It’s important to pay loans off in a timely manner, both so that you don’t have to spend years or decades paying them off and so that interest has less time to build up. However, it can be relatively difficult to figure out how to do so. Here are five tips for paying your loans faster.
1. Make Loan Payments More Frequently
Most lenders expect you to make loan payments on a monthly basis. If you need to, you may be able to choose a repayment schedule where you make payments less frequently. However, you’re also allowed to make more frequent payments without changing your monthly payment plan. For example, if you’re paying off an auto loan, try making payments twice a month or once every pay period if you’re paid weekly, rather than once a month. More frequent payments, especially if you pay the full amount of the bill every time you make a payment, will help you pay off a loan more quickly.
2. Take Advantage of Deferment Periods
Sometimes, loans are deferred, which means you don’t need to pay them off for a certain period of time. For example, most student loans are deferred while you’re attending school and in some other circumstances. Typically, interest still accrue while loans are deferred, though there are some circumstances in which that accrual is paused. Always check whether your loan has a deferment period and what the parameters of that deferment period are. You can then pay off the principal during that deferment period, especially if interest accrual is paused, or work on paying off loans that aren’t deferred.
3. Construct Your Budget With Appropriate Focus
Depending on your situation, loans may not be your only bills. If you can focus mainly or exclusively on your loans, then construct a budget to support that focus. If you have other bills to pay each month, such as rent, groceries, health insurance premiums and utilities, then you’ll need to split your focus between those bills and your loan payments. However, you can still work to pay your loans more quickly even if you have other bills. Review your budget and determine whether you can cut costs anywhere and put the money you save from that toward loan payments. For example, you can reduce the number of times you eat out each month or check how many video streaming subscriptions you have. Canceling extraneous subscriptions can be a big help when you’re looking to save money.
4. Pay Larger Amounts Than the Minimum Payment
One of the simplest ways to pay off loans more quickly is to put more money toward your regular payments. Only put as much extra toward your loans each month as your budget allows. If, for example, your monthly payment is $100, then you may feel comfortable paying double that amount. If, however, your monthly payment is $700, you may only feel comfortable putting twenty-five or fifty more dollars toward your loans each month. The more you can pay each month, the less change interest has to accrue and the faster you can pay off the full loan amount.
5. Focus First on Loans With Higher Interest Rates
While you may need to pay off multiple loans each month, you should place the most focus on paying off larger loans and those with higher interest rates. Make the minimum required payments for your other loans each pay period and put extra money toward the loans that are larger or have higher interest rates. When you do this, you can pay off more expensive debts more quickly and then pay off less expensive debts at a more leisurely pace.
Make sure you use the strategies that work best for you. If you have multiple loans, seek opportunities to consolidate or refinance them. If you have one large loan, try methods such as reworking your budget so you can put more money toward paying off the principal as quickly as possible.