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How to Pay Off a Personal Loan Faster

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Whether you owe money on a personal loan, an auto loan, or a different type of loan, the sooner you pay it off, the less you'll spend on interest. And those savings can really add up over time.

Plus, there's something to be said for shedding your debt and not having another monthly payment hanging over your head. Most lenders don't charge a prepayment penalty for paying off a loan early (though some might -- be sure to check with your lender). If you're looking for how to pay off a loan before the end of the loan term, even by the end of this year, here are some tips for speeding up your repayment plan.

1. Cut a few small expenses in your budget

One way to get some extra cash for an extra payment is to cut a few small costs from your budget. Of course, you could conceivably save hundreds of dollars each month if you were to pack up your apartment and downsize to a smaller space in a less expensive neighborhood. But in doing so, you'd probably make yourself miserable, so it may not be worth going to that extreme. Instead, take a look at smaller changes you can make.

If you want to find out how to pay off a loan faster, try to eke out some everyday savings and use them to pay off the outstanding loan balance. Here are just a few ways:

  • Make your own coffee rather than buy it outside the home
  • Skip one takeout meal a week
  • Cancel cable and replace your plan with a streaming service at a quarter of the cost
  • Downgrade your cell phone plan (if you happen to work remotely and have a home internet connection, you may not need as much data as you used to)
  • End your gym membership and work out at home or outdoors instead
  • Do your own home maintenance rather than paying for services like snow removal and lawn care

These are just a handful of examples, and each one on its own may not make a huge dent. But the point is that cutting back on small things could help you make more than the minimum payment -- and knock out your debt without having to uproot your life.

2. Boost your income with a side job

If you're eager to learn how to pay off a loan faster and get rid of the balance this year, boosting your income could be just the ticket. And if you're not getting a raise at work, you might need to take matters into your own hands and secure a side hustle. You have different options, and the side gig you choose should hinge on your skillset, the sort of work you like doing, and whether you prefer a job you can do remotely or not.

Some income opportunities to look at include:

  • Driving for a rideshare company
  • Pet-sitting
  • House-sitting
  • Offering childcare services
  • Tutoring
  • Telemarketing
  • Web design
  • Copyediting
  • Medical billing
  • Delivering groceries or food

Keep in mind that you can pick up more than one side gig. Just don't overextend yourself to the point where you risk falling behind at your main job.

A note of caution

Make sure you have enough money in an emergency fund to cover any unexpected expenses before you start trying to pay off your personal loan faster. While it's nice to get out of debt, you'll still need to pay the bills if a crisis occurs.

3. Use windfalls to your advantage

You may come into extra money during the year, whether it's in the form of a tax refund, a performance bonus at work, or a gift from a relative. If you take that extra cash and apply it to your outstanding loan as a lump sum payment, you'll get that much closer to paying off your personal loan.

It pays to knock out that loan principal sooner

When it comes to owing money, not all debt is created equal. Owing money on an installment loan like a personal loan, for example, isn't as bad as carrying revolving debt (like credit card debt). Not only is a personal loan likely to charge a lower interest rate, but a personal loan won't count toward your credit utilization ratio -- a number that can hurt your credit score if it gets too high. Similarly, a car loan is a reasonable thing to have, and if you keep up with your monthly auto loan payments, it can actually help build a positive credit history (which will boost your credit).

At the same time, it certainly helps to pay off whatever remaining balance you have on your loan as quickly as possible. That way, you'll save on interest and have less financial stress to deal with. For this reason, working toward debt repayment can be a great financial goal.

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