How to Pay Off Debt Early and Save Money

Do you have debts? Do you want to pay them off early and save money?

In this article, we will review some simple ways to pay off debts early. Before choosing any method, make sure you understand how to make early debt payments with the financial institution you are dealing with. Some institutions may require prepayment fees or specific steps to properly account for the payment.

Does it make sense to pay off debts early?

Sometimes, paying off debts early can be a great idea, and at other times there may be better options. Good reasons to pay off debts early include paying less in interest and having that money available for future financial goals and investments. Make sure you have enough in your emergency fund before accelerating your payments. In some cases, loan interest rates may be low enough that there is no logic in hastening the payoff.

Some people like the feeling of being debt-free. The money used to pay off low-interest debts can work better if invested in financial instruments or alternative investments like real estate, anticipating higher returns than the loan interest rate.

It is always best to crunch the numbers and see how much you will save, which may provide you with more motivation. See how things will work using a loan consumption calculator, use the loan calculator built into Excel, or calculate the loans manually yourself.

Send Extra Money

The simplest way to pay off debts early is to make extra payments whenever you can. It is also the hardest to implement, as it requires discipline. You may want to consider using an automated approach if you believe you won’t stick to the plan.

If you like doing things randomly and trust your ability to pay off debts on your own, just send extra payments. Include a note with your check saying “Apply to principal” on the memo line. This way, your financial institution won’t be confused; they will know you are trying to make an extra payment, and they can contact you if there is anything that needs to be done differently. Check after the first two or three payments to ensure they understood your instructions and followed them.

The same concept applies to electronic payments, which usually have a spot to include a note about your intentions.

Make an Extra Payment

You will pay off loans faster by adding one extra monthly payment every year. If your monthly payment is $1,200, make an additional payment of $1,200 at any point during the year. You might use money from your tax refund or a bonus.

If you’re like most people, it may be hard to save that extra amount. One alternative is to spread the extra amount throughout the entire year. Divide your monthly payment by 12 and add that amount to each monthly payment. Your payment would become $1,200 plus a payment of $1,300 ($1,200 divided by 12 = $100; $100 + $1,200 = $1,300).

Paying off debts with biweekly payments

You can also pay off your debts by making payments every two weeks instead of monthly. You will end up paying the equivalent of one extra payment each year. When you pay debts with a biweekly payment, you won’t notice a significant change in your monthly expenses. However, you will see considerable savings as you pay off debts over the years, as you will reduce the amount of interest paid.

Financial Institution Debt Repayment Programs

Your financial institution may have several options to help you pay off debts faster. These programs may require you to pay additional fees, so be cautious. If it’s worth it to you, go ahead and pay the fee. If you don’t like the fees, look for a way to make extra payments without incurring fees. You could set up automatic monthly payments in your bank’s online bill payment system. Be sure to include a note that says “Apply to principal”.

Companies

Alternatively, aside from the financial entity you are dealing with, they will also be happy to charge you fees for a debt repayment program. They sell software programs and systems to handle everything on your behalf (or at least tell you what you should do). Generally, you won’t need these services unless they will help solve a discipline problem.

If you can’t meet your obligations in any other way, do what works, but make sure you’re saving more than you’re spending.

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Source: https://www.thebalancemoney.com/how-to-pay-off-debt-early-315571