It’s easy to finish your payments a few months early when you’re nearing the end of a long personal loan term.
However, before you delve into your savings or utilize an unexpected windfall to pay off your personal loan, make sure you’ve covered all of your other financial bases.
Understanding your financial goals, including where paying off that debt falls, will make it easier to manage your loan.
Here are 8 ways to pay back your personal loan in a smart way while avoiding personal loan fees and penalties.
- 1. Pay Every 2 Weeks
- 2. Make an Extra Payment Every Year
- 3. Prioritize Your Monthly Costs
- 4. Set Aside Savings For Unanticipated Expenditures
- 5. Make a List of All Your Monthly Bills
- 6. Refinance Your Debts
- 7. Increase Your Earnings
- 8. Check to See If Your Loan Has Any Penalties
- Frequently Asked Question
1. Pay Every 2 Weeks
Instead of monthly payments, make half-payments every 2 weeks to pay down your debt.
Because your payments will be applied more frequently, less interest will accumulate.
Each year, you’ll make 26 half-payments, resulting in an extra full payment for the year, reducing the loan’s life by several months.
You can cut your 2-year loan down to 1 year and 6 months if you use this strategy.
2. Make an Extra Payment Every Year
If bi-weekly payments seem daunting, but you prefer the notion of making an extra payment each year, you can achieve the same goal by making only one extra payment each year.
This way, you’ll only feel the pinch once a year while still cutting the length of your debt by months.
Make that once-a-year contribution with a work bonus, a tax refund, or another windfall.
Another simple option to make that extra payment is to do so over the year.
Start by dividing your monthly payment by 12 and include it in your yearly payments. You’ll make a whole year’s extra payment while barely feeling the pinch.
You could check our personal loan calculator to see how much interest you’re paying every month and the total payments.
You may also like: How To Use Personal Loan To Pay Off Loan With High-Interest Rate
3. Prioritize Your Monthly Costs
Your monthly expenses, such as rent, utilities, and groceries, are what you require to survive.
Asha says delaying a debt payment now and again might become a terrible habit, therefore she generally advises against it.
4. Set Aside Savings For Unanticipated Expenditures
Prioritizing a safety net before extra personal loan payments will keep you financially secure if an unexpected need arises.
Your savings are designed to protect you in the event of a job loss, a medical emergency, or a home repair.
3 to 6 months’ worth of expenditures is a reasonable rule of thumb for emergency savings.
However, if you’re only taking a little amount of money out of your savings to make one more personal loan payment early in a month or two, it will suffice.
Take only as much or as often as you need to feel safe. Don’t take so much or so frequently that you become exposed in an emergency.
5. Make a List of All Your Monthly Bills
To quickly pay off your loan, round up your monthly payments to the nearest $50. For example, if your monthly personal loan payment is $220, increase it to $250.
The gap is too small to make a noticeable change in your budget, yet it is significant enough to shorten the life of your loan and save you hundreds of dollars in interest.
6. Refinance Your Debts
Refinancing is one of the most effective ways to pay off your loan faster.
If interest rates have reduced since you took out your loan or your credit has significantly improved, this could be a wise decision.
It’s worth noting that refinancing makes more sense if it allows you to pay off your debt faster.
This can be accomplished by reducing the loan’s term, which you may be able to do easily due to your lower interest rate.
Bonus: Check Rates From The Best Debt Refinancing Lender
Payoff offers personal loans and credit monitoring tools to assist borrowers who want to consolidate their debts.
Rates are competitive, and this lender only requires a FICO Score of 550 while taking into account a variety of other financial criteria.
7. Increase Your Earnings
Working to generate additional money to make extra loan payments is a wonderful method to shorten the term of your debt.
Consider selling items on Amazon, reducing impulse purchases and putting the money toward your debt, or working a weekend or holiday side job to supplement your income.
Even if you only make an extra $200 per month, your loan may be reduced by that amount.
8. Check to See If Your Loan Has Any Penalties
Prepayment fees are still charged by a few lenders when you pay off your loan early.
Even if you save money on interest by returning early, these fees ensure the lender gets money off your loan.
If your loan has a prepayment penalty, see if the interest you’ll pay in the remaining months is larger than the penalty.
You could be better off waiting it out and completing your monthly payments if you only have a few payments left and are facing a cost of thousands of dollars, he advises.
Frequently Asked Question
Abdulrahman is the founder of Financeive and a financial advisor with +3 experience writing about loans and debts. He took the Nanodegree from Udacity with a degree in Business Administration and had previously finished his bachelor’s degree in Accounting as well.
He is an expert on Personal Finance who knows how to make sure that your finances will not hold anyone back anymore – even if they are struggling with paying off previous debts or just starting their life financially alone as a young adult without much income yet but lots of potential opportunities ahead.
He used to help Individuals and Small Businesses to get loans with low interest and has figured out ways to help most of them to get out of loans Debt.