Whenever you take up a personal loan, you are under debt until you pay it back fully. The more you prolong the repayment of the personal loan, the more you prolong living under debt. The easy way to achieve financial freedom as soon as possible is to repay your loans faster.
Paying off a personal loan make take years depending on the amount you have borrowed and the tenure you have chosen. The longer time it takes for you to repay the loan, the higher interest you have to pay. At times when you prolong repaying your personal loan, you may find that your repayment amount might be lower but the interest you pay throughout the tenure will be much more than a personal loan with a shorter tenure.
When you pay off your personal loans faster, you can save a lot of money which can be used for other expenses or funneled into your savings. You will also improve your credit rating. Here are some tips that can help you pay off your personal loan faster.
1. Pay more than what is required
Making extra payments or rounding off your monthly repayment amount will help you to pay off your loan faster. For example, if the amount due is around RM460 each month, try paying RM500 each month instead. In this way within a year, you would have paid an extra of RM480 which would cover one monthly payment.
2. Make use of extra cash
There may be times where you may receive some extra funds. It could be your work bonus, investment returns, or gift money that you may get from your family for birthday or festivals. Instead of splurging that extra money on other things, use it to pay off your personal loan. Some banks do accept extra payments as advance on monthly repayment amount. This way, you can pay off your personal loans a month or two earlier.
3. Make payments based on your income
When your income increases due to a hike in salary or profit in your business, adjust the loan repayment amount accordingly instead of paying the same instalment amount. Increase the repayment amount as per your income and reduce your loan tenure period.
4. Set a budget and stick to it
Setting up a budget as per your income and debts will help you to manage your finances wisely. A budget will help you to figure out how much money is coming in each month, and on what do you use that money. It will help you to set aside money for your personal loan every month, and manage your monthly expenses. This in turn will make sure that you do not miss out paying for your personal loan.
5. Cut expenses
Once you prepare your monthly budget, you can easily find out whether you are overspending on anything. At the same time you can find out areas where you can minimize the expenses. Spend money on things or products that are absolutely necessary. Do not overspend on things that you can live without. Once you finish paying off your personal loan, you can always use that money on yourself.
6. Set up automatic payments
Instead of checking your bank account each month and then making payments towards your personal loan, set up automatic payments. In this way your personal loan will be repaid on time without you worrying about it. You will not miss any payment, and you can repay your loan on time without incurring the added burden of late payment charges..
7. Try to increase your income
See whether there is any way to increase your income each month. It could be trying for a promotion at work or working overtime. You could also sell off unwanted things or things you no longer use for some extra income. You could take up a freelancing project if possible. Don’t overwork and burn yourself out, but always be on the lookout for any opportunities to earn something extra. Every tiny bit helps.
8. Create a debt repayment method
If you have multiple loans or debt, then consider paying the maximum for your smallest debt or loan. This way you can pay off that debt soon. Then, add the money that you were paying on that debt to pay the next debt. In this way, instead of paying multiple debts or loans at the same time, you will pay off one by one until you are left with no debt or loan.
Similarly, you can pay off the highest interest rate loan or debt first. Then use those funds to pay off the next highest interest loan or debt. In this way you can save money on the interest as well as pay off your loan quicker.
9. Take out a debt consolidation loan
If you are finding it difficult to pay off your personal loan on time due to multiple loans, then think about a debt consolidation loan. Debt consolidation loan will allow you to merge multiple loans into one loan and hence, you’d just have one loan instalment to worry about. Just steer clear of taking on any more loans until you have full repaid the debt consolidation loan.
Use these tips to pay off your personal loan faster. Once you are free from debt, manage your finances wisely. Set up a savings fund and an emergency fund to which you contribute some money every month. The extra savings can help you take care of miscellaneous expenses so that you don’t end up taking out another personal loan.