Hey hey, ho ho, this payment party has got to go! #amiright?!?
When you’re in debt, the last thing in the world you want to do is take your sweet time paying those suckers back. If you’re like me, debt feels like an enormous weight dangling around your neck. It drags you down, wears you out, and makes it tough for you to function like a normal human being. And how can you? You’re constantly worrying about how you’re going to come up with the money to pay X, Y, and Z. It sucks.
Think about it. How are you ever supposed to be saving money when the majority of your paycheck is going to somebody else? You can’t. So, the quicker you get rid of your loans, the better. It’s not just going to make you feel better, it’s going to help set you on the path to building real wealth.
I don’t care if they’re student loans, credit card loans, or mortgage payments. Shed those suckers like a sequined halter in a strip club! Take them off, swing them around, and get rid of them as quickly as possible. Here are 4 ways to speed up the process and do just that.
Pay Extra Each Month
If you want to supercharge your loan repayments, you need start putting extra money toward them right away. Just a little bit each month can save thousands of dollars and tons of time. For instance, adding just $25 a month to a $25,000, 10-year student loan sitting at 6% interest saves you about $1,000 AND cuts a whole year off the life of your loan. If you crank that up to $100 a month, it saves you 3 years and almost $3,000 in interest! Whether you’re paying back credit card debt, student loans, or a mortgage, the more money you’re able to pay over the minimum due, the faster your loan will be paid off.
Pro Tip: If you really want to get out of debt über fast, try using the snowball method. This is a very aggressive strategy that can have you out of debt within a matter of months. Here’s how it works: Use your monthly budget to pay your essentials first. Then, take all the money you have left over and throw it at your debt, starting with the smallest amount first. When that first debt is paid off, use the additional money you now have to pay it toward the second smallest debt. Do this until you’ve eliminated all your debts one-by-one! You’ll find success quickly.
Rather than paying your loans back on a monthly basis, try paying every other week instead. Doing so means that you’ll make 26 bi-weekly payments instead of 12 monthly payments. That adds up to one additional monthly payment each year that you’ll barely even notice. Using the same $25,000/10 year/6% example as above, this process would knock off about 11 months and $820 in interest from the cost of your loan. Not bad for a small switch.
Pro Tip: If you get paid on a bi-weekly basis, this method is super simple. Just pay half of your monthly payment each time you get paid.
Use Auto Billing
If you’re willing to have your account be billed automatically, you can usually save a little bit of money. Not all lenders offer this option, but with most places you can save about 0.25%. That doesn’t seem like a lot, but it adds up over the course of your loan. Using our same example ($50K), this interest rate reduction would save you $6.25 per month…or $750 over the life of your loan. By tacking this savings onto your minimum monthly payment, you’ll save a month on the loan.
Pro Tip: Now, combine this method with paying an additional $25-50 a month, and you could really be saving a lot of time and money.
Refinancing your student loans or other debt could be a great way to pay back loans faster. Let’s use our same borrower and refinance their student loan interest rate from 6.0% to a fixed 3.50%. This alone saves about $60.67 on the monthly payment and $7,280 in total interest. If you add that savings back to your payment, you’ll cut off about 1 year and 3 months of payment time AND save a total of $8,522 in interest. That’s more than a 50% savings over the loan at 6.0%! Just be sure to consider the pros and cons of refinancing, particularly when refinancing a student loan, before making a final decision.
Pro Tip: Try refinancing through a lender like SoFi. There, you’ll find fixed interest rates for student loans starting at 3.899% APR*. You can also refinance your other debts – like high interest credit cards – into a personal loan with SoFi, where fixed rates start at 6.990% APR*. And, when you refinance through SoFi, there are no origination fees or prepayment penalties, which is a huge plus! Use this link to get a $100 cash back bonus when you refinance your student loans.
So, what are you waiting for? Use these tips to start eliminating your loans right away. They sooner those buggers are gone, the better off you’ll be!