Do you need money fast? Maybe a personal loan is the way to go.
Beware, personal loans usually come with some challenges, such as high interest rates or hidden fees, so it’s better to stay away from them as much as possible.
Interest rates on unsecured loans are nearly always higher than for secured loans because an unsecured lender’s options for recourse against the borrower in the event of default are severely limited, subjecting the lender to higher risk compared to that encountered for a secured loan. (Wikipedia)
Traditional loans vs. Personal loans
A traditional loan requires that you put up your house or a vehicle (or anything of value) as a collateral, in order to receive the loan. If you fail to pay it off, the bank/financial institution who lent you money on the first place, has something to repossess.
This type of loan is considered ‘secured’, not for you, of course, but the lender. At least in theory they have nothing to lose, since they’ll still get something in return for the money you can’t pay back.
A persona loan does not require any collateral, this is why in the finance world it’s called an ‘unsecured’ loan. It usually comes up with more drastic conditions, but you have the freedom to use the money almost as you want, while traditional loans can be taken for specific purposes only.
When to take a personal loan
If you wan to be financially independent, stay out of debt. Have an emergency fund ready, for any … emergency, save constantly, take care of your retirement savings, maybe start a small side business to earn money.
And, again, stay out of debt.
While the theory sounds nice, in reality there are problems that need to be solved now and you lack the funds for it.
A huge medical bill, a business opportunity you shouldn’t miss, a big purchase that would positively impact your life/business, these are just few things worth getting into debt for.
If you cannot get another type of loan, then a personal loan could do the trick.
Now, that you already have a personal loan to pay off, let’s find out how you can speed up the process.
How to pay off your personal loan faster
Now that you got the personal loan, it’s time to see how you can pay it off faster, to minimize your money losses.
Make a plan to pay your personal loan upfront and stick to it
You could pay off your debt monthly, as the contract stipulates, but, if you can, pay off sooner. Do not make only minimum payments or you’ll be making monthly payments for the rest of your life.
The idea is to get off debt sooner, not stretch it for 3 generations to come.
There are financial institutions that require you to pay a fee, if you pay your loans upfront. Make sure you weed this out BEFORE you take the loan and work only with those who don’t penalize you for paying it off sooner.
If you chose right, then there’s no penalty for you paying your debt faster, so get right to it.
Curb your spending and redirect savings towards your loan
If you are in debt, spending recklessly should be the last thing you do. Get a grip on your finances, budget like crazy and stop squandering your money.
Put in an emergency fund, if you don’t already have one, so that you don’t get into any additional debt.
Everything you save over this threshold should be directed towards your personal loan.
Make bi-weekly payments
Most loans require a monthly payment, but, what if you made 2? This helps with lowering your interest rates and speeding up the process.
If you have the money available to clear off your debt, paying more often helps you achieve debt freedom faster.
Round up the numbers
Say you need to pay $ 175/month. Why not $200? 25 bucks isn’t the end of the world for you, but, pushing this number on a monthly basis at least, could lower your debt with an additional $300 every year.
Whoa, that’s almost 2 monthly payments you make additionally towards your personal loan, without too much stress.
Make an extra payment
If you can’t make bi-weekly payments, maybe you can make an extra payment every once in a while.
Even trying to round up the numbers, as shown previously, could earn you an extra payment or more every year.
Find extra money for your personal loan repayment
Once you put a lid on your overspending, you’ll find out that you do have more money left each month. Saving money is one sure way to speed up your personal loan payment.
Another one – find money making ideas that could work. Tutor some neighbors on math or English and earn some bucks. Do some gardening and get paid for it. Shovel snow in the winter.
Even if you don’t earn enough to make your side-hustle a full time money making job, all the money you can earn can be used to pay off your personal loan faster.
What has work for you so far?
Were you able to pay off your personal loan faster? How?