How To Pay Off A Loan Early
If you’re like most Americans, you owe money on a large loan. Whether that’s credit card debt, a mortgage and/or a car loan, loan debt is part of your life. And that means you’re looking at hundreds of dollars in interest over the life of the loan. There’s also the mental load of knowing you’ll be paying on the debt for years to come.
Did you know there are simple tricks you can employ to lighten the load? With a carefully applied technique, you can pay off your mortgage, auto loan, credit card debt and any other debt you’re carrying sooner than you thought possible. These tricks are light on your finances, but they can make a big difference to the total interest you’ll pay over the life of the loan and get you debt-free faster.
A note of caution: Check with your lender before employing any approach, as some loans have penalties for making extra or early payments.
1. Make bi-weekly payments
Instead of making monthly payments on a loan, do half-payments every two weeks. This way, your payments will be applied more often so less interest can accrue. You’ll also be making 26 half-payments each year, which translates into an annual extra full payment, shortening the life of the loan by several months or even years.
2. Round up your payments
Round up your monthly payments to the nearest $50 to shorten your loan. The difference is usually too small to make a tangible dent in your budget, but large enough to knock a few months off the life of the loan and save significantly in interest.
3. Make one extra payment each year
If you can’t make bi-weekly payments, but you like the idea of an extra yearly payment, accomplish the same goal by committing to just one more payment in the year. You’ll only feel the squeeze once (tax or bonus time, perhaps) and you’ll still shorten the life of the loan.
You can also spread that extra payment throughout the year. Divide your monthly payment by 12 and then add that cost to your payments all year long. You’ll be making an extra payment while hardly feeling the pinch.
If interest rates have dropped since you took out your loan or your credit has improved dramatically, contact DCU to ask about refinancing, whether the loan is with us or not.
Refinancing makes the most sense if it can help you pay down the loan sooner. With a lower interest rate, you should easily be able to afford shortening the life of the loan.
5. Boost your income
Cut the life of your loan short by earning more money and putting the extra cash towards your loan. Consider selling stuff on Amazon, moonlighting as a consultant or taking on a side hustle.
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