When it comes to loans, the trick is always to pay it off as soon as possible. Regardless of whether it’s a car loan, home loan, or even a student loan, your goal should always be to get ahead of payments and get everything paid off before you end up paying a crazy amount of interest. Of course, this is a lot more easily said than done, but there are plenty of things you can do to put yourself in a position to pay off your next loan ahead of time.
Round Up Your Payments
One thing most of us have realized about our monthly loan payments is that they’re never a nice, even number. There’s always an odd dollar amount and some change involved, so why not just round up a little? Instead of paying $241.58, just cut a check for $250. If you’re supposed to pay $417.89 every month, consider bumping that up to a flat $500. Not only will it be easier to write checks and balance your account, but the extra money will also go toward paying off the principal balance, which is how you shorten the time it takes to pay off the loan.
Even if all you’re doing is rounding up your payment to the nearest $10 interval, the extra payment isn’t going to have a huge impact on your lifestyle. Meanwhile, the extra money you send in, no matter how small it may be, will add up over time and help get your loan paid off earlier than it otherwise would have.
Bi-Weekly Payments
Two is typically better than one, right? Most lenders will have you set up to make one payment on your loan every month. However, you can put yourself on track to pay off the loan early if you start making payments every two weeks rather than once per month. Most people get paid at least every two weeks, so having money available to make extra payments shouldn’t be an issue. Even if you just split your monthly payment in half and make two payments per month, this method should work out in the long run.
If you’re making payments more frequently, less interest will accumulate on the principal balance because you’re constantly reducing the balance. Making bi-weekly payments could help you pay off your loan several months ahead of time, which will save you plenty of money in the long run. The only caveat is that you should check with your lender first to make sure making bi-weekly payments aligns with their policies, as some lenders will charge a processing penalty for doing this.
Refinance Your Loan
Not enough people seriously explore the option of refinancing their loan, but it can be a good way to get it paid off quicker than expected. If you have a long-term loan, it’s wise to keep an eye on interest rates to see if they’ve gone down since you took out the loan. You should also keep an eye on your credit score to see if it’s improved. Odds are, if you’ve been keeping up with your regular payments, your credit score has improved.
If interest rates have gone down significantly or your credit score is better than it was previously, you may be a good candidate to refinance your loan. If you can refinance with a shorter term, you’ll be able to pay off your loan sooner than expected. You could also explore a loan with a lower interest rate. This will make it a little easier to overpay every month and get your loan paid off early that way.
Use Found Money Toward Your Loan
People are always getting money in unexpected ways. When this happens, put that bonus cash toward your loan to help you pay it off quicker. For instance, did you get a tax refund this year? Did you get a holiday bonus or pay raise at work recently? Maybe you won at bingo or picked up a few bucks from a scratch-off lotto ticket. It may seem like a small amount of money, but when you’re trying to pay off a loan early, every little bit counts. Even if the little bit of found money can help you get your loan paid off a couple of months early, you’ll be happy you did when that loan is gone.
Consider Earning Extra Money
It may not be easy (or fun), but there are always ways to earn a little extra money to help you pay off your loan before the interest piles up too high. Could you get a side job that you work once or twice a week? Do you have old clothes or personal possessions that you could sell for a few extra bucks? Maybe you can set up a swear jar in your home and put any money collected there toward your loan. Don’t be afraid to get creative!
Much like using your tax refund or holiday bonus, it may not seem like it’s putting much of a dent in your principal balance, but every little bit adds up over time and helps you get ahead on loan payments.
Avoid Taking on More Debt
This may seem kind of obvious, but it’s worth saying anyway. If you have a loan that you’d like to pay off as soon as possible, avoid taking on more debt at all costs. Maybe hold off on that new car until your credit card is paid off. Perhaps your dream home will have to wait until your student loans are paid back. In the event that you do find yourself paying off multiple loans at the same time, consider the snowball method. This is when you work to pay off the loan with the lowest principle balance first, so when it’s paid off you can start allocating the money that was going to that loan to the next one in line. This method can make it a little easier to pay off loans on several fronts without driving yourself crazy.
Reduce Your Budget
Last but not least, you can pay off a loan quicker by taking money from other parts of your budget and putting it toward your balance. Again, not very fun, but very effective. Would going without cable for a little while be the worst thing in the world? Do you mind making sandwiches at home rather than going out to eat? Why don’t you rent movies from Redbox rather than paying to the ridiculous cost of seeing movies in theaters?
The point is that there are a lot of ways you can save just a little bit of money each month so you can put the savings toward your loan. Yes, it will be a sacrifice, but it’ll be worth it when you have all that extra money after you’ve paid off your loan sooner than expected.
