5 Effective Tips for Paying Off Loans Early
Debt can be a crippling part of life you deal with. Debt is a combination of things from student loans, to car payments, mortgage loans or credit card debt.
Paying off loans early can lessen the burden of outstanding interest, but how do you do it? And if I pay off a personal loan do I pay less interest? Even as thousands of individuals deal with debt, creating strategies to pay off a loan early can be hard to develop.
Don’t worry. Here are seven simple tips to start paying off loans early.
1. Use the Snowball Method
Use the Snowball Method to start paying off loans early means following a few steps.
- Pay the minimum monthly payment for each account
- Put your extra money toward the lowest balance or personal loan
- Once it’s paid off, use that same amount of money to pay off the next smallest balance
- Continue this process for your other loans working lowest to highest
2. Keep Out of Sight
It’s the 21st century. Credit cards can be used online regardless if you have them or not.
But, if you’re a physical spender, it’s a good idea to store your credit cards out of sight. Store them in a folder with your statements and account information. This will not only remind you of your previous spending but will keep them less accessible.
3. Make an Extra Payment
If you have some extra money, the best way to dip into outstanding interest is to make another payment per month. Paying off your loans early will save you thousands of dollars in interest. Consider the idea of making weekly car payments.
Your wondering of “how long will it take to pay off a loan” will dwindle away as you continue to pay more and more.
Before you know it, the debt will be dwindling away and the extra money you’re putting toward it will be able to be saved or used in other facets of your life.
4. Paying off Loans Early With Balance Transfers
When you have credit card debt, an option is balance transfers.
If you have an account with a high-interest rate you can transfer the balance to a card with a lower one. This may equal spending less money over time, but this depends on credit score and the chances of getting a good balance transfer deal.
Moving that money to a card with 0 percent APR can save you tons of money in the long run.
5. Refinance a Loan
Most of the recommendations to start paying off loans early have stemmed from lowering your interest rates. The same can be said for refinancing a loan.
If you want to put more of Captain Cash in your pocket, refinancing a loan goes toward the interest, not the principal balance.
This can affect payments a significant amount. Most of the time interest rates that are higher than ones you could get with a new loan should be refinanced.
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