If there’s one thing that stresses you out, that’s your loan. You continuously are looking for ways to pay it off early, but you cannot come up with a plan. While working toward becoming debt-free, you need all tricks in the books to save money, boost your income, and find ways to pay your debt faster.
If you have more than one loan, prioritize them and pick the one you want to repay faster. It’s wise to start with the smaller one. For you, motivation is here, and you understand why it’s essential to eliminate loans, but you cannot identify the logistics needed to accomplish your goal.
This article will highlight some methods that can help you erase the debt. But before picking one, make sure the lender allows you to pay off your loan early because not all companies do. Some lenders ask for pre-payment fees or other steps you must follow if you want to skip monthly payments and cover the entire sum once.
Is it smart to pay your loan faster?
As stated before, sometimes the lender asks a fee if you want to cover the loan earlier and it’s not worth paying extra taxes. If this is the case, it’s better to search for other solutions. But before making a decision, explore the advantages and disadvantages and determine if it makes sense to cover the debt earlier. The pro of this decision is that you’ll pay less interest and have finances for your future investments. But ensure you don’t use savings from your emergency fund to cover a loan. Check the interest rate to figure out if it makes sense to accelerate the process because some lenders have small interest fees, and it’s not worth the effort.
If one of your friends is good with numbers, ask them to help you run yours and help you understand your situation better.
1. Make a list of loans and organize them according to their interest rate
When you have to pay more than one loan, it’s smart to list them all in the same document and compare their rates. Organize them by their interest rate in ascending or descending order. If two have the same interest rate, use another criterion, as the overall sum to differentiate their EMI. Loans differ in interest rates, and usually, home loans have the lowest interest while unsecured ones the highest. So, it’s smart to pay off the credit card and unsecured loans fast because they add the most to your expenses.
2. Make bi-weekly payments
Most lenders ask their clients to pay their debt in monthly rates, but if you want to cover the loan faster, submit half of the payment every two weeks instead of making a sole payment. You will provide them with the same amount, but you’ll pay less interest because it doesn’t accumulate when the payments are applied more often.
Every year you’ll make an extra payment because each year has 52 weeks, and you’ll make 26 yearly payments. When you rely on this method for several years, you cut several months from your loan.
But before making bi-weekly payments contact the lender and ask them if they agree with this method because if the contract doesn’t allow it, they can penalize you with extra fees. It’s wise when you make a loan to check a website like SmarterLoans to compare the loans different lenders provide and pick the one with the most flexible conditions.
3. Round up the payments
When you round up the payments, you pay extra cash without saving extra. Just like the above method, this allows you to pay more without making financial efforts. You don’t need to save for months to pay large sums; you monthly add more cash to the balance that knocks off payments of your loan. For example, if your student loan is $536,67, you can round it to $550. It adds only a few bucks to your monthly expenses, but after you do it for a year or more, you cover additional payments.
You can go a step further and bump each payment with an extra $100. In the long run, it adds a significant amount, shortens the term of the loan and cuts the interest.
4. Find extra money
You can always sell goods on Amazon, from books to handmade clothes and jewelry, and even paintings. You can sell some of the things you no longer use and get some extra funds to cover your loans. For instance, you can sell your life insurance policy for cash through sites like HarborLifeSettlements.
Even if the individual amount for each item is small, they add up.
If you have got a bad credit car loan, you probably pay a high interest in it. Often people no longer use the car they get the loan for, but they don’t consider selling it and clearing the debt. If you prefer walking or riding a bike, sell the vehicle and pay the loan. It’s not worth allowing the interest to build up and ruin your finances.
Another option is to get a side job that pays a couple of dollars a month and use the extra cash to pay off the debt. Even if you earn only $100 monthly, over a year you get an extra $1200, which can be more enough to pay off one of the loans.
5. Check your lender’s programs to pay off debt
Many lenders allow their clients to pay off their debts earlier. For each type of loan, they have special programs and steps the clients can follow to clear their debt.
Get in touch with your lending company and check their guides to ensure you follow all the steps. Be careful to read the terms and conditions because they can ask you additional fees. If clearing the debt earlier makes sense to you, go ahead.
Beside your lender, other companies can help you cover the debt faster. They provide you with funds, tools, and guidance. Sometimes reading a guide, like this one, it’s helpful because it tells you what you need to do and why you should get rid of your loans faster. Generally, you don’t need their services because most lending companies are more than happy when the clients want to pay ahead.