Want to Pay Off Your Loans Faster? Tori Dunlap Says Do This

You might have to fight for it, but it's worth the fight.

If you owe money to creditors, you're definitely in good company. According to research from The Ascent, Americans' average debt by household was $96,371 in 2021. Despite what some financial gurus will tell you, being in debt isn't necessarily a bad thing, especially if you've taken it on to buy a house or invest in yourself via education. Owing money on credit cards and auto or personal loans, on the other hand, is a less-than-optimal situation.

The silver lining with paying back a fixed-term loan (as opposed to a credit card) is that your payments and interest are set ahead of time, and if you take out a loan with, say, a 48-month payoff period, you know you'll have it paid off if you make all 48 of those monthly payments.

You might find yourself in the fortunate position of having the resources to pay off an auto or personal loan faster. But is that something you're able to do? Yes, you absolutely are. Financial guru Tori Dunlap (also known as The Financial Feminist) recently offered tips and advice about paying off a loan ahead of schedule on her podcast, and it pays to learn from her experience. Be warned -- lenders don't always make it easy to end your relationship with them early.

How can you pay off a loan faster?

The trick to paying off a loan faster is to make extra payments to your principal balance (meaning the money you borrowed initially, rather than the interest being charged on it). But as Tori Dunlap noted, it isn't always a snap to do so. Lenders want to keep you in debt (and paying them interest) as long as possible, so they'll make you jump through hoops to pay extra and finish with that debt payoff sooner.

Dunlap recounted a story about trying to pay extra on a car loan. She added an extra $50 on a monthly payment, only to find that instead of being applied to her principal, it was just applied to the overall balance, reducing the next month's payment by $50. This wasn't going to save her any money on interest. Dunlap had to call and speak to someone in customer service to learn that she needed to send a check to a P.O. Box in Iowa to have extra money applied to her principal balance.

The lesson here is to be persistent. If you are in a position to pay down your loans ahead of schedule, you'll likely need to agitate to get the information necessary to do so. And it's absolutely worth it to do so, as paying a loan balance off faster in this way will save you money on interest.

A caveat

If you have a low-interest loan (like you were lucky enough to snag a mortgage loan or refinance an existing one during the days of 3% interest back in early 2022), you may not want to pay it off early. The money you'd send to settle that debt early could instead be invested in a brokerage account, or even kept in a high-yield savings account, some of which are now paying more than 3% interest on money kept in them. This will give you a better return on your money than paying off low-interest debt.

That said, having debt hanging over your head can impact your mental health. So if you know it will give you greater peace of mind to pay off even low-interest debt sooner than anticipated, I say go for it. Your mental health is priceless.