If you're able to pay back an emergency loan early, you may be wondering if this option is right for you. One thing that may concern you is prepayment penalties, or fees the lender charges for paying your loan off early. While some lenders charge prepayment penalties, there are also many others that don't. If you've decided to go this route, here are some methods you can use to pay off your emergency loan early:
Make bi-weekly payments
Instead of paying off your debt every month, consider paying off your debt every two weeks if you can. This may amount to the equivalent of one extra payment each year. Paying bi-weekly will also boost your savings because the amount of interest will be reduced. There likely won't be significant changes to your monthly expenses when paying this frequently, and the life of your loan may be shortened by months or even years.
Refinancing your emergency loan can help you pay it off early in two ways. You can potentially shorten your loan term or get a lower interest rate. But keep in mind that a shorter loan term will mean that you'll have to pay a higher monthly payment.
Make an extra payment
Another option you can consider is making one extra monthly payment a year. If your monthly payment is $1,000, pay an extra $1,000 sometime during the year. You could use the extra money you receive from a bonus or tax refund to make the extra payment.
If you can't come up with the additional payment all at once, you can spread it out over the year. With this method, you would divide your monthly payment by 12 and add that amount to each monthly payment. As an example, $1000 divided by 12 would be $83.33. Add those two numbers together, and the amount you would pay each month is $1,083.33.
Round up your monthly payment
If you currently can't afford to pay a high additional payment, a more affordable way to pay extra is rounding up your monthly payment to the nearest $50. If the monthly payment of your emergency loan is $270, you can round it up to $300. With this method, you'll still be taking a few months off the life of the loan and saving on interest without significantly affecting your budget.
Earn extra money to put toward the loan
Consider looking into different ways you can earn some extra money to help pay off your loan. Search for a part-time or seasonal job that you can apply for. If you have items that might be worth something, you can try selling them on Amazon or eBay.
Work on saving more money that you can put toward paying off your loan. Some simple ways you can cut down on your monthly costs include dining at restaurants less and reducing your electricity use. Consider canceling any subscriptions that you aren't using as much and switching to a cheaper phone plan. Track your spending to discover any expenses that you can reduce or cut, and create a budget that you can stick to. Using one or more of these methods can help you pay off your emergency loan early with ease.
Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.
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