Four ways to pay off your personal loan faster

Personal Finance · 09 Dec 2019

When you take out a loan, you need to be in a position to pay it back.

When you take out a loan, you need to be in a position to pay it back. It's no secret that the longer you owe money, the more you actually pay overall, as the interest charged on your loan will increase your overall repayments.

If you can pay off your loan faster, not only can you give yourself freedom from the extra payments, you can also save yourself a bit of money in the process.  Following these four tips could help you to get out of debt sooner.

1. Budgeting

The biggest reason people struggle with loan repayments is that they don't keep track of their money closely. If you know you have a payment coming out on a certain day, it's important to make sure you have the funds available to cover it. If you miss payments, you could have to pay extra fees and end up even more out of pocket.

One way to make sure that you have the money available is to set up reminders in your phone, a digital calendar or a paper calendar to alert you several days before a loan repayment is due, and then the day before the repayment is due, to be sure you don’t forget. And so you can make sure you have sufficient funds in your account.

To make sure you have that money available to transfer, you should draw up some kind of budget, making sure to include your partner in this if you have one. To create a budget, first work out how much money you have coming in and what dates you normally get paid on. Then work out what expenses you have that you can't live without: rent or mortgage, loan repayments, phone contracts, etc.

Once you know what you earn and what you spend on necessities every month, you can see what you have left over for fun and treats. You may find that you have to cut back in certain areas – like removing a streaming service or eating out less often – but these small sacrifices could be well worth it if they help you achieve bigger financial goals more easily.

2. Debt consolidation loans

While paying off one loan is fairly straightforward, it gets more difficult if you have multiple debts. If your credit cards have one payment date, your car loan another and your home renovation loan another, it's easy to get caught out.

This is where a debt consolidation loan comes in – a single loan with a single monthly payment that takes on all of your debts. Rather than having multiple payments throughout the month, you'll only have one payment date that you need to remember.

One big advantage of this type of loan is that it can reduce your outgoings. Debt consolidation loans, as a general rule, have better interest rates than credit cards. Also, because you won't be missing so many payments, it's less likely that you'll be charged late payment fees.

3. Round up your payments

If your loan allows you to make bigger payments, you should use that to your advantage. One easy way to do this is to round up each payment you make. Chipping away at your debt a little bit more each month quickly adds up.

For example, if you have to pay $126.50 every month, setting your repayments to $150 is a relatively small change that could have a big impact in the long term. It may be less than $25 extra per month, but that works out to almost $300 a year and $1200 over a four-year term.

This method depends a lot on your personal situation. The more you can afford to pay back every month, the quicker you can pay back your loan. Also, because it's a voluntary extra payment, you can switch back to the default payment without any negative effect if you have a few lean months.

4. Aim to make one extra payment a year

If the idea of paying extra every month doesn't appeal, making it a goal to make one extra payment every year is another way to make a significant dent on your overall debt.

If you can make an extra monthly payment every year, this means you'll pay back a five-year loan five months earlier, so you can look forward to that sense of freedom that little bit sooner.

Apply for a personal loan today

If you feel you're ready to take out a personal loan, make your application through Harmoney. Getting money through our marketplace is quick and secure. There are no early repayment dates and you only pay interest on the amount you owe – if there's no debt, there's no interest to pay.

Other articles you may like:

Learn to love your budget

What is debt consolidation and is it right for you?

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