Ways to pay off any loan faster

Debt has become a part of our life now as most people have some sort of debt in their life. Hence everyone with even little debt has to manage their debt to make sure that it doesn’t get out of control.

If you have borrowed before or you are a borrower currently, you know very well that living with debt is an expensive and stressful experience.

It is important to keep track of your loans every now and then to ensure all terms and conditions are the same and repayments are in order.

A few weeks ago, I shared tips on how to manage your debts: by listing all your debts including the name of the debtor(s), due date(s), amount of the debt(s), and repayment schedule of the debt(s) so you can decide which debt to pay off first, and also by paying your debt payments on time.

Managing your debt is not enough if you want to be financially independent but paying off your debt faster will make you financially independent. So why should you pay off your debts faster than required? It might not seem important right now but paying off debts and loans will strengthen your financial future.

The best reason to pay off your debts early is to save money and stop paying interest.

It has been proved by many prominent psychologists that eliminating debt can be rewarding and reduce stress which leads to living a happy life.

You can’t put a price on happiness, it’s priceless. Once you pay off your debts, you will be in a stronger financial position since the monthly payments that you have been paying towards your debt become available for you to use for other stuff.

Now that you know more about paying off those loans, you may be eager to move forward. You might have been wanting to pay off quickly because you are sick of making monthly payments, and hate the idea of paying interest to lenders but you don’t know how.

For the next two weeks, I will share the tips on how to pay off your debts/loans faster.

Make bi-weekly payments

Loans are traditionally set up for monthly repayment. By submitting your loan payments twice in a month (bi-weekly) instead of once per month you will accomplish one major thing; you will accumulate less interest because the payments will be applied more often during the tenure of the loan hence reducing the debt amount.

The important thing is to make sure that you discuss this with your lender before you start making bi-weekly payments because some lenders might penalize you for any extra payments or paying off your loan earlier than originally scheduled.

You may not notice the impact in your budget, but you will notice the positive impact on your loan.

Make extra payments whenever you can

Another way to pay off your loan faster if you don’t have the cash flow to commit to bi-weekly payments is by making one extra payment whenever you can (preferably once per year). Anytime when you have extra money unexpectedly, why not divert those extra funds into your loan payments? You can channel that fund towards paying down your loan to reduce the size and tenure of your loan.

It is worth to note that sometimes making one-off payments will not actually save you any money, as the full amount of interest may still be applied though you will achieve paying off your loan quicker. In addition, you may find you want to make an additional payment more than once.

This could be driven by an annual bonus payment or additional income from a second source. Multiple payments are even more effective at reducing your loan costs.

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