Paying off loans ahead of schedule can have a significant impact on how much you ultimately pay for the loan. Additionally, it can help you eliminate the debt faster so that you can move on with other financial goals you might have. These tried-and-true strategies can help you get rid of your debt by accelerating the loan repayment process.
Bi-Weekly Payments
Rather than paying once or twice each month, bi-weekly payments have you paying toward your loan every other week. Over the course of the year, this has you making one additional payment per year without almost realizing it.
While this method is not as effective as others for short-term loans, it can save you several months of payments when used on longer-term loans, not to mention hundreds (or thousands) of dollars in interest.
Round Up Payments
Rounding up payments work just as the name implies. Rather than making the exact payment that you owe each month, you round up to a higher amount. For instance, instead of paying $237.00 each month, make your payment for $300.00. That adds $63.00 each month that goes towards paying down the principle of the loan.
That is a total of $756 (just over three additional payments) going toward the principal each year, quickly whittling away your debt!
Lump-Sum Payments
Find out the total amount owed on principle for the debt and make a lump sum payment to eliminate the entire remaining debt. That works for people who have recently received royalty payments, an insurance payoff, or even come into inheritances and are interested in eliminating debt.
Some people who are interested in eliminating more substantial debts, or even several smaller debts, use extra payments to aid in this process. Some people receive bonuses from work, holiday gifts, Christmas club payments, and even their IRS tax returns and use that money wisely to help reduce debt, minimize interest, and live simpler, debt-free lives.
They do this by making extra payments on higher-interest loans, credit cards, and other debts when they receive substantial sums of money so that they can ultimately pay off as much of their debt as possible via these lump-sum payments.
Extra Payments
Even if you are not able to make the bi-weekly payment suggested above, you can still reap the rewards by making one additional payment each year. By saving up a few dollars here and there throughout the year toward this payment goal, you can deliver valuable positive results for your total debt.
One Last Thing
Before you dive into any of these methods of early loan repayments, it is critical to determine if your lender has any early repayment penalties. While many modern lenders do not utilize this practice, it is still possible for some lenders, those eager to earn as much profit from interest payments as possible, to impose stiff penalties for early loan repayments. Be sure to check into whether the lender allows early repayment without a penalty fee.
Once you are sure you can repay your debt early, any one of these steps can be a huge help toward your overall goal. The bigger the effort you make towards debt repayment, the more substantial your results will be, and the faster you will find the entire debt repaid.