Is one of your financial goals for this year to pay off your loans faster? Here are some ways to do it effectively.
Getting rid of your debt sooner is vital because the longer you put off repayments, the more you’ll end up paying as interest continues to accrue on your outstanding loan balance. Also, if you get rid of your debt faster, there’s a chance to improve your credit score.
Tips to Paying Off Loans Quickly
When it comes to loan repayments, there are a few easy ways you may be able to deal with it sooner. In turn, it can reduce the overall amount you’ll have to pay.
Tackle how to pay off your loans quickly and start to live a debt-free life by trying these best practices.
Making Additional Payments
First, ask your lender about their repayment flexibility to avoid winding up being penalised for making additional payments. Check with your lender if they allow increased repayment at all and if it’s applicable to your loan type.
Usually, with variable-rate loans, you’ll be allowed to do so. Upping the amount you repay with a variable interest rate can lessen the interest you’ll be charged, which saves you money.
While most fixed-rate loans don’t allow making additional payments, there may be some that do. However, the amount that can be repaid early may be limited. Early repayment fees and early exit fees may also be included.
Changing Payment Frequency
For a bigger impact on your loan, increase the frequency of your payments. Generally, the more often you repay, the less interest you’ll have to pay off as interest is calculated daily.
Instead of monthly, you can switch to making fortnightly repayments, which make you pay your loan off quickly. In a year, there are 26 fortnights. You may pay off an extra two weeks without noticing a huge difference compared to monthly repayments.
Refinancing Current Loans
It’s good to always look out for better loan interest rates. With refinancing to a lower interest rate, you’ll have less monthly repayments. This can save you money over the course of the loan term.
Given you are in a healthy financial standing, you may be able to negotiate a better interest rate on your loan. In this event, keep doing the same repayments you were required so you can pay off your loan faster.
Paying Off Loans Faster Can Improve Credit Score
It’s good to improve your credit score. A trick to do this is to avoid late repayments at all costs. Or better yet, pay off your loans faster.
We know that payment history has a huge effect on anyone’s credit score. It’s better to have paid-off debts like old student loans on your record. This shows you were responsible in handling your debts.
This may take several weeks or months for the impact to show on your score. The sooner you start working on improving your credit, the sooner you’ll see results.
Talk to your lender to know your options. But, make sure it won’t increase your loan term and cost you extra fees.