4 Ways to Pay Off a Personal Loan More Quickly
By Tracy L. Hirsch
If you have a personal loan or a credit card that you want to pay off quickly, here are four outside-of-the-box ways to do it!
If you’re making monthly payments on your credit card or personal loan, you may be thinking that there’s nothing that you can do to get the balance to $0 a little faster. While there are ways to pay it off sooner than you had planned, it’s important to understand the benefits of doing that.
First, you’ll pay less in interest, which in turn, allows you to put that hard-earned money toward household expenses. Second, when your balance goes down, that can help increase your credit scores by lowering your credit utilization ratio.
Choosing to make small changes to your repayment approach can help you get rid of your debt faster. Here are four unique ways to achieve that:
1.) Add a ‘booster’ payment. One way to ensure that you’ll pay off your loan faster is to make a second, smaller payment every month. For example, let’s say that you get paid every two weeks (on the 1st and 15th).
If your minimum amount due on your credit card is $250, and if it’s due on the 2nd day of every month, you could pay $250 on the 2nd day of the month, and then pay $50 on the 16th day of every month.
That way, you’re still technically making your monthly payment on the 2nd, but you’re adding a “booster” payment on the 16th. So instead of paying $250 total per month, you end up paying $300.
When paying an extra $50 a month, you’re making your balance $600 lower at the end of the first year, than it would be if you were only paying the minimum payment every month.
The booster payment can be helpful if money is tight between paychecks, and if you can only afford to pay the minimum payment at the beginning of the month (or whenever it’s due).
Remember: Paying off personal loans more quickly saves you lots of money on interest.
2.) Put any surprise cash toward your debt. Do you have an aunt who sends you a random check for $100 just because she loves you? Did you recently receive cash for your birthday? Do you get quarterly bonuses at work? If so, it’s good to put that extra money toward your debt.
While it may be tempting to spend it on clothing or electronics, unless you have an immediate need (like a car or home repair), those generous money gifts should be added to your ‘booster’ payment.
3.) Round up your minimum monthly payment. If doing booster payments seems too hard to remember, an alternative is to round up your monthly payment.
For example, if your minimum monthly payment is $249.76 a month, paying an even $300 will have the same effect as the booster payment. This way, you’re still paying more than the minimum, and this works well if you have extra wiggle room in your budget from your first bi-weekly paycheck.
4.) Refinance your loan or do a balance transfer. If you have good credit scores and a solid payment history (i.e., no late or missed payments), there’s a good chance that your lender might be willing to refinance your personal loan so that you can decrease your APR.
The downside is that the payback period may be extended (for example, you may go from a 36-month loan to a 48-month loan), so it’s important to weigh the pros and cons before committing to refinancing.
If you have a credit card balance with a high APR, and your lender won’t negotiate to decrease it, you could transfer the balance to a new card that offers 0% interest for the first 12, 14, or 18 months. You should only do this if you know that you can pay off the total balance (or most of it) by the time the introductory period ends.
For example, if you have a $2,200 balance, and your APR is 24.99%, you’ll add on about $550 in interest over a year’s time.
So if you want to pay it off in 12 months, you would have to pay $183 a month plus $45 a month in interest, which is a total of $228 a month! If you transferred that balance, you would only have to pay $183 a month if your 0% introductory rate was 12 months or more.
Again, you’ll only get approved to open a new card to do a balance transfer if you have good credit and a solid payment history, so be sure to weigh those factors!
Do you have any additional tips on how to pay off a personal loan faster? If so, please share them in the comment section of our Facebook post!
If you have multiple personal loans and/or credit cards with high balances, and you’re struggling to pay the minimum monthly payments and are being sued by your creditors, filing for bankruptcy could help you. You might be able to pay back less than what you owe, plus stop any lawsuits.
If you’d like to learn more about this option, you can text me or call me on my cell phone at (502) 435-2593.
I offer free consultations to help you determine if bankruptcy can help you with your debt. Whether you’re able to pay back your personal loans on your own, or need protection through a bankruptcy plan, give yourself a gift this holiday season that you can’t put a price on — financial freedom!
All the best,
Tracy L. Hirsch
Louisville Bankruptcy Lawyer
Are you struggling to pay the minimum monthly payments on your credit card bills and personal loans? I can help you. Let's chat!
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