Tips to Pay off Personal Loans Faster

Ways to Pay off a Loan Early

     Did you know there are simple but effective tips that you can use to pay off loans?

This way, you can pay off your car loan, mortgage, credit card debt, and other loans quicker than you might think. These tricks don't hurt your finances in a dramatic way, but they can make a big difference to the total interest you'll pay over the life of the loan, and help you become debt free faster.

Is it Good to Pay off Personal Loans Faster?

Paying off a personal loan faster has its advantages and disadvantages. On the one hand, you save money in interest when you pay off debt early, and your debt-to-income ratio will drop.

However, some lenders charge a prepayment penalty for early repayment, and using your spare income to pay off your loan early means that it won't be available for other fees. And, making your monthly minimum payments on time improves your credit score.

How to Pay off Your Personal Loan More Fast

Make biweekly loan payments

Instead of making monthly payments on your loan, send a half payment every two weeks.

The advantages of this method are:

- Your loan repayments will be made more frequently, so less interest can be charged.

- You'll make 26 half payments each year, which means an extra full payment that year, thereby shortening the loan term by months, or even years.

If you go this route with a 30-year mortgage, you can shorten it to 26 years.

Raise your revenue with part time jobs

If you want to pay off loans faster, increasing your income could be just the ticket. And if you're not getting a raise at work, you may need to take matters into your own hands, and get a side job.

You have different options, and the side job you choose depends on your skillset and the type of job you like. (fool.com)

Collect your monthly payment

Round up your monthly payments to the nearest $50 for an easy way to shorten your loan. For example, if your car loan is costing you $210 per month, increase that number to $250. The difference is too small to significantly reduce your budget, but large enough to reduce your loan term by several months and save a significant amount in interest.

Refinance your loan

Best method to pay off your loan quickly is by refinancing.

If interest rates have fallen since you took out a loan, or your credit has increased drastically, this could be a smart choice for you.

It is important to note that refinancing is the most reasonable way to help you pay off your loan faster. You can do this by shortening the term of the loan, an option that you may be able to purchase easily, at a lower interest rate.

Another way for the same purpose is to keep your loan term unchanged, and with your lower monthly payment, use one of the methods mentioned above to shorten your overall loan term.

Make one additional payment each year

If the thought of bi-weekly payments seems intimidating, but you like the method of making an additional payment each year, you can achieve the same goal by making only one additional payment a year. This way, you'll only be feeling the pressure once a year, and you'll still be shortening your loan term by months, or even years.

Use a job bonus, tax refund, or other windfall to make the once-a-year payment.

Another easy way to make those extra payments is to spread them out throughout the year. Divide your monthly payment by 12, then add that cost to your monthly payment for the rest of the year. You'll make extra payments in full throughout the year.