5 Ways To Pay Off A Loan Early
5 Ways To Pay Off A Loan Early
Did you even know there are some easy yet smart ways to lessen your loan? You may pay off your mortgage, auto loan, credit card debt, and any other debt you have faster than you thought possible if you use a method that is meticulously implemented. These strategies won't have a significant impact on your budget, but they can significantly reduce the total interest you'll pay over the life of the loan and help you get out of debt faster.
You may free up more money each month, spend your hard-earned money on the things you want rather than paying interest, and become debt-free sooner than you imagined. Everything is possible!
Before we get started, here's a word of caution: Before you try anything, check with your lender to see if there are any penalties for making extra or early payments on your loan.
1. Make payments every two weeks
Instead of paying your loan in full every month, make half-payments every two weeks.
2. Round up your monthly payments
For a simple strategy to shorten your loan, round up your monthly payments to the closest $50. For example, if your monthly auto loan payment is $220, increase it to $250. The difference isn't big enough to make a noticeable change in your budget, but it's big enough to shave months off the life of your loan and save you a lot of money in interest.
Consider rounding up your payments to the nearest $100 to make an even greater difference.
3. Make a one-time additional payment each 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. You'll only feel the pinch once a year this way, but you'll still cut the life of your debt by many months, if not years. 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 course of the year. Divide your monthly payment by 12 and add that amount to your monthly payments throughout the year. Over the course of the year, you'll make a complete additional payment while barely feeling the pinch.
4. Refinance your mortgage
Refinancing your debt is one of the best strategies to pay it off sooner. This may be a good option for you if interest rates have reduced since you took out your loan or your credit has significantly improved.
It's worth noting that refinancing makes the most sense if it allows you to pay off your debt faster. This can be accomplished by shortening the loan's term, which you may be able to do simply due to your lower interest rate. Another way to achieve the same aim is to keep the duration of your loan the same while lowering your monthly payments by using one of the ways listed above to reduce the overall life of your loan.
5. Increase your income and apply all extra funds to the loan
Working to generate more money with the purpose of making more loan payments is a wonderful strategy to shorten the term of your loan.
Even a job that pays you an extra $200 per month might make a significant impact in the amount you owe on your loan.
Use one or more of these strategies to reduce the length of your loans and the amount of interest you pay.