Paying down your debt faster may help you get a head start on your goals, whether it’s applying for new credit, saving on the cost of borrowing, or just reducing your debt. Here are some strategies to think about when considering repayment plans that could help you pay your debt off faster.
Pay off your debt and save on interest by paying more than the minimum every month. The key is to make extra payments consistently so you can pay off your loan more quickly. Some lenders allow you to make an extra payment each month specifying that each extra payment goes toward the principal. Before you begin, check the terms of your loan to determine whether additional fees or prepayment penalties may apply.
Pay more than once a month.
Pay your credit card bills more than the required once per month. This may make it easier to stay on track of how much you owe. Paying your credit card bill regularly may also lower your balance/utilization ratio. The credit utilization ratio is the percentage of your total available credit that is currently being used. The utilization ratio is one of the components used by credit reporting agencies to calculate your credit score.
Pay off your most expensive loan first.
Your most expensive loan is the loan with the highest interest rate. By paying it off first, you’re reducing the overall amount of interest you pay and decreasing your overall debt. Then, continue paying down debts with the next highest interest rates to save on your overall cost. This is sometimes referred to as the “avalanche method” of paying down debt.
Consider the snowball method of paying off debt.
This involves starting with your smallest balance first, paying that off and then rolling that same payment towards the next smallest balance as you work your way up to the largest balance. This method can help you build momentum as each balance is paid off. Understand the pros and cons of this debt pay down strategy by reviewing the Snowball versus Avalanche methods of paying down debt.
Stay on top of your debt by using bill reminders and Online Bill Pay. Simply schedule the amounts you want to pay and when you want to pay them. You can also set up payment reminders and receive eBills from payees offering electronic billing.
Wells Fargo Online — Bill Pay
Options for paying off debt
Shorten the length of your loan.
Refinancing your debt to a shorter term may help you pay it off faster and save on the total cost of borrowing.You may be able to qualify for a lower rate, or a shorter or longer loan term, depending on your situation. Remember, shortening the term of your loan could increase your monthly payments.
Consider Refinancing
Consolidate multiple debts.
Loan consolidation may help you repay debt faster by combining several high-interest rate loans or credit card balances into one new loan ideally with a lower interest rate.
Trying to eliminate all of your debt? Keeping credit accounts open, and paying the balances in full every month, may help you maintain or increase your credit score.
Next Step: Understand the total cost of borrowing
When considering a new loan or restructuring your current debts, remember to consider your borrowing costs. Extending the term of your loan may lower your monthly payment, but you may pay more in interest over the life of the loan, increasing your total payments.
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Products to consider
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Before you apply, we encourage you to carefully consider whether consolidating your existing debt is the right choice for you. Consolidating multiple debts means you will have a single payment monthly, but it may not reduce or pay your debt off sooner. The payment reduction may come from a lower interest rate, a longer loan term, or a combination of both. By extending the loan term, you may pay more in interest over the life of the loan. By understanding how consolidating your debt benefits you, you will be in a better position to decide if it is the right option for you.
Prioritize your debts, ordering them from high to low interest. Check your budget to determine how much you can put toward monthly debt payments. Be sure you're able to make all minimum payments and determine how much extra you'll have to reallocate to your highest-interest loan.
By paying it off first, you're reducing the overall amount of interest you pay and decreasing your overall debt. Then, continue paying down debts with the next highest interest rates to save on your overall cost.
Under Biden's new loan forgiveness plan, borrowers whose loan balances are larger than when they first entered repayment would be eligible to have up to $20,000 of that balance growth forgiven.
While there are no government debt relief grants, there is free money to pay other bills, which should lead to paying off debt because it frees up funds. The biggest grant the government offers may be housing vouchers for those who qualify.
Paying a little extra each month can reduce the interest you pay and reduce your total cost of your loan over time. Continue to make monthly payments even if you've satisfied future payments, and you'll pay off your loan faster.
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