Loans make life easier. However, when obtaining a loan, you need to think not only about how to spend the money, but also on loan repayment on the borrowed amount. To do this, before taking on credit obligations, you need to figure out whether such a load is suitable for your budget.
Ideally, loan repayments should not exceed 20% of the family budget. If you have already assumed this financial responsibility, use the following rules to quickly repay a loan
Stick to the payout schedule
The first step is to create a payment schedule and try to stick to it as much as possible.
Do a detailed analysis of your income and expenses.
- It even makes sense to keep an account book and record results monthly
- Or download the smartphone app to calculate income and expenses
Any of the methods will show you where you can reduce spending so that you can spend this money more profitably. Try to avoid delays in payments for the loan. Skipping payments spoils credit history – this can adversely affect the possibility refinancing and obtaining loans in the future.Line of credit payment calculator is a great way to be sure about your situation.
Early repayment of the loan really helps to save on overpayment. You should not save up for early repayment in order to pay off the loan at once. It is better to add a small amount to your payment every month.
If you add at least 10% to your payment every month, you will close the loan 2-3 times faster and save on over-payments.
Create an insurance reserve
An insurance reserve is contingency money. It is impossible to predict what will happen in the near future – job loss, illness and other major circumstances. In order not to miss the subsequent payments on the loan, you must have an airbag. To do this, you can even purchase a piggy bank and put in it a certain amount every month.
- It is better to save money in such a reserve when receiving a salary, and not at the end of the month
- A regular contribution, even a small amount (about 10% of the salary), to such a piggy bank, will help to collect a fairly substantial amount over time
- The insurance reserve will help you out in case of temporary financial difficulties.
In any case do not allow missed payments on loans avoid penalties on the amount of the monthly payment and interest. Always consider depositing money in advance.
Each loan has a date by which a minimum payment must be made. Otherwise, a commission will be charged on this amount and for the current month you will have to pay more than what is due.
- To avoid this, it is necessary not only to remember the due date of the payment, but also to prepare finances for the payment
- We recommend that you also set a reminder on your smartphone or make an entry on the calendar for the required payment.
In many organizations, you can choose the payment date yourself: select a date approximately 7-10 days after the usual payroll. You can transfer the debt immediately after receiving a salary and avoid payment delay.
Pay loans in turn
If you have several loans, then pay debts on all loans according to the schedule and focus as much as possible on one loan. At the same time, begin to intensively repay the loan, which is on a higher percentage. Repayment of such loans will minimize the amount of overpayments. Use the money saved to pay other debts.
In addition, some banks and organizations offer the opportunity to reduce the monthly payment by extending the loan for a longer period. It is better to take this opportunity and save the savings for early repayment.
Do not take a larger loan to block a smaller one. This situation is likely to lead you into a debt hole.
New sources of income
If you want to pay off loans faster, you should take care of increasing your own earnings or find a side job that will be fully aimed at repaying loans. Do you have a skill that can generate income? You can also sell unnecessary things. Carry out an audit – people can buy anything from you, from an old washing machine to a pram.
Passive income is a great opportunity to earn additional funds with an investment of a minimum amount of time.
Remove currency risk
If your loan is in another foreign currency, ask the financial institution to convert the loan into national currency. This will avoid unnecessary losses during course fluctuations.
If another financial institution has more favorable credit conditions, then you can transfer your loan there. Or you can try to refinance your loan in the current financial institution.
- This is possible with changes in average market conditions, for example, if the average interest on a mortgage over the past few years has fallen significantly, and you pay the same percentage.
- At the same time, the loan amount will remain the same – simply you will pay it longer. This will allow you to have more free funds that you need to put in for early repayment of the loan.
Some banks are ready to give you one loan in return for several – this is one of the functions of refinancing. Instead of several loans you pay one on more favorable terms. Of course, for this you will need to calculate everything – for example, the size of refinancing fees and the final cost of the loan.
- On the one hand, it is very convenient to pay one loan than several in different organizations
- On the other hand, make sure that the monthly payments upon refinancing will not exceed the total amount of your payments before refinancing
A key points for loan repayment can be summarized into a few steps which are as follows:
- First, pay the loan with the highest interest rate.
- If there is such an opportunity: reduce the monthly payment, and spend the difference on early repayment of the loan
- Find a part-time job, the earnings of which will be aimed exclusively at paying a loan
- Calculate your budget and try to eliminate unnecessary expenses
- Sell things you do not use
- When refinancing, make sure that you do not need to pay a larger amount than before refinancing
- Always try to repay a loan ahead of schedule – the level of savings will surprise you