The best way to pay back your personal loan: Best tips

Once you have obtained a personal loan, you will need to make monthly payments for principal, interest and fees. Because of the personal loan interest mechanism, paying your loan early will help you save money. A solid budget, automated payments, and even additional payments to your loan can help make sure your loan balance is repaid more quickly.

How to pay off your personal loan faster

A common approach to repaying your personal loan as soon as possible is to set up a budget and make more frequent payments. If you have a substantial amount of debt, including personal loans, it is also worth considering consolidating or refinancing your debt.

Create a budget

Paying for a loan means adding monthly expenses. If you need to create space for loan payments in your budget, consider minimizing your spending on unnecessary expenses, such as:

• Food delivery or take-out.
• Streaming or subscription services.
• Gym membership.
• Leisure trip.
• alcohol.

Set up Autopay

When setting up payments for personal loans, you often have the option to establish automatic payments. This means that the lender will automatically withdraw payments from a designated bank account or credit card at the same time each month.

Setting up Autopay makes it difficult to remember to make monthly payments. Many lenders also offer Autopay discounts that reduce the interest rate on your loans by 0.25 or 0.50%.

Speed ​​up your repayment timeline

Paying extra money on your personal loan will help you pay off your debts faster. Plus, paying off your loan early means you won’t pay that much interest and will cost less on the loan.

Add money to your monthly payments

Making your monthly payments a little higher is a surefire way to see your balance drop faster. It also reduces the amount of interest you pay. It doesn’t matter how big or small the extra payments are. Adding a small amount to your monthly payments can make a huge difference.

Make biweekly payments

Instead of making a monthly payment, some lenders can set up bi-weekly payments. Payment amount is half and you will be charged every two weeks. It may not seem like you’re doing a lot, but adding extra payments each year will help you reduce your total interest accrual.

Massive one-time payments

Lunch payments are larger payments made once, and are usually much larger than your usual monthly payments. If you experience unexpected changes, such as a pay raise or a large tax return, lump sum payments can be financially and psychologically beneficial.

When you make a lump sum payment, your monthly payments will remain the same, but it will reduce your outstanding balance and thus reduce the interest you pay over time.

Consider debt settlement

Consolidating multiple high-profit loans with debt consolidation loans, especially those with low interest rates – can make your debt more manageable.

Dvorkin advises to consolidate whether or not you have multiple credit card debt and struggles to repay them for high profits. But even if you can catch up, debt settlement offers benefits worth considering. It may increase your credit score by simplifying your payments and eliminating revolving debt.

However, if you can’t save money, consolidation may not be the best strategy.

Before committing, calculate the difference that the integration makes to your monthly payments.

If not integrated

If your debt consolidation loan has a higher interest rate than your account at the time, it won’t save you money and it may not make sense to consolidate. To ensure you get competitive fees, get prequalified for personal loans with as many lenders as possible.

Origination fees and other fees can reduce the overall value of your new loan. Read the fine print before signing a new loan agreement to avoid underwriting hidden fees.

Refinance your loan

Refinancing your personal loan involves working with a new lender to get a loan to pay off the remaining balance of your existing loan. Ideally, when you do this, you will get a lower interest rate or a more favorable payment term. Just like consolidating, refinancing can save money by reducing your interest payments over the life of your loan.

However, if the fees associated with refinance are high, taking this step will be less valuable and less valuable. Additionally, if you have a long repayment period, you can pay more interest over time.

Calculate how much you will spend on the rest of your current and new loan payments to determine whether the cost of refinance is worth it.

Is it a good time to refinance your personal loan?

The Federal Reserve has repeatedly risen to cool the economy that has expanded throughout the past two years. Despite the lack of interest rate hikes in 2024 as of June 2024, the current average personal loan rate is 12.65%, close to the all-time high.

The Federal Reserve stabilized its target rate for three consecutive times in May. Due to the high priced environment, borrowers who have obtained a good rate on their existing loans are unlikely to find a better rate now. However, if you have a higher interest rate on your existing loan and prequalify at a lower rate, it may be worth it.

Another way to save money on your loan

If you are not entitled to traditional management methods or do not wish to repeat the borrowing process, there are other ways to save money on your entire personal loan. The main way is to talk to your lender. Ask if you can adjust the terms or get a lower interest rate. “On time, a good credit history and other factors like these could help this process,” Dvorkin said.

You can also consider a balance transfer credit card. If you can repay your balance during the interest-free promotion period on your card, you can save some of the changes. Typically you will need to pay a 3% fee for each balance you transfer. And if you are still borrowing at the end of the promotion period, you will be charged a credit card interest rate.

Conclusion

There are several ways to manage your personal loans and save money along the way. Don’t forget there are no amounts that are too small. The extra amount you can spend on monthly payments is beneficial. Consider all your options throughout the loan.

While it may not be possible to consolidate or refinance at the moment and earn a lower rate, that does not mean that this method will not make sense in the future. As your finances and credit health evolves, so does your repayment method. Keep your options in mind until the day you pay off your balance forever.