Paying off your debts as quickly as possible can net you significant financial savings. The desire to get out of debt is present in many people, who are also aware of why it is essential to do so. In most of the cases, it is simply a matter of logistics.
There are many straightforward approaches available to reduce the balance of your loans. There may be prepayment fees and certain steps that need to be taken for the lender to credit things properly. Make sure you know the procedures for early debt repayment with each potential lender you are considering before settling on one.
Is It Really a Good Idea to Pay Off Loans Earlier Than Scheduled?
There are times when paying off debt is a good idea, and there are other times when there are better options.
There are a number of compelling arguments in favor of paying off debt as quickly as possible, including lowering the total amount of interest paid and freeing up funds that can then be saved or invested. When the interest rates on loans are exceptionally low, it may not make financial sense to accelerate the loan's repayment. Before you rush through your payments, check to see that your fund for unexpected expenses has sufficient funds.
Some people enjoy the sensation of having no outstanding financial obligations. Suppose the money that you will use to prepay the low-interest debt is invested in financial instruments or alternative investments such as real estate, with expected returns higher than the loan's interest rate. In that case, the money will work harder to pay off the debt.
It is always a good idea to run some numbers and figure out how much money you will save, as this will likely motivate you even further. Use a loan amortization calculator to get an idea of how things will play out, make use of a loan calculator that has already been built-in in Excel, or compute loans on your own using the manual method.
Just Send the Money
Paying a little bit more, or even a lot more, whenever you can get your debt paid off faster and easier than any other method. It also requires the most discipline, making it the most difficult to accomplish. If you don't think you'll be able to stick to the plan, you should probably think about employing a method that is automated.
Send in additional payments if you prefer to make decisions on the spur of the moment and are certain that you can clear your financial obligations without assistance. You should enclose a note with your check, and in the memo line, you should write "Apply to the principal." Your creditor will be aware that you are making an effort to pay more, and they will be able to get in touch with you if there is anything else that needs to be done differently. After the first two or three payments, you should make a follow-up inquiry to ensure that your instructions have been comprehended and are being carried out.
The same idea also applies to electronic payments, which usually have a space where you can include a note about your objectives.
Make an additional payment this time around
If you make an additional monthly payment each year, you will be able to pay off loans much more quickly. If your monthly payment is $1,200, you should make an additional payment of $1,200 at some point throughout the year. You could use money that you received from a bonus or a tax refund.
If you are like the majority of people around the world, coming up with an additional payment might be difficult for you. One of the options available is to divide the additional payment up and pay it throughout the entire year. Your monthly payment should be divided by 12, and the result should be added to each monthly payment. Your payment of $1,200 will be increased to $1,300 (1,200 divided by 12 equals 100, and 100 plus 1,200 equals 1,300).
Make Payments Twice Monthly to Eliminate Your Debt
Another method for paying off your debt is to make payments every two weeks rather than once a month. The elimination of debt through the use of payments made every two weeks should not result in a significant spike in the amount of money needed to cover monthly costs. However, as you pay off the debt over the years, you will significantly reduce the interest you owe, which will result in significant savings. You will ultimately be responsible for earning the equivalent of one additional payment every year.
Try out the Payoff Assistance Programs provided by lenders
It's possible that your creditor has more than one solution to help you pay off your debt more quickly. It is possible that these programs will require you to pay additional fees; therefore, you should exercise caution. Proceed with the payment of the fees if you feel it will benefit you. Find a way to pay more while avoiding fees if you don't like how they're structured. You could use your bank's online bill pay system to establish recurring monthly payments. Make sure to include a note that says "Apply to the principal" in your submission.
In addition to your original creditor, there are other businesses that will gladly accept payment for a debt-payoff program. They offer computer programs and management systems that can take care of everything for you (or at least tell you what to do). In most cases, you do not require these services unless they will assist in the resolution of a disciplinary issue.
If there is no other way to get it done, then you should use whatever method is successful; however, you should make sure that you save more money than you spend.