Did you know that the average 10-year student loan can actually take up to 21 years to pay off?
Debt can cripple your finances, so the sooner you pay off loans, the better. But with skyrocketing inflation and stagnant wages, that’s easier said than done. That said, with some sacrifice and planning, you can pay off loans quickly.
You can pay off loans fast if you learn a few tricks to manage finances. After all, many people are in debt due to uncontrolled credit card spending.
In this guide, we have a few financial tips. Keep reading for everything you need to know about paying off those loans.
Pay More Than the Minimum to Pay off Loans
Every loan comes with a minimum payment. This is the smallest amount you can pay before your loan company will send credit collectors after you.
The problem is, loan providers design the minimum with the intention of keeping you in debt for longer. If you only pay the lowest amount possible, that means more time for your loan to accrue interest. Unless you’re using a low-interest loan from Kingcash blog, that’s going to add up fast.
After paying the minimum for years, you’re likely to pay double or triple what the loan was originally worth. If you’d known that from the beginning, you’d take it to be terrible financial advice that anyone would pay 3x what something is worth.
Try to pay as much as you can each month. Even contributing an extra $100 may help you to keep ahead of the interest. If a higher payment means paying off a year or two early, it’s worth it.
Pay More Often Than Once a Month
Monthly payments may lead some to believe that they can only pay once a month. But this is false. In reality, you can make as many payments as you want.
Sometimes, your money comes in spurts. You get your two-week payday, or you get a windfall bonus from making a sale. There’s nothing stopping you from dumping that money into your loan payment.
Even better, you can split up your loan payment. If the due date is too much of a burden, then you can pay the minimum. Then pay the other half at a later date.
In either case, you’ll be on track to pay off loans quickly.
Focus on Big Loans
Everyone’s got at least two loans. You might have a student loan as well as a car loan. Chances are that your student loan is 3x larger than the car loan.
Big loans, even with smaller interest rates, accrue a lot more interest. A $30,000 student loan can rack up a ton of interest, far more than a smaller $3,000 car loan.
Rather than pay equal amounts for both loans, it might be in your best interest to pay more for the student loan. While you will accrue interest on the car loan, it won’t be anything in comparison.
This is important since these big loans like student debt can take a lifetime to pay off. Focusing on it over other loans could cut down on the completion time by at least a few years.
Try Out the Snowball Method
The snowball method is the reverse of the previous point. This works best when you have a lot of little loans. To reduce how many payments you’re making per month, you focus on the smallest loans.
Say you have a $500 loan, a $1,000 loan, and a $5,000 loan. Rather than give the biggest payment to the $5,000, you focus on the $500. You pay that off and then move to the $1,000.
This strategy creates “momentum” as you take out loans one by one. It reduces the burden and stress on your plate. It’s a lot easier to budget finances with one big loan than a dozen smaller ones.
A lot of smaller loans can accrue a surprising amount of interest. Taking them out quickly frees up your finances and makes bills less stressful.
Consolidate Your Debt
What many young people don’t realize is that they can combine their loans into one. This is known as consolidating your debt. You replace several high-interest loans with one big, low-interest loan.
The result is that you only have one payment to focus on per month. Low interest means you’ll be able to keep on top of it. You’ll be able to make larger payments, resulting in paying off your loan at an increased pace.
Debt consolidation is best when you’re overwhelmed by 2 or more loans. It’s a great long-term option, too.
Use Tools to Keep Track of Your Debt
With a busy schedule, it’s hard to stay on top of loan payments. So much might be going on, causing a payment date to pass you by. This may come with penalties that will only increase the burden on your shoulders.
Luckily, most loan providers give you auto-pay options. If you’re not sure the money will be in the bank, then you can get a payment reminder. In either case, there’s no chance that you’ll miss a payment due date.
Further, your bank might provide overdraft protection. In the event that you don’t have the money for a payment, you won’t owe the bank a fee.
Manage Finances for a Better Future
No one likes to pay off loans, especially when it might seem like you have a lifetime of debt before you. But if you’re scrupulous and careful, there are ways to pay off loans quickly. This may require sacrificing a few dollars here or there, but it will result in paying off your loans much faster.
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