Tired of the heavy financial burden of a loan and don’t know how to pay off all your debts? This article will be helpful to you! We will review 7 effective ways to repay a loan and find ways out of a difficult situation.
Of course, the online lending market has made life much easier. You do not have to wait for your paycheck to buy the desired thing and not save for years on vacation or a wedding. But often, due to incorrect calculations or other objective factors, the loan becomes a heavy burden, which is not easy to get rid of.
What are the consequences of non-payment?
Before moving on to studying ways to get rid of delinquencies and debts, let’s consider the dangers of loan default. First of all, these are:
- Financial responsibility. In case of delays in payments, the client may be charged a forfeit, a penalty, and a requirement to return the entire amount of the debt in one time;
- Property liability. It is expressed in the confiscation of pledged property under an agreement (car, apartment, house, bank accounts, etc.);
- Criminal liability. Depending on the amount of the debt, the borrower may face imprisonment or forced labor by court order.
As a rule, banks use precisely financial leverage to repay debt. One of these tools is loan restructuring.
7 tips on how to quickly pay off a loan
Be sure to use the following guidelines:
1. Do not take new loans
Yes, no matter how paradoxical this phrase may sound, but new loans do not make it possible to pay off old debts. A person falls into a kind of financial trap: in order to pay debts, he or she is forced to borrow money, open contracts in other banks. And getting out of this vicious circle is really difficult.
That is why it is important to clearly determine how much you can pay every month for the loan.
If you go beyond this border, debt will begin to build up like a snowball.
Take a piece of paper and write down in detail your debt and the period for which this amount can be repaid without resorting to new loans.
2. Increase your monthly payment
Yes, at first glance, this is not easy to do. But try to calculate how much you will save on interest payments if you close the debt ahead of schedule.
If it is possible to connect additional sources to close the debt, use everything that is available.
To estimate the overpayment under the contract on a large scale, look at the annual amount right away. After all, bank managers who apply for a loan specifically break down the total debt by months. This is a marketing ploy that allows you to position the customer. In this case, the loan amount is announced immediately. Thus, the borrower gets the impression that the overpayment on the loan is insignificant, which means that there is no need to rush.
Before calculating the amount to increase your monthly payment, contact your bank employee.
You need to find out:
- how the early repayment takes place;
- whether there any hidden fees and penalties for early repayment;
- whether it is necessary to submit an application online;
- when exactly the payment can be made, etc.
All these factors can significantly affect the formation of the final amount. Often the contract contains hidden payments and sanctions for early full or partial repayment of the debt. It is unprofitable for the bank if the client repays the loan ahead of time, so many companies go to all sorts of tricks to prevent this from happening.
3. Find an additional source of income
This could be:
- part-time work;
- additional shifts;
- temporary seasonal earnings;
- one-time project;
- selling unnecessary things, etc.
This activity does not have to be related to the main profile and specialization. In spring and summer, unskilled workers are constantly required for cleaning summer cottages, harvesting crops, pruning bushes, etc. In winter, this can be tutoring, cleaning apartments, construction and repair work, tailoring and freelancing.
Do not get discouraged and consider this period as heavy financial load. Be clear about the time you need to close your debt.
Key point: strictly ensure that funds from additional earnings are spent exclusively on paying off the debt.
Determine how much you can shorten this period if you make additional monthly payments.
Such calculations are very motivating and help to form a clear strategy for further actions.
4. Reduce costs as much as possible
It is important to realize that it will not be possible to pay off all loans without cutting costs.
Analyze your income, expenses and leave only the essentials:
- communal payments;
- utility bills;
- payment for studies (if any).
Here you need to be as honest as possible with yourself and clearly define what you can temporarily refuse in favor of quick loan repayment.
During this period, avoid shopping, bypassing the sale and make a rational but economical meal plan.
You should also get rid of expensive habits (alcohol, cigarettes, morning latte on the way to work, lunch with employees in a cafe, Friday evenings with friends). If you are constantly in debt, delinquent on loans and do not know how to pay off debts, analyze your financial situation and expenses. So you can realistically assess how important these expenses are and whether they can be avoided.
Remember that these are only temporary harsh measures that will help you get out of debt.
5. Migration of money from card to card
This method is suitable only if the total amount of the debt does not exceed $1,000. After all, these are the limits that are mainly set on credit cards.
The essence of this method is to manage the movement of borrowed funds from card to card, getting rid of the need to pay monthly interest due to the grace period.
The grace period is set by each bank independently. On average, it takes 40 to 100 days. During this period of time, the bank completely exempts the client from paying the monthly commission, offering the lending service for almost nothing. This is done in order to attract new customers. After all, such a bonus is really convenient and helps to resort to loans for a short time without paying any commission costs.
But the trick is that a person rarely manages to return the amount of debt for this period and gradually begins to pay annual interest.
You need to be careful with the grace period – study the conditions for its formation.
So, having seen in the advertising brochure the tempting promise “Grace period – 55 days”, you should not count it from the moment the money is withdrawn from the card. It is necessary to clarify with a bank employee exactly how this time is calculated. Most often this happens from the 1st day of the month in which the transaction was made.
Example. You have withdrawn money from your card on June 23rd. The terms of the program indicate that the bank gives 55 days of preferential service. But at the same time, the countdown is carried out from June 1. This means that you must return the money by July 25th if you do not want to pay the loan commission.
6. Snowball method
This method is relevant for those who have several loans at once. These can be a bank loan and a payday loan, credit cards, etc.
List all outstanding debts and determine the order of their repayment.
Try to close all small amounts right away in order to reduce the number of loans as much as possible.
First, it will provide psychological relief and allow you to see a way out of a difficult financial situation. Secondly, it will help you save money. Small loan interest rates are generally the highest. Due to the small amount, the borrower does not pay attention to this and, as a result, returns the debt to the bank in almost double the amount. After closing all small loans and cards, you can proceed to the repayment of large amounts.
Refinancing: how can it help?
Refinancing is a financial instrument that makes it possible to get a new loan to repay the old one.
When do people apply for refinancing and why is it beneficial? This, in fact, is the opening of a new loan, which implies the conclusion of another agreement on different conditions.
This service helps:
- reduce the annual rate;
- get rid of unnecessary insurance;
- combine all open loan agreements into one.
Today many banks offer such programs to help borrowers solve financial difficulties and attract new clients.
There are 2 types of refinancing:
- external (current debt is covered by another bank);
- internal (occurs within one organization).
But what is the point of the company to meet the client halfway and make refinancing?
There may be several reasons for this:
- reduction of financial risks;
- increasing loyalty;
- increase in income due to an extended agreement.
By providing a debt refinancing service, the bank does not lose. It is much more profitable for a company to increase the loan term and break payments into smaller amounts than to receive delays.
Refinancing of your debts by another bank also finds its explanation. The company thus gets a new client who will pay the commission for the lending service to it.
Each bank has its own procedure for checking and selecting clients for refinancing. For example, if a borrower missed only 1-2 payments, then he or she falls into one category of financial risks; if the user does not systematically repay the loan – to another.
In addition to refinancing services, many banks are loyal to their customers and thus practice lowering the interest rate.
Therefore, it will be useful from time to time to be interested in the current rates in the company. Sometimes it is possible to achieve a reduction in interest without paying penalties. The only condition: you must be a disciplined borrower and avoid delays in payments.
Increase the chances of such loyalty from the bank and additional services issued by this company. If you are a participant in a salary project, have opened a deposit or a credit card, then the company can meet halfway and lower the annual loan rate.
To consider the possibility of refinancing, you must contact the lender and submit an application.
Old debt refinancing is an effective tool that can significantly reduce the cost of paying your monthly commission.
But not all banks provide a refinancing service. So, for many organizations, it is taboo to open a contract with another company. Therefore, if you urgently need additional financing and all banks decline you, you can get a car title loan online. You can apply for a loan online from your home and get the money the same day.