on your credit card at 28.8% interest, your minimum payment is $30 per month. If you only paid the minimum, at that rate, it would take you 68 months, or over 5 years to pay off that $1,000 balance and you would pay about $1,040 of interest on a $1,000 debt. So instead of paying just the minimum, if you can pay down that balance in one shot, you can literally double the value of that money when you factor in the interest you’d be saving!
Now, if you don’t carry credit card debt then the next obvious choice would be to use that money to pay down your other balances. This could be your mortgage, student loans or lines of credit. I always recommend paying down the ones with the highest interest rates first but from a psychological standpoint, it may make more sense for you to eliminate smaller balances first.