5 Tricks to Help Pay Off Your Loans Early

From financing college education to paying for real estate, loans are necessary for many major steps forward in your life. While loans are an unavoidable fact for most people, paying them off early can help you reduce the amount you pay in interest and help you free up more of your income for saving, investing or other useful activities. Here are five of the best tricks to help you pay off major loans ahead of schedule.

1. Use Any Windfalls to Reduce Your Debt

Once in a while, you may receive a large, irregular sum of money. For most people, financial windfalls take the form of gifts, inheritances, tax returns or bonuses at work. Whenever you get such a windfall, one of the best things you can do is to put it toward paying off your loans. By doing this, you can retire a significant chunk of your debt without drawing against your regular income. Windfalls from tax returns and work bonuses alone can help you put hundreds or even thousands of dollars of your debt to bed over the lifetime of a multi-year loan.

2. Consider Consolidating Your Loans

If you have several small loans instead of one large one, loan consolidation may be a good strategy for you to use. Loan consolidation is an especially effective tool for dealing with credit card debts, since these loans can often be combined together at a lower interest rate and paid off more easily with a single monthly payment. Once you have your debts consolidated under a single agreement, you can pay off your loan and get out from what would previously have been an unmanageable and distributed debt load.

3. Increase Your Monthly Payment

In order to avoid putting too much of their money into servicing their debts, most people make only the minimum monthly payment required of them. While this can seem like a practical approach in the short run, it will make you pay more interest in the long run. Instead, raise your monthly payment a bit above the minimum. Even if you only pay $10 or $20 beyond what’s required, you’ll be able to slowly chip away at your debts and pay off your loans ahead of schedule.

4. Take on a Part-time Job

If you really want to pay off your loan fast, one of the best things to do is to take on a part-time job on the side and use all of the money you earn in that job to eliminate debt. While it’s a harder strategy than the others listed here, working a part-time job for a year or two is a great way to rapidly retire large amounts of debt. This approach is generally best for large loans, such as student loans or mortgages. If you can manage a second job, though, you’ll find it can help you get out from under your loans much faster than you ever could otherwise.

Taking on a second job can also be a useful way to save and invest extra money once your loan is paid off. Although you probably won’t want to work two jobs indefinitely, moonlighting for a few hours a week is an extremely effective way to bulk up your finances. Young people who don’t already have families of their own can do especially well with part-time jobs, since they won’t have as many other obligations competing for their time.

5. Refinance at Lower Interest Rates, but Don’t Reduce Your Payments

In some cases, large loans can be refinanced at lower rates, allowing you to pay them off more quickly without raising your monthly payments. Such refinancing arrangements are most commonly used to reduce the required payments on mortgages. If the prevailing interest rate now is lower than when you took out the original loan, a refinanced loan will likely help lower your rate. Once that happens, you can keep making the same payment as before, but more of the monthly payment will go to pay off the principal amount of the loan. Using this strategy, you’ll reduce the interest you have to pay and put your loan on an accelerated repayment schedule at the same time.

These are just a few of the personal finance strategies you can use to pay off your debts ahead of schedule. Whether you’re dealing with accumulated credit card debts or a large mortgage payment, there are tools and tricks you can use to get out of debt sooner and reduce the amount you’ll pay in interest.