FX.co ★ Six ways to pay off a loan faster

There are many reasons to pay off a loan as soon as possible. Firstly, it saves money, and secondly, it gives a pleasant sense of security that allows you to make bolder financial decisions: you can change your job, invest in an interesting startup, and finally, take a break and go on vacation for a few months.

10% Rule

It is beneficial for banks to extend your loan for as long as possible, because they earn more on interest.

In this case, you can simply reduce the payment period if you pay each month 10% more than the prescribed amount. For example, instead of 10,000 thousand you can pay 11,000. Most likely, such an overpayment will not greatly affect your budget, but as a result it will allow you to repay a loan several months earlier reducing the amount of interest payments the bank expected.

If you have multiple loans, start applying the 10% rule for the smallest of them. For example, firstly, you can pay off your credit card debt, then a car loan, and finally a mortgage.

Pay several times

The basic principle is similar to the previous method: to quickly repay a loan, you need to pay more money. Only instead of 10%, you should pay additional money you got, not your salary. For example, you can use a holiday gift, bonuses or one-time earnings.

Instead of just spending extra money, it is better to pay off loans in order to get rid of monthly payments faster.

Plan your expenses

An additional income is not always a prerequisite for making unscheduled payments. Most likely, after a careful analysis of your financial situation, you will find that you can pay more if you get rid of some unnecessary spendings.

At the same time you do not have to give up essential goods but simply limit the mindless” (based on whims or emotions) purchase. It’s good to use the 24-hour rule for making decisions about any purchase.

It is recommended to keep an electronic (there are many applications) or a handwritten journal of all incomes and spendings in order to identify all non-mandatory expenses that can be avoided in favor of repaying the loan.

Save money

You shouldn't starve (only for the purposes of medical treatment) or give up medical assistance in order to free up additional funds, since in the long run this leads to irrecoverable losses. However, you should relinquish delicacies, buns and cakes in bakeries, coffee to go, entertainments, buying new fashion clothes. It will help you save a significant amount of money.

Maybe this is not very pleasant, but, firstly, most often it is even better for your health and will teach you to be more disciplined, and secondly, it is a temporary measure. You can promise yourself to regain small pleasures as soon as you get rid of all loans in order to motivate yourself more.

Additional income

If you do not want to limit yourself, then start earning more. You can master another part-time profession (design, copywriting, translation, photography, or audio and video montages) or open a small business in parallel with the main activity.

You sould use funds received from additional sources to repay loans faster. The indisputable advantage of this method is that over time this part-time job can turn into the full-time one, and you will start generating profit that you couldn’t even count on.

Refinance your loan

As the state financial regulator (the Central Bank) changes its policy (loan rate) over time, the terms of borrowing change accordingly.

Therefore, many financial institutions now have a refinancing program. Banks offer to take another loan to repay the previous one, and the conditions of a new loan are much more profitable.

Consider offers from different banks, and if you have a good credit history, you will most likely get a new loan with the best terms without any problems.