Top 10 Tips To Paying Off Loans Fast
Paying off loans fast is a goal set by many who aspire to becoming debt free. While paying off your loans quickly can be a great way to get in good financial shape, it can also be a process that requires a lot of hard work. Read on for the top 10 tips for paying off loans fast.
- Make sure there is no prepayment penalty: Some loans will charge you a penalty for paying them off early. The best time to find out about that is before you get a loan, so you can try to avoid lenders that charge this fee. If you already have a loan with a prepayment penalty, find out how much that penalty is and compare that to how much you will save in interest by paying off the loan early. This can help you determine if it makes financial sense to pay off the debt early or whether you should just put the money into savings and make the payments as they come due.
- Lower your interest rate if you can- It is always easier to repay debts more quickly if less of your monthly payment goes towards paying off interest. Ask your lender if they would be willing to lower your interest rate or consider consolidating high interest credit card debt with a lower interest personal loan to help you pay off your debt more quickly.
- Create a debt repayment plan- Before you can make a determination that you want to pay off debt fast, you need to know exactly how much you owe and how much you will need to pay it off. Make a list of all of your current debts along with the balances and interest rates. This can help you determine where your money should go.
- Set up a budget– A budget will help you identify areas where you are overspending. It can also help you direct your money more purposefully. Figure out how much income you have coming in each month and how much money you have to spend. Then, figure out what you are spending it on and set spending maximums in all of the things you buy on a monthly basis.
- Cut expenses- The more money you have to put towards paying off your debt, the faster you’ll be able to pay it down. Cut expenses any way you can- skip eating out, cut coupons, eliminate expensive cable packages or cell phone bills and otherwise trim the fat out of your budget to free up more cash to pay off debt.
- Increase your income– This is the other side of the coin from cutting expenses. You can bring in extra income by having a garage sale or selling clutter and unwanted items on eBay. You can also work more overtime or even consider getting a second job until your debt is paid off. If you bring in more money, you can put more money towards paying off your debt and thus get it paid off faster.
- Set a schedule of repayment- Once you know how much you owe and how much money you can put towards debt, you can set up a schedule for how quickly you can repay the debt. A countdown to the amount of time until you are debt free can act as a great motivator.
- Automate your debt payments- It is far too easy for most people to spend all the extra money they have sitting around in their bank accounts. If you set up your debt payments to withdraw from your bank account automatically, that money won’t be sitting there for you to spend before you get the chance to send a check to your creditors. This will make the process more automatic and make it more likely that you will be able to stick with your debt repayment plan.
- Make multiple small payments- Just like automating your repayment, making many small payments throughout the month can help you make sure you don’t waste the extra money you earn or save. Every time you get a hold of extra cash or save some money on an item, you can send in that amount to the debt you are trying to pay off first. This can also lower the amount of interest you have to pay, since it will reduce your principal earlier in the month and thus reduce the daily balance the interest is charged on.
- Consider a debt snowball or debt avalanche- A debt snowball is a debt repayment method made popular by financial advisor Dave Ramsey. It involves paying the maximum you can to your smallest debt first. Then, once you have your smallest debt paid off, you add the amount you were paying on that debt towards paying off your next debt. For example, if you were paying $100 to your smallest debt each month and the $10 minimum payment for your next smallest debt, once you get the small debt paid off you will then pay $110 to the next debt. Then, you will add that $110 to whatever the minimums you were paying on the next smallest debt, increasing the monthly amount you send towards that debt. Continue to do this with each debt until they are all paid off. The debt avalanche is a similar premise, only under that plan you pay off your highest interest rate debt first and then begin working on the debt with the next highest interest rate, putting the full amount towards that debt and so on until they are all paid off.