1. Make extra payments
Making extra payments on your loan is one of the most effective ways to pay off your loan faster. You can make extra payments through:
- Paying bi-weekly: when you make bi-weekly payments, you end up making 26 half-month payments, which works out to be 13 full-month payments. This means you are effectively making an extra month’s worth of payments. For example, if you’re repaying $1000 per calendar month, pay $500 fortnightly instead. This amounts to $13,000 in bi-weekly payments over 12 months, instead of $12,000 paying by the month.
- Allocate windfalls: whenever you receive unexpected money, like a work bonus or a tax refund, consider putting a significant portion of it toward your loan.
2. Round up payments
Round up your monthly payments to the nearest ten or even to the next hundred if you can afford it. Paying a little extra each fortnight or month will add up quickly, and shouldn’t make a big difference to your weekly spending money.
Decide how much you want to round up your payments. You can round up to the nearest ten, hundred, or any amount that suits your budget. For example, if your minimum payment is $176, you might decide to round it up to $200.
If your financial situation changes, you can adjust the rounding amount. You can increase it if you have more funds available or decrease it if you need to free up some cash for other expenses.
3. Negotiate a lower interest rate
Contact your lender and inquire about the possibility of lowering your interest rate. Sometimes, lenders are willing to reduce your rate, especially if you have a good payment history. To improve your standing, set up automatic payments to ensure you never miss a due date, and consider making extra payments manually when you can.
Before accepting a lower interest rate or refinancing with a new lender, review the terms and conditions of the loan carefully. Ensure that the new terms align with your financial goals and that there are no hidden fees or costs.
4. Create a budget
Writing a budget is an essential first step to begin managing your finances effectively. A budget can help you get on top of debt, save for the big things and ensure you still have fun. Create a detailed budget to track your income and expenses. Identify areas where you can cut back and redirect those savings toward your loan payments.
→Related article: How to Write a Budget
5. Consolidate debt
Debt consolidation is a financial strategy that involves combining multiple debts into a single, more manageable loan. The main purpose of debt consolidation is to simplify debt repayment. Consolidating your debt into a single, low-interest loan can help you save money in the long run. Plus, by taking out a new loan (or adding to an existing one), you only have to keep on top of one set of repayments.
→Related article: What is Debt Consolidation?
6. Snowball or avalanche method
If you have multiple loans or debt and choose not to consolidate them, consider whether the snowball or avalanche repayment method is best for you. The snowball method involves paying off the smallest debts first, while the avalanche method focuses on the highest interest rate debts. Whichever method you choose, use any freed-up funds to tackle your personal loan.
Typically, the avalanche method is quicker at paying off debt, as it prioritises paying off the debt with the highest interest rate first, which in turn means that your debt will accumulate less interest charges. However, a snowball repayment method may work better in your situation. Consult a financial advisor to find out which strategy is best for you.
7. Increase your income
Increasing your income can be a powerful strategy for paying off loans faster because it provides you with more money to put toward your debt. Look for opportunities to increase your income, such as taking on a part-time job, freelancing, or selling unused items.
Remember that different strategies work for different people, so choose the ones that align best with your financial situation and goals. Paying off a personal loan faster requires commitment and discipline, but the financial freedom it can provide is worth the effort.
About the author of this page
This report was written by Canstar Content Producer, Caitlin Bingham. Caitlin is an experienced writer whose passion for creativity led her to study communication and journalism. She began her career freelancing as a content writer, before joining the Canstar team.