5 Ways to Pay Off a Loan Early

If you’re like most Americans, you owe money toward a large loan.

Whether it’s credit card debt, a mortgage or car payments, loan debt is a reality for many of us. This means you’re most likely looking at hundreds of dollars in interest payments over the life of the loan(s). There’s also the thought that you owe perhaps thousands of dollars and that you’ll be paying back the loan for many years to come.

This may be somewhat stressful—but it doesn’t have to be!

There are simple, but brilliant, tricks you can use 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 faster than you may have thought possible.

These tricks won’t hurt your finances in any dramatic way, but they can make a big difference in the total interest you’ll pay on your loan(s) and help you get rid of that debt.

You can free up more of your money each month, use your hard-earned cash for the things you want instead of paying it out in interest and live completely debt-free sooner than you’d dreamed. It’s all possible!

1. Make bi-weekly payments

Instead of making monthly payments toward your loan, submit half-payments every two weeks.

The benefits to this approach are two-fold:

• Your payments will be applied more often, so less interest can accrue.
• You’ll make 26 half-payments each year, which translates into an extra full payment on the year, thereby shortening the life of the loan. If you choose this method with a 30-year mortgage, you can shorten it to 26 years! Check with your mortgage lender about how to set this up!

2. Round up your monthly payments

Round up your monthly payments to the nearest $50 for an effortless way to shorten your loan. For example, if your auto loan costs you $220 each month, bring that number up to $250. The difference is too small to make a tangible dent in your budget, but large enough to knock a few months off the life of your loan and save you a significant amount in interest payments. For an even bigger impact, consider bumping up your payments to the nearest $100.

3. Make one extra payment each year

If the thought of bi-weekly payments seems daunting but you like the idea of making an additional payment each year, you can accomplish the same goal by committing to just one extra payment a year. This way, you’ll only feel the squeeze once a year and you’ll still shorten the life of your loan by several months, or even years. Use a work bonus, tax refund, or another windfall to make that once-a-year payment.

Another easy way to make that extra payment is to spread it out throughout the year. Divide your monthly payment by 12 and then add that cost to your monthly payments all year long. You’ll be making a full extra payment over the course of the year while hardly feeling the pinch.

4. Refinance

One of the best ways to pay off your loan early is to refinance. If interest rates have dropped since you took out your loan or your credit has improved dramatically, this can be a smart choice for you. Contact CommonWealth One to ask about refinancing. We can help even if your mortgage or home equity loan is currently with us.

It’s important to note that refinancing makes the most sense if it can help you pay down the loan sooner. You can accomplish this by shortening the life of the loan, an option you may be able to afford easily with your lower interest rate. Another means to the same goal is keeping the life of your loan unchanged and with your lower monthly payments, employing one of the methods mentioned above to shorten the overall life of your loan.

5. Boost your income and put all extra money toward the loan

A great way to cut the life of your loan is to work on earning more money with the intention of making extra payments on your loan. Consider selling stuff on Amazon or eBay, cutting your impulse purchases and putting saved money toward your loan, or taking on a part-time job on weekends or holidays for extra cash. Even A job that nets you an extra $200 a month can make a big difference in your loan.

Want to hear more on how to pay less interest and save money?

Be sure to join us this coming Wednesday, July 28 at 10 a.m. or at 2:30 p.m. for a webinar that will provide you with additional tips and tricks to paying off debt quickly! Have you ever heard of the Snowball Method or the Avalanche Method? Both of these incorporate some of the tips above to create an entire debt-free life plan! Click the button below to register today!

Are you looking for more specific one-on-one advice with your finances? Our Certified Financial Counselors are available to help! Request a free consultation below.

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