There are lots of reasons why it’s a good idea to pay off your loan quickly; it can help to boost your credit score, and can open doors to bigger, cheaper loans in the future. We’ve compiled a list of our top tips for how to best repay what you borrow.
Know how much you owe
First things first, you need to know exactly what you owe. Having this number in your head or written down will help reduce any stress that may have been building due to the unknown of your finances. At the end of the day, you can’t create a better situation for yourself if you don’t know exactly where you stand.
Digital lenders make it easy to see how much you have remaining on your loan, as it’s all managed online. At Oakam, you can manage your loan and repayment schedule through our mobile app, meaning you can see in black and white how much needs to be paid back and what your payment schedule is.
Round up your monthly payments
If your monthly repayments are not a nice round number (i.e., ending in 5 or even 10), why not round up? Loan companies will allow you to pay more than your monthly required repayment if you’d like to, and it can help reduce the amount of interest you’ll pay in the long run.
You’ll pay slightly more each month, but the difference is so small it won’t be noticeable. Over time it’ll add up and you’ll pay off your loan ahead of schedule.
If you’re the type of person to forget a payment or deadline, setting a reminder is the best thing to do. Missing a payment or paying late can have a negative impact upon your credit score, which in turn makes it harder to get a loan in the future, or to get one with a good rate.
Setting a reminder for an upcoming payment is a really easy way to ensure that you’re always on top of your payments, and it greatly reduces the likelihood that you’ll forget to pay.
Create a monthly budget
A good starting point is to create a budget of all your regular expenses – if it’s something you pay out for regularly, it needs to go on the list, no matter how small. Add it all up and make a note of the total cost. Then, compare this with your total monthly income to see how much money you have left over to go towards your loan repayments.
If you have more left over in your budget than your loan repayment amount, you should consider making an extra contribution to your loan and get it paid off faster. Be sure that you can cover all your essential and regular expenses though. By doing this, you can end up paying less in interest overall compared to just making the standard repayments.
It’s a good idea to put spending limits in your budget. For example, having a monthly allowance set aside for groceries will help to ensure that you don’t overspend in the shops, simply because you can afford it.
Sticking to a monthly budget where you didn’t have one before will do wonders for maintaining control over your finances. It’s this level of control that’ll prove really useful in paying off your loan quickly.
Consider what is really a ‘non-negotiable’, and what you can do without
Seeing your monthly outgoings on paper in front of you will help you to decide what your true non-negotiables are, and what you can give up.
If you’re someone who always picks up a fancy coffee on your way to work, or someone who indulges in a weekly takeaway, ask yourself if you really can’t go without these things. Cutting back on these little luxuries will save you a lot of money in the long term, some of which could be better spent going towards reducing the balance on your loan.
There are so many ways that you can work towards paying off your loan more quickly, and our suggestions only scratch the surface of what’s possible. But we hope these tips will give you a few ideas on how to best repay your loan as quickly and sustainably as you can.
Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk. To get debt advice information, we advise seeking independent advice from an impartial service like Citizens Advice or a qualified Financial Advisor.