Car loans, various consumer loans, loans for household appliances – today banks offer many products with different conditions. Earlier only people with high income could take out loans, but now they are available to almost every person.
Often, all this leads to the fact that a person is taking several loans and falls into a huge debt trap, and it is not so easy to get out of it.
Stuck in debt, the borrower does not know where to start, which credit hole to close first, how to make sure to close all existing loans as soon as possible. Finance professionals offer three ways to repay multiple loans at once.
Snowball
This is the simplest and most popular method. Its essence lies in the fact that small loans are repaid first, and only then larger ones are repaid.
Loans should be arranged in ascending order of the amount owed. Then the action plan is as follows: fixed assets are directed to pay the smallest loan, and only the minimum payments are made to the rest. After the first one is closed, repayment of the second largest loan begins, then the third, etc.
The “snowball” method is easy, understandable and accessible to everyone. A significant advantage of this method is the psychological moment: a person sees how his debts are decreasing at a good pace.
The psychological factor plays an important role here. But if we take into account the amount of overpayment on all loans, then this method will be the most unprofitable, since it takes into account which loans are most unprofitable for the borrower.
6 ways to pay off a loan quickly
Many people have bank loans: not everyone can get away from the temptation to buy something with borrowed money, and banks are ready to help every respectable citizen.
Lending is beneficial to banks and the state, and borrowers get what they want without long-term savings. When the first joy of acquisition subsides, epiphany occurs. It turns out that repaying a loan is not so easy and very unpleasant, especially given the overpayments to the bank.
If you are still determined to close the loan quickly, check out our recommendations:
1. Planning costs
First, analyze how much you earn and how much you spend each month. Create an income and expense book and carefully write down even the smallest income and expenses. At the end of the month, you will be able to determine what you can save on in order to close the loan faster. Make a payment schedule and stick to it.
Even with austerity, don’t deny yourself the essentials: don’t starve, buy medicines, pay your bills on time. Waste can happen when you go shopping for a mood boost or emotional optional shopping.
2. Savings
Review your expenses again and try to find reserves to save 30% of your budget.
For a while, you will have to give up many pleasant little things like going to a cafe, a daily cup of cappuccino from a vending machine, a new detective to read on the subway, unnecessary cosmetics, etc.
You will be surprised at the amount of money freed up. By controlling the movement of your money, you can easily save 10-15 percent of each financial receipt.
3. Additional earnings
As long as you have a goal, forget about self-pity. Yes, you are entitled to an 8-hour workday, and you will definitely return to your usual schedule when the job is done.
Until then, find a way to earn extra money. Perhaps the boss at the main place of work will be able to “load” you on condition of additional payment. If this option is not suitable, look for earnings on the side: tutoring, working on the Internet, one-time services.
Direct the additional money you receive exclusively for the quick repayment of the debt. The same piggy bank should receive bonuses, debts returned to you, monetary gifts for your birthday, etc.
It is possible that you can count on subsidies from the state, for example, for tax holidays, tax refunds or free medicines for children.
4. 10 percent overpayment for each installment
When calculating the amount of monthly loan repayment, banks, first of all, pursue their own interests.
By extending the return time, the bank earns as long as possible for you. Increase your monthly contributions by only 10% and you will save a significant amount.
If you are paying off multiple loans, use the following tactic. For example, you have a mortgage, a car loan and a credit card debt.
Start increasing your payments to your credit card, it will take a little time to cover this debt. After that, send the money that was previously used to pay for the card to a car loan, adding 10% of the regular payment amount.
Thus, you will repay the loan several times faster than expected. When you have only one loan left, use all the money that you previously paid on all loans to repay it. The increase will be significant, and you will get out of debt much faster.
5. Repayment of loans with the highest rates
The crisis forces us to hurry up with getting rid of debt obligations. With multiple loans, start quickly repaying the one with the highest interest rates – this way you will minimize overpayments.
Use the money saved on early repayment to pay off other obligations. When repaying one loan quickly, avoid delays in repaying others to avoid fines and interest charges.
After closing expensive loans, move on to those loans for which the amount of debt is not very large. At the very end, start covering debt on long-term loans, for example, a mortgage.
6. Refinancing
Banks value their borrowers, which gives hope for some relief. One of the useful banking services is refinancing, which allows you to take out a new loan to pay off the old one.
Such additional loans are issued at lower rates, and this allows you to reduce overpayments. Individual banks allow you to collect multiple loans together. This may seem convenient, but not necessarily beneficial to the borrower. When deciding on such a connection, carefully study the conditions offered by a particular bank.
Never take large loans to pay off small ones – this is a direct path to debt.
Expert advice
In the modern world, almost everything can be purchased on credit, starting from small household appliances and ending with expensive cars and houses. Trying to make money, banks are increasingly taking risks and lending to citizens even with a bad credit history.
Active lending leads to the fact that the financial burden on citizens is more than 60% of their income, which inevitably leads to a new loan.
When paying a monthly payment to the bank, try to deposit a little more money than you usually do. You may think that when you make an amount equal to the monthly payment, you are saving money, but in reality you are not!
Even though it is not a large overpayment, it reduces the principal debt, thus you do not have to pay interest from this amount.
Secondly, if you have several loans, then you should first pay off the loan with a higher interest rate.
By repaying such loans faster, you can minimize overpayment and contribute all the money saved towards repaying other loans.
Please note that in spite of everything, you should not allow various kinds of delays, this can lead to penalties. Always calculate your deposit in advance.
After paying the most “expensive” loans, you should close those loans in which the amount of debt is minimal, this will allow you to significantly reduce the financial burden in quantitative terms. If, when applying for a loan, the interest rates were significantly higher than those offered by the bank now, then be sure to use the refinancing service.
This service allows you to issue a new loan to repay the old one but at a lower interest rate. This will significantly reduce the amount of overpayment.
One of the well-known ways to reduce the amount of debt is strict budgeting and financial management. Everyone knows about the need to keep records, but few people really use it.
At the same time, calculating your material resources, you will be able to identify the item of expenses that you could refuse without any special losses, this will also allow you to send the saved funds to early repayment of the loan.
Drawing up a financial plan will allow you to optimize income and expenses, as well as avoid incidents of unforeseen expenses. Compliance with these simple tips will allow pay off all loans and also to properly distribute your funds in the future.
Loan analysis for fast repayment
Now let’s analyze the very nature of the loan and our capabilities. Loans are very different, there may be several of them. In this case, you need to prioritize repayments and start paying off debts as soon as possible.
First, we determine the most expensive loan – the one that causes the greatest damage to your finances. It is important to correctly assess the costs associated with the loan.
The body of the loan is the main debt of the borrower, excluding accrued interest (that is, the bank’s earnings). The task of the borrower is to pay off the body of the debt as soon as possible. Analyze your loan payments.
The higher the percentage of the monthly payment you give to the bank, the more expensive the loan is for you. These are usually credit cards. Pay off the most expensive debts first in order to reduce the damage to personal finances as soon as possible.
