Although debt consolidation is a fantastic way for consumers to knock out high-interest credit card debt, it does involve taking on another loan. Fortunately, most debt consolidation loans offer more forgiving repayment terms and interest rates than most credit cards, but nonetheless, it’s in your best interest to pay it down as quickly as you can so that you can start to live debt-free as soon as possible.
There are several tips and tricks to paying off a debt consolidation loan faster, from funneling more money into the loan principal to seeking a shorter repayment timeline to decrease the total amount of interest. Here are a few simple ways to reduce your debt burden by chipping away at your consolidation loan or loans as quickly as you can, helping you gain a fresh financial start.
- Create a realistic budget. When you’re in the process of paying off debt, it’s important to sit down with your spouse, significant other, or a trusted advisor to create an attainable but aggressive budget to help you manage your finances and your spending. Take an honest inventory of your recent statements to see where you overspend. Most importantly, though, resolve to change your habits. This will help you make your loan payments in a timely manner and avoid the temptation to carry credit card balances month to month, as you will have a tangible picture of both your healthy and dangerous spending habits.
- Shorten your repayment timeline. If it’s financially feasible for you, ask your lender if you can shrink your repayment timeline or simply double your payments each month. Although this will make your monthly payments larger, it will save you money in the long run as you will not be paying as much in interest throughout the life of the loan. When it comes to interest, your repayment timeline is critical: If you miss a few payments and need to extend your payment schedule beyond the contracted amount, your interest rates will increase substantially – putting you on the same path to racking up unattainable amounts of interest each month.
- Pour windfalls into the loan. If you receive a bonus, raise, gift, or otherwise come into extra cash unexpectedly, resist the temptation to just bank it (or worse – spend it!). Instead, funnel it into your loan. Not only will this lower your overall principal, but it will save you from paying additional accrued interest over time. Not to mention, it will also be encouraging to see the overall balance drop substantially, energizing you to keep moving forward with your financial goals.
- Resist the temptation to borrow again. When you’re in the trenches of working through debt, the last thing you should do is take out another loan. Whether you’re borrowing a student loan or seeking a small loan from family or friends to make a consumer purchase, this will just increase your overall debt burden, making it much more difficult to manage your finances, move toward financial freedom, and build savings. Resist the temptation to borrow any more funds until you’ve finished paying down your debt consolidation loan.
- Don’t carry a balance on your credit card. Perhaps even worse than taking out another loan is carrying a balance on your credit card. Most credit cards carry sky-high interest rates, some even surpassing 20%. Setting – and sticking to – a budget or even temporarily vowing not to use your credit cards can help you avoid falling into the same trap (which the debt consolidation loan was meant to help you escape).
- Stay committed. Above all, keep your sights set on your financial goals. Once you’ve set a budget, created a plan to pay off your debt consolidation loan, and committed to tackling the debt head-on, you will be well-positioned to pay it off as expeditiously as you can.
Borrowing a debt consolidation loan to knock out your burdensome, high-interest debts can be a smart way to save money in the long run and to get out of debt faster. However, before you pursue one, make sure you keenly understand how the process works, the pros and cons of each option, and how you can position yourself to pay down your loan and consistently work toward financial freedom.