If one of your money goals for this year was to get that debt monkey off your back, here are five ways to pay off your personal loan faster.
If you’ve got debt, getting rid of it quickly is important because the longer you owe money, the more you actually end up paying because interest continues to accrue on your outstanding loan balance.
Here’s how to tackle your personal loan debt so you can start living that debt free life.
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1. Make additional repayments
Making additional repayments is an easy way to pay off your personal loan faster, but you should check with your lender first because the amount you’re allowed to repay and whether or not you can make additional repayments at all depends on the lender and the loan type.
Most variable-rate personal loans will allow you to make additional repayments while most fixed-rate personal loans do not allow this. There may be some fixed-rate personal loans that allow additional repayments, but there may be a limit on the amount that can be repaid early and you may also be charged early repayment fees and an early exit fee if you repay the loan earlier than the initial loan term.
Before you make any additional repayments, ask your lender what their repayment flexibility is like so that you don’t wind up being penalised for making additional repayments.
2. Increase your repayment amounts
You may be able to increase your repayment amounts if you’re on a personal loan with a variable interest rate. By upping the amount you repay, the less interest you’ll be charged, saving you money.
3. Increase the frequency of your repayments
If you want to make an even bigger impact on your loan, increase the frequency of your repayments as well as increase your repayment amount. The general rule is that the more often your repayments are, the less interest you’ll have to repay because interest is calculated daily. So instead of making monthly repayments, switching to fortnightly repayments (to coincide with when you get paid) can make a huge difference, particularly if the fortnightly repayments are exactly half of what the monthly repayment amount is.
4. Put any bonus money into loan repayments
If you’ve received any bonus cash, like a tax refund, put this towards an additional repayment on your loan rather than spending it.
5. Consider a debt consolidation loan
Paying one loan off is fairly straightforward - but what if you have multiple debts you want to get rid of?
A debt consolidation loan allows you to roll all your debts into one single loan with one monthly repayment. Not only does this make your debts easier to manage because you’ve only got one due date to remember, it could also save you money if the interest rate on the debt consolidation loan is substantially lower than the interest rates on other debts. Just beware of turning short-term debts into long-term debts, because that could cost you more.
Savings.com.au’s two cents
No one likes being in debt, but there are steps you can take to relieve the financial pressure. Make sure you have a clear picture of how much you owe, work out how much you can afford to repay and start making additional and more frequent repayments, if your loan type allows it.
If you feel like you’re really struggling, remember that you can always reach out to a free financial counsellor for advice. You can ring the National Debt Helpline on 1800 007 007 for free advice on managing your debt.