A debt consolidation loan is a great first step toward getting your financial life in order. Consolidating your debt makes it much easier and quicker to pay off your balance since you have just one easy payment to worry about each month. Trust us — that's going to feel way better than juggling a pile of bills that just keep coming. Debt consolidation also gives you some relief from high interest rate debts, including credit cards. This gives you an opportunity to pay down your debt instead of just scraping by with minimum payments.
If you really want to get ahead, paying even just a little bit more than the minimum payment each month will help you discharge your loan even faster. To see just how quickly you can pay down your debt, try playing with a loan payoff calculator for a few minutes. Depending on your interest rate and the length of the loan, paying an extra $25 or $50 each month could save you months of payments.
So how can you pay your loan EVEN FASTER? Try these tips and tricks for floating some extra cash toward your payments and putting your debt to rest for good.
1. Round up your payments
Every time you make a payment on your loan, round it up to the nearest "clean" number. Making a habit of paying $200 per month instead of $152.37 will make it much easier to budget, and you'll be putting almost $50 extra dollars to work for you each month. Can't swing that much? Round to the nearest $5, $10, or $25 mark instead. Consistency is more important than big bucks.
You can take this concept even further with the help of savings programs like Chime or Qapital, which round up your expenses to the nearest dollar and sweep the extra change into a savings account. At the end of each month, you can use whatever you've saved to put even more toward your loan payment.
2. Make biweekly payments by paying half your monthly payment every two weeks
Nearly every loan is designed to be paid once per month, but switching your payment plan to a biweekly plan can net you an extra payment each year. All you have to do is take your monthly payment and divide it in half. Pay this halved amount every two weeks, and by the end of the year, you'll end up sending in 13 months' worth of payments instead of 12. There are 52 weeks in a year, so making a payment every two weeks adds up to 26 payments throughout the year, instead of 24 payments if you paid twice per month. But since you feel like you're paying twice per month, you'll never notice the extra payments — until your loan is paid up early, that is!
Your lender may already have this option in place. If not, you can do it on your own. Set up automatic payments from your checking account. Just be certain to make two payments ahead of your due date.
3. Use extra cash as a bonus payment
Have you come into some extra cash recently? Perhaps you received a long-overdue bonus, hit the lottery, or received your tax refund. Put that money to use by making extra debt payments. Over 73 percent of Americans get a tax refund from the IRS every April. The average person's tax refund is worth about six weeks of take-home pay, which is quite a chunk of change. That amount would pay off several extra months' worth of debt payments. So, use your extra cash wisely and pay down some debt.
Not convinced? Paying more toward your principal early in the life of your loan has an outsized impact. That's because your payments are amortized, so your balance of principal and interest changes over the life of the loan. In the beginning, most of your payments go toward interest, and only a little pays down your principal. But any extra money you throw at the bill is applied to the principal. This reduces your interest payments overall since you owe less than you would have on the date that interest is calculated. Extra payments are always helpful, but they're especially useful early in the life of your loan to cut your principal and eliminate some interest charges. When you pay more early, you pay less in the long run.
The bottom line
Any time you can put a little extra cash toward your debt consolidation payments, you should do it! If you can automate those extra payments by rounding up, paying biweekly, and/or using your tax refund or other extra cash to prime the pump, you'll super-charge your payment schedule and significantly reduce the time left until payoff. This is true for any type of loan. So go ahead and apply these tips to pay down everything from your car to a home equity line to get ahead of your debt and move on to financial freedom.