You want to relieve yourself of debt, so you're wondering how to pay personal loans faster.
The good news is that there are several effective strategies for reducing your debt burden, and some are so simple that you can start today!
In this comprehensive guide, we offer up to 12 top tips on how to pay off debt fast.
12 practical ways to pay off your personal loan faster, from free habit changes to lump-sum payments
A $10,000 example shows adding just $20/week can clear your loan around 8 months early
Missed a payment or worried you might? See "If you fall behind" below for your options and free help
The first and most obvious strategy is to exceed the recommended repayments. And by paying off your personal loan quicker than expected, you'll pay less in interest than expected.
Speaking of recommended repayments, wherever possible you should avoid minimum and interest-only repayments on any loan. These repayments don't actually repay the loan at all - you're simply servicing it, prolonging the loan term and increasing the amount of interest you pay. The principal stays exactly where it is, and you don't move any closer to relieving yourself of debt.
When you make payments twice as often you repay your debt twice as fast! You don't necessarily need to double the amount of debt you repay every month, but smaller, more regular payments may be more manageable than a single monthly lump sum.
Have you recently come into money, whether in the form of inheritance, a prize or a bonus at work? Avoid the temptation of splurging, and direct as much money as you can to your debts. Ultimately this will give you more money to spend on fun down the track.
Paying off debt can be the perfect reason to start that side hustle you've always thought about. Whether you're considering starting your own little business, taking up a gig or freelance work, or simply selling all those high-priced items that you haven't touched in years, a bit of extra income can be very handy for those looking to pay down debt quickly.
If you have multiple loans, you should work to pay back those with the highest interest rates first, as they will be the most expensive in the long run.
Those multiple loans might be ripe for consolidation. This is where your different loans are brought together within the one finance package. For example, it is common for high-interest credit card debts to be consolidated into a comparatively low-interest personal loan, which both reduces and simplifies your monthly repayments.
Another option is to adjust the length of your loan term. If you're struggling to keep up with repayments, you might consider lengthening the term, but this will only make the loan slower to repay. If you can keep up with higher repayments it's wise to shorten the loan term, as this will save you money overall.
Refinancing, consolidating and changing the terms of a loan rely on a decent credit score. If you work to improve yours you'll gain access to more financing options and better interest rates.
Every dollar counts, and small additional payments can make a big difference in the long run. If you have some spare money sitting in your account, repay your loan. Consider making it a habit: set a weekly budget and send whatever is left unspent on Sunday to your loan.
Here's tip #10 in real numbers. Take a $10,000 loan at 19.95% p.a. over 3 years, paying weekly:
|
Time to pay off |
Total interest |
|
|---|---|---|
|
Minimum payments only |
3 years |
$3,383 |
|
+ $20 extra a week |
2 years 3 months |
$2,530 |
That's the loan cleared about 8–9 months early, for a saving of roughly $853 in interest. Twenty dollars a week doesn't sound like much — but it adds up faster than most people expect.
Illustrative figures based on our published fee structure and a 19.95% p.a. rate (the midpoint of our range). Your own numbers will depend on your loan — try the loan calculator.
Speaking of budgeting, the best way to devote more money to loan repayments is to spend less elsewhere. Check your bank statements to identify areas of unnecessary spending. Set a budget and work within it. You might be surprised at how much fun you can have for free!
Your ultimate goal should be to be free of debt. So, when you do manage to pay off that credit card or loan, it's wise to close it.
Life happens, and sometimes a repayment gets missed despite your best efforts. If that's you right now — or you can see it coming — get in touch with your lender as early as you can.
In New Zealand, you also have a legal right to ask your lender in writing for a hardship variation (like extending your loan term) if you're dealing with genuine, unforeseen hardship such as illness, job loss, or the end of a relationship.
It's free to ask, and your lender has 20 working days to give you an answer.
Free, confidential help is also available from MoneyTalks (0800 345 123, moneytalks.co.nz), your local Citizens Advice Bureau, or Work and Income if you're eligible for financial assistance.
We've written a full breakdown of your rights and options in Managing Your Loan Repayments in NZ.
At Instant Finance we've spent over 50 years helping Kiwis better manage their money, by consolidating high-interest debt into customisable personal loans with lower rates and fairer terms.
Yes, the faster you pay off the loan, the less interest you will pay, although certain loans may have penalties for paying off too much too quickly, so be sure to read the terms and conditions carefully.
It is possible to pay off a five-year loan in two years, but it's far from easy. By using a combination of the tips and techniques listed above, and by being very disciplined with your finances, you may be able to pay off a large loan within 24 months.
If you've chosen to borrow with a high-quality and proven lender like Instant Finance, they are more likely to be open to negotiating the terms of your loan should you run into financial difficulties.
Paying off a loan early isn't a black mark — lenders generally report it as a loan paid in full, which is a positive entry on your credit history. It won't automatically boost your score on its own, and closing an account can occasionally have a small, temporary effect on things like your average account age, but it's a very different story to a missed payment or default. If anything, a track record of loans paid off as agreed tends to work in your favour for future borrowing.
Pay more than the minimum where you can, make extra or lump-sum payments when they come up, and prioritise your highest-interest debt first. Even small, regular extra payments — like $20 a week — can clear a loan many months early and save hundreds in interest. See the tips above for the full list.
You may be charged a default interest rate on the overdue amount, and it may affect your credit file. Contact your lender as early as possible — you may be able to arrange a hardship variation. Our full guide on managing loan repayments in NZ covers your rights and options in detail.
