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
Paid for Christmas on a loan? See "Paid for Christmas on a loan?" below for how small extra payments can clear it sooner.
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.
Weekly or fortnightly repayments can line up better with your pay, which makes them easier to budget for. On their own, though, they make only a small difference to the total you pay, because the interest saved is mostly offset by the per-instalment admin fee.
Paying a bit extra is what really speeds things up (see tip 10). Our guide to managing your loan repayments shows the numbers side by side.
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 debts are brought together into one loan with one repayment.
For example, high-interest credit card debt is often consolidated into a personal loan. It can simplify your repayments and may lower your rate, but check the term: a much longer term can mean paying more interest overall.
Our guide to debt consolidation in NZ explains how to weigh it up.
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.
A better credit score can open up more borrowing options and better interest rates down the track.
Paying on time, every time, is the biggest thing you can do, and paying off a loan early is a positive mark on your credit history.
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 |
|
|---|---|---|
|
Regular weekly payments |
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. When you pay off a loan, it closes.
For credit cards you've cleared and no longer need, consider closing them so you're not tempted to use them again.
Closing an account can have a small, temporary effect on your credit history, so it's worth thinking about the timing if you're about to apply for other credit.
If you used a loan or a top-up to cover Christmas, small extra payments in the new year can make a real difference. On a $10,000 loan at 19.95% p.a. over 3 years, adding just $20 a week could clear it about 8–9 months early and save around $853 in interest (see the table above).
A few ways to find that extra $20 a week:
Put any Christmas cash or gift vouchers you don't need towards your loan.
Sell presents or bits and pieces you won't use.
Trim one or two subscriptions or takeaway nights, and send the difference to your loan.
There's no penalty for paying extra or paying your loan off early with us, just a $25 administration fee if you pay off the full balance early. Then get ahead for next year: our Christmas budget guide shows how to start a Christmas fund now. If January's feeling tight, see what to do if you've overspent at Christmas.
Illustrative figures based on our published fee structure and a 19.95% p.a. rate (the midpoint of our 9.95%–29.95% p.a. range). Your own numbers will depend on your loan. Try the loan calculator.
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 manage their money better, including bringing debts together into one loan with one repayment. If you're juggling a few debts, we can talk you through whether debt consolidation makes sense for you.
We won't let you get in over your head: we'll go through your budget with you to make sure the repayments fit.
Yes, the faster you pay off the loan, the less interest you'll pay. Some lenders charge fees for paying off early, so check your terms. With Instant Finance, there's no penalty for paying extra, just a $25 administration fee if you pay off the full balance early.
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 your circumstances change, talk to your lender as early as you can. Many lenders, including us, would rather work something out with you than see you fall behind.
Our guide to managing your loan repayments explains your options and rights.
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.
Pay extra whenever you can. Regular extra payments, even $20 a week, and lump sums like a bonus or tax refund go straight to reducing what you owe, which cuts the interest you pay. Paying off your highest-interest debt first helps too.
The same principles apply to any loan size: pay more than your regular repayment whenever you can, put lump sums towards it, and cut costs elsewhere to free up cash. On a larger loan, extra payments save even more interest. Try our loan calculator to see how a shorter term would change your repayments.
