Thinking of how to pay a loan down fast might seem overwhelming at first, but with a little planning and patience, it is possible. You will need to know your current balance and payoff terms, consider the strategies available to you in repaying the loan, and then, turning those strategies into cash to apply against your loan. Here are six easy steps on how to pay down a loan fast and be well on your way to being debt-free.
- Determine the Terms of Your Loan
Your initial step in how to pay down a loan fast is to read through the details of your loan. Best-case, your loan repayment terms were calculated using simple interest. If so, the monthly payment and the interest on it are simply based on your loan’s outstanding balance. Paying down the loan faster means you will have fewer interest payments and save money.
Secondly, make sure that any extra money you earmark toward the loan is applied to the principal, not the interest. Otherwise, without specifying, most lenders will apply any payment they receive toward the interest rather than applying it toward the principal.
Lastly, be aware when reviewing the terms of your loan that some lenders may have payoff penalties in the form of a fee to compensate for lesser interest payments they will receive. Or simply call your lender and ask if there is a prepayment penalty. Obviously, if the fee is equal to or greater than any interest savings you’d gain by paying off the loan early, the only benefit from paying the loan down faster would be in improving your credit score (which is a good thing).
- Snowball Your Debt Payments
Snowballing your debt payments is a strategy whereby you put all the extra money possible toward your lowest debt to pay down faster. Then take the full amount of money you were paying on that debt and add it to the money you are paying on the next lowest debt. Once that debt is paid off, do it again, i.e., add those two payments you were paying towards your next lowest debt. Or, you may want to target the higher interest rate debt first. In either case, the snowball debt payment method works and is a good way to pay down your loan faster.
- The Bi-Weekly Payment Regimen
Making bi-weekly payments to your lender rather than one monthly payment will accelerate the time it takes to pay off your loan. By doing so less interest payments will be made and the duration of the loan will be greatly reduced. As mentioned above, be sure to find out from your lender if there are prepayment penalties or fees for paying off the loan balance early.
- Make Extra Payments When You Receive Extra Money
Whenever you receive or come into extra sums of money apply it toward paying down your loan. The extra money may be in the way of a tax refund, a bonus at work, or a pay raise. Applying the difference between your old pay rate and your new rate may not be a huge amount of money, but even if it is $50 to a $100 dollars a month, in doing so you’re that much closer to paying down your loan faster. The best thing is that you will unlikely miss it, and once the loan is paid off you will have that much more money—the loan payment and the raise—coming in each month.
- Part-Time Work
Moonlighting is a way to make extra cash in your downtime. Picking up a part-time job is a very good way to pay down a loan faster. Not only will you be making extra money, because your time will be occupied by extra work, you will not have time to spend any money. Whether it is delivering pizza, bartending, or writing blogs, that extra money you earn can be well spent to pay off your debt.
- Borrow at a Lower Interest Rate
If you have been making payments on time and your credit score has improved, you may want to consider paying off one loan with another loan at a lower interest rate. You will essentially be refinancing your loan at a lower rate, and the savings will allow you to pay down the loan faster. Reducing your interest rate means the interest on your payments to the lender will be less. It does not necessarily mean you will pay the loan down faster. Taking those savings from the lower interest rate payments and applying them to the principal of the refinanced loan will.
If you are considering borrowing, personal loans or title loans are two such options. If you need a loan with flexibility, one that works for you, a personal loan from Tio Rico can provide you with just the solution. Obtaining a personal loan is fast and easy. Tio Rico’s loan application process and approval can take as little as 30 minutes. Or, if credit problems are an issue, auto title loans allow you to use your car title instead of your credit score. Title loans are determined by the amount of cash you need, your vehicle’s value, and the ability to pay back the loan.
Paying down a loan fast can help you rebuild your credit and provide you with financial freedom. Even by making additional monthly payments of any amount toward the principal on the loan, you can greatly accelerate the terms and pay the loan off, and in doing so you will realize tremendous savings in interest payments.