Key takeaways
- Borrow the exact gap, not a round number.
- Keep a new payment under about 10% of take-home pay.
- Choose the shortest term you can comfortably afford.
Step 1: Borrow the exact gap
Write down the expense and subtract what you can cover from savings or this month's budget. Borrow the difference, not a round number. Every extra $500 at 25% APR over 12 months costs about $70 in interest.
Step 2: Set a payment ceiling
A practical rule: keep the new monthly payment under about 10% of take-home pay, and keep all debt payments (excluding rent or mortgage) under about 20%. If your take-home pay is $2,800 a month, aim for a payment under $280.
Step 3: Pick the shortest affordable term
| $1,500 at 24.99% APR | Monthly payment | Total interest |
|---|---|---|
| 6 months | $268.53 | $111.21 |
| 12 months | $142.56 | $210.71 |
| 24 months | $80.05 | $421.19 |
Shorter terms cost less overall. Choose the shortest term whose payment fits under your ceiling.
Step 4: Read the offer like a lender would
- APR, including any origination fee
- Total of payments
- Late fee and returned-payment fee
- Prepayment penalty (you want none)
- Autopay date versus your payday
Step 5: Plan the payoff
Set autopay for one or two days after payday, and add a reminder the day before. If you get extra income, put it toward principal. If trouble comes up, call the lender before the due date.
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