7 Best Strategies for How to Pay Off Loans Fast

There are two types of debt: good and bad. Good debt involves taking loans to invest with an eye on a good return on investment (ROI). Bad debts, on the other hand, are loans taken to buy stuff that you can do without.

Taking a loan is not a bad idea per se. In fact, it’s sometimes inevitable that one should take a loan to pursue a life goal such as a college degree or invest in a project with a good ROI. While some payday loans can be helpful in case of emergencies, these loans could leave you worse off financially if you don’t pay them off on time.

Irrespective of the type of debt, if allowed to get out of control, a loan can be a cause of great financial pain and suffering. The trick is to pay them off as quickly as possible without bringing your life to a standstill.

No matter how frugal we are, sometimes we get to that place where debt becomes a significant cause of concern. Below are seven strategies for how to pay off loans fast:

1. Increase your loan payments

If you want to pay off loans as fast as possible, pay more than the minimum installments. Of course, paying the least possible amount leaves you with extra cash flow. However, it also means you’ll be paying that loan for a long time and end up paying more in terms of interest.

When you marginally increase your regular payments, you shorten the time it would take to settle the loan. For instance, if you’re meant to pay $200 a month, bump it up to at least $250 a month. You could also instead pay an extra $100 a month to your principal amount. The reduced loan balance will result in lower interest and quicker loan repayment.

2. Be frugal

If you live a lavish lifestyle replete with the trappings of all the good things in life, you might want to ease off on your expenses a bit. To settle a loan as quickly as possible, you can’t afford to be reckless with your spending. Trim your monthly expenses of all excesses and reassign the savings to paying your loan.

For instance, if you’re a recent graduate with a huge outstanding student loan, you might want to consider the option of moving in with your parents. This way, whatever extra funds you save from rent and utility bills can go towards your loan payment.

As you trim your expenses, make sure whatever you save goes toward your loan payments.

3. Use financial windfalls to pay the loan

If by chance, you come into unexpected fortunes, this is not the time to splurge. Instead, put the money towards paying your loans.

A cash windfall could be in the form of a tax return refund, a bonus cheque, or an inheritance. Refuse to be tempted to go on a spending spree. Instead, prioritize your loan payment.

4. Take another job

Working hard is always a good way on how to pay off loans fast. The key to paying off your loans and getting out of debt is not restricted to just being frugal. Sometimes it makes more sense to add another stream to your current income.

One way of doing this is by working an extra job. With increased income, you can bump up your monthly loan payments.

5. Make twice weekly payments

An excellent strategy for how to pay off loans fast is by making biweekly payments. Each of these payments should be equivalent to half your monthly payment.

With this strategy, you will make 26 payments every year. These are two more payments than you would have made if you opted to make a payment at the beginning and in the middle of the month.

The good thing with this approach is that your owing amount will come down faster. You will also save on interest and ease your cash flow since you’ll be paying small, evenly distributed payments throughout the month.

6. Settle your highest interest loans first

Start paying loans with the highest interest rates first. By paying off these loans fast, you will get out of debt quicker and ultimately end up paying a lower interest rate.

To free up extra funds for this, make minimum payments on your lower-interest loans. After paying off your highest interest loan, reassign the released funds to the next high-interest rate loan. Stay this course until all the loans are paid.

7. Use the debt snowball approach

The snowball approach to paying loans fast involves paying off small loans first. As loans with the lowest amounts are paid, the released funds are reassigned to the next small loan and onwards until all the loans, working your way towards the largest ones, are paid.

As you watch small debts disappear, you gain momentum and motivation towards paying off the large loans. If you apply the snowball debt payment method correctly, you will be debt-free within record time. You’ll also end up paying much less interest overall.

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