How to Use Budgeting Apps to Pay Down Your Loans
Fin-tech apps can assist with everything from budgeting, banking, investing, and negotiating to eliminating subscriptions, squirreling away spare change—and, yes, that mountain of debt.
Where would we be without the dozens of apps that live on our smartphones and manage our daily existence? From apps that make it a cinch to order food to those that allow us to adjust our home thermostat or track physical activity, it's becoming increasingly difficult to remember life prior to having all of this useful, life-hacking software at our fingertips.
Apps in the personal finance space, in particular, are proliferating at a staggering pace. There was a 90 percent increase in installation market share of money management apps worldwide in 2019—and by the end of that same year, financial apps represented the second largest category of apps in existence.
It's no wonder, really, given that fin-tech apps can assist with everything from budgeting, banking, investing, and negotiating bills, to eliminating subscriptions, and squirreling away spare change. More to the point for this discussion, though, there are also numerous apps available to help us attack and eliminate loan debt, whether that be a personal loan or a student loan. Yes, here too, apps can be your bank account's BFF.
"Apps are a great way to tackle paying down debt. Many link directly to your accounts, ensuring there are no discrepancies in your numbers and that your payments are, indeed, processed," says Erica Seppala, financial analyst for Merchant Maverick, a comparison site that reviews software and services. "Many apps feature calculators, allowing you to tweak the amount or frequency of payments, that way you can see in real time just how quickly you can potentially pay off debt."
Need some assistance accomplishing debt reduction goals for 2021 and beyond? Here are seven apps that financial experts say are particularly useful at managing this task.
Debt Payoff Planner
As the name indicates, this app is aimed squarely at helping to banish debt from your life. Debt Payoff Planner does this in large part by making it simple to create a concrete debt payoff plan or strategy, and breaking the journey down into optimal steps that should (ideally) be easy to follow.
"The greatest attribute of this app is that it allows you to carve the most favorable payoff strategy," says Roy Ferman, founder and CEO of Seek Capital. "For example, you could choose the debt snowball method, which handles the smallest debts first versus the debt avalanche method, which prioritizes the debt with the highest interest."
The app also creates a list of all debts that need to be tracked, and the list features such useful information as the current balance of every debt, the APR, the minimum payment due for the account, the last payment made, and the next payment due.
Notably, when you experiment with the app's strategy tool you can immediately hop over to the payoff summary timeline and see the impact of your options.
It would be an understatement to say student loan debt is a national crisis. So any app designed to help address this monumental challenge is worth noting.
Enter ChangeEd, which syncs with your bank account and then rounds up all of your daily purchases to the next dollar in order to deposit the difference into an FDIC-insured ChangEd account. When the balance from all of these extra change deposits reaches $50, a payment is automatically dispatched to your student loans. Brilliant, right?
These sorts of extra payments can be particularly useful right now while the interest on student loans is being paused, allowing you to attack the principal owed more effectively.
Getting a handle on your household spending and identifying how much free cash you have available after paying monthly bills and necessities is half the battle when it comes to aggressively tackling debt. PocketGuard can help with this chore.
The app crunches the numbers to identify how much spendable cash users have available each month and allows for developing a strategic spending plan.
In addition, PocketGuard provides detailed spending reports so you can identify places where money is potentially being wasted and make changes to allocate more cash toward debt repayment.
"Because of this feature of narrowing down your income, it can help you prioritize paying off loans apart from budgeting your bills," says John Li of lending company Fig Loans.
Calling all spreadsheet fanatics, Tiller may be what your life has been missing. This useful platform encapsulates your entire financial life in a Google Sheets or Microsoft Excel spreadsheet that's updated daily.
The Tiller platform also provides debt payoff tools, including prebuilt personal finance templates such as a debt snowball spreadsheet for Google Sheets that allows for targeting any kind of debt, tracking progress toward your "debt freedom date," (yesssss) and identifying exactly what you can afford to pay toward your debt.
"So much of paying down debt is learning how to wisely manage your money and see where every dollar goes. Tiller is perfect for this since it provides a detailed breakdown of everything you spend money on," says John Schmoll, of FrugalRules. "Tools like this put everything in one spot for you. It also helps you begin to make spending decisions to determine if an expense was really worth it. As you look at your debt and see that you may have overspent in some areas it helps you see what you can cut back to make headway on debt."
John Davis, founder of ScoreSense, a credit score services company, has spent much of his professional life dedicated to helping people better understand their finances. Dubbing himself a financial education ambassador, Davis says his favorite app for helping to attack loan debt is Every Dollar because of the app's zero-sum approach to budgeting.
"Zero-sum budgeting is a lifestyle choice that enables you to pay down debt fast by taking control of your finances," Davis says. "You start by entering your exact income, categorize your expenses, and allocate money to the last dollar of your income for each spending category. Throughout the month you must add all transactions honestly into the app."
The app guides you through your budget and allows for a deeper understanding of your spending habits, both good and bad. What does all of this have to do with paying off loans?
"Understanding and changing your spending habits is the key to getting out of debt," says Davis.
One last point from Davis: for the app to work and for you to get the most out of your hard-earned dollars, you must be honest with Every Dollar about your daily spending habits. And, he adds, you must be honest with yourself. (Game on.)
Debt Manager has one purpose—to help you put debt behind you. The app focuses on organizing, tracking, and paying off any and all debts, including loans, in the cheapest and fastest way possible. It's approach to doing this is having users select a pay-off strategy and stick to it. The nice thing about this app is you have options: You can choose to focus on lowest debt balances first, or highest interest first, or perhaps highest balance first.
Debt Manager also allows users to test various "what-if" scenarios that allow you to assess how changes in interest rate or increasing monthly payments might impact your debt payoff timeline. Also helpful, information and data from the app can be exported via email. There's also interactive reports that allow for visualizing your debt breakdown and comparing debts side by side.
One last app to keep in mind, YNAB, or You Need a Budget. Launched in 2004, YNAB was designed to help users gain control of their money, stop living paycheck to paycheck and rid themselves of debt, which, yes, includes paying off those loans.
"YNAB is a very aggressive budgeting method that encourages you to account for every dollar of your income and give it a job to do," Jake Hill, CEO of DebtHammer says. "This allows you to slot in money for bills, food, household expenses, savings, and also paying down debt."
YNAB says that on average, new budgeters save about $600 in their first two months and more than $6,000 in their first year, which is no small amount of money.
What's more, that's money you can funnel right into your highest debt, Hill says. Users rave about this app providing testimonials about having paid off five figures in debt in some cases.
Cash back apps can also be helpful on your loan repayment journey
One parting note on the app front. When you're focused on paying down loan debt more quickly or aggressively, maximize the cash back you're earning on everyday purchases, so that you have more money to put toward that loan debt, says money saving and budgeting guru Andrea Woroch.
"Regardless of how much you try to scale back on discretionary purchases, there are still items you need to buy no matter what, so make sure you're maximizing cash back," Woroch says.
A cash back plug in like Cently automatically adds coupons and cash back to your online cart whenever you're shopping online. It works at thousands of stores, including Amazon.
"When you earn cash back on your purchases, put the savings to work by making an extra loan payment, even if it's a few bucks," Woroch says. "Every little bit adds up."