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10 Borrowing Tips from Northway

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1. Know the right reasons

What’s the smartest way to borrow? Borrow as little as possible. If you do take out a loan, try to do so only for assets that are likely to appreciate, never for consumption. A home? Fine. A big TV? Think again.

2. Consolidate debt.

Another justifiable reason for a loan is to consolidate debt you already have. A home equity loan or home equity line of credit are especially appropriate for debt consolidation. Either allows you to trade multiple high-interest loans for one low-rate loan that’s probably deductible.


3. Use debit instead of credit.

A credit card is a short-term loan. A debit card is an electronic check. Debit is every bit as convenient as credit, but purchases are deducted directly from your checking account. You avoid finance charges—and the temptation to spend money you don’t have.

4. Use credit cards judiciously.

If you choose to use credit cards, do so only for convenience—and only if you can pay the bill in full when it comes due. Taking advantage of the grace period is wise. Paying interest isn’t. And there’s no need to keep several credit cards. One or two is sufficient.

5. Pay more than the minimum.

Consider the monthly payment for any loan to be the bare minimum. If you can afford to pay even a little extra toward principal, do so. You’ll reduce overall interest expense dramatically and get rid of the loan sooner. After all, debt may be necessary at times, but it shouldn’t be forever.

6. Save for a bigger down payment.

The bigger your down payment, the less you have to borrow. When buying a house, aim for a down payment of at least 20 percent. Better to save a bit longer before getting a mortgage than stretching to make payments you can’t comfortably afford.

7. Consider a biweekly mortgage.

Want to get rid of your mortgage fast? Consider paying half as much twice as often. A biweekly payment does just that, shaving years off your loan and thousands off your interest. It works because 26 half payments are the equivalent of 13 full payments—in effect, you make an extra monthly payment each year.

8. Tread cautiously with a HELOC.

A home equity line of credit can be a simple, low-cost way to borrow small sums from time to time, perhaps for home improvement or education. It also can serve as a ready source of emergency funds. But be careful. Accessing the credit is as easy as writing a check. Don’t let convenience tempt you to take on more debt than you can afford.

9. Pay cash for used cars.

New cars are a budget buster because their value plummets so fast. If you finance the purchase, you might find yourself owing more than the car is worth the second you drive it off the lot. A better plan? Pay cash for reliable used cars. If you must borrow, choose the shortest term possible.

10. Retire debt before you retire yourself.

When retirement comes, debt needs to go. Northway can show you the best way to manage your debt so it doesn’t crimp your retirement plans. One strategy: Refinance your mortgage to a shorter term. After all, the smartest loan in retirement is the one that’s already paid off.




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