Whenever you’re in debt, your main goal should be to repay it as fast as possible. Sure, taking out a loan can be a good thing as it provides access to needed credit.
However, loans can be bad when they accrue too much interest. This post will take you through some tips to help you repay your loan faster.
How to Repay Your Loan Faster
1. Seek Debt Consolidation and Relief Services
If you have trouble keeping up with debt repayments, you can seek debt consolidation services.
Debt consolidation firms can help you combine all your debt into one lump sum. Therefore, instead of making monthly payments to different lenders, you’ll be making one monthly payment.
Further, these companies can work with lenders to help reduce the interest rates on your loans, thereby reducing the overall cost of the loan.
Various financial relief firms in the UK, such as Reform Debt Solutions, collaborate with other stakeholders to offer borrowers debt consolidation and relief services.
2. Deposit More Than The Stipulated Minimum Amount Every Month
Clear your debt and save on interest by depositing more than the required monthly minimum. The main goal is to pay an extra amount regularly and repay your loan faster.
If you have several debt sources, handle one at a time. Clear the balance quickly as you continue depositing minimum payments on the other debts.
Some loan providers allow borrowers to pay an extra amount every month, stating that it goes towards the principal. Just ensure that you can handle these additional payments without hurting your budget. Instead of making monthly payments, opt for bi-weekly.
Before making these payments, go through the loan terms and conditions to determine if prepayment penalties or extra fees apply.
3. Make Several Payments More Than Once A Month
Pay your credit card bills regularly, more than the standard once per month. This will help you stay on track of your debt balance and lower your utilisation/balance ratio.
The credit balance/utilisation ratio is the percentage of the total available credit that you’re currently using. This ratio is among the elements used by credit reporting bureaus to calculate credit scores.
4. Consider The Snowball Method Of Clearing Debts
The snowball method entails settling the smallest debts first, then taking the funds that previously paid for that loan and rolling it to the next smallest loan. This process continues until you clear all your debts.
This strategy helps you build momentum as every balance is cleared. Although it takes some initial work to establish this technique, it’s what you need to come up with a repayment plan that keeps you motivated to finish.
Studies show that the snowball method is beneficial because it builds confidence—you begin with the smallest loan and get quick wins. This makes you feel like you’re making progress.
You’ll get great satisfaction from clearing a loan and closing the account. This will give you the motivation to proceed to the next debt.
The only con is that you may end up spending more cash on interest payments since you’re prioritising balances over APRS.
5. Try Consolidating Your Credit Card Debt
You can use a personal loan to consolidate credit card debt spread over several cards. There are several benefits of debt consolidation, the greatest of them being lower interest rates. If you have a good credit score, you can get an annual rate of roughly 6%.
Furthermore, you won’t have to worry about making monthly payments for each card as all the debt is consolidated into one. To top it all off, it can help improve your credit profile.
Nevertheless, these debt consolidation loans are not suitable for everyone. Like car loans or mortgages, you’ll have to apply first and be approved.
Your credit score determines the interest rates you’ll incur. If you have a bad credit rating, the interest could likely be higher or almost equal to that of your cards.
The loan term can also affect the interest rates. The longer the term, the higher the interest rates and vice versa.
You have to also be on the lookout for any charges like an origination fee that might cancel out any savings you could get from consolidating your debt.
Keep in mind that even if it makes sense to consolidate debts, you’re not in the clear to actually pay it back. You must still purpose to repay the entire loan on time. Although, if you’re having a hard time managing your credit card, consolidating it may be an excellent place to start.
6. Try The Debt Avalanche Approach
The best way to reduce your debt burden would be to start by paying off the debts with the highest interest rates first. Doing this will decrease the overall interest rates, reducing your general debt.
After clearing the first loan, move on to the next with the second-highest interest rates and pay them. Do this till you pay off all your debts.
The greatest benefit of this approach is that it’s quick, and you get to save a lot of money. You save a lot on interest when you repay the high-interest loans first.
Moreover, this approach has a straightforward payment structure. The debt avalanche technique is the best if you have difficulties devising your own loan repayment strategy.
The biggest disadvantage with this approach is that you can easily lose morale as repaying your debts can take longer, especially if you have several debts.
Additionally, this technique only works if you have disposable income. The goal is to have some leftover cash after you’ve made all your repayments.
The strategies above will help you pay off your debt in no time. Repaying loans within the specified tenure improve your credit score and increases your success rates for your next loan application.
However, go through the prepayment terms and conditions carefully and don’t make haste to repay the loan urgently in your bid to settle your debt as early as possible.