Carrying a personal loan balance? With these tips, you can pay it off this year.
When you take out a personal loan, you agree to a loan term that’s generally between two and five years (sometimes a little more or less). Of course, you can stick to that repayment schedule, but you could also knock out that loan earlier. In the long run, you’ll free up cash and save money on interest. Most lenders don’t charge a prepayment penalty on a personal loan, so if you’re looking to be done with yours this year, here are some tips for accomplishing that goal.
1. Cut a few small expenses in your budget
One way to get some extra cash to pay back that loan early 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 convenient 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.
Here are just a few ways you can eke out extra savings to pay off a personal loan balance:
- 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’re working remotely, you may not need so much data if you have a home internet connection)
- Stop paying for the gym and work out at home or outdoors instead
- Do your own home maintenance rather than pay for services like snow removal and lawn care
These are just a handful of examples, but the point is that cutting back on small things could help you knock out your debt without having to uproot your life.
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2. Boost your income with a side job
If you’re eager to pay off a personal loan this year, boosting your income could be just the ticket. And if you’re not getting a raise at work, you’ll need to take matters into your own hands by securing 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 how comfortable you are being out and about in public during a pandemic. Some income opportunities to look at include:
- Driving for a rideshare company
- Offering childcare services when you’re not at your main job
- Online tutoring
- Web design
- Medical billing
- Delivering groceries (there’s a huge demand for this service right now, and the tips can be generous)
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.
3. Use windfalls to your advantage
You’ll probably come into extra money during the year, whether it’s in the form of another stimulus check, a tax refund, a performance bonus at work (though that may not come till later in the year), or a gift from a relative. If you take that extra cash and apply it to your personal loan, you’ll get that much closer to knocking out your balance by year-end.
Owing money on a personal loan isn’t as bad as carrying a balance on your credit cards. Not only do personal loans tend to charge less interest, 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. At the same time, it certainly helps to pay off a personal loan as quickly as possible. Depending on the size of your loan, these tips could help you become debt free by the time 2021 comes to an end.