With student loan, credit card, car loan, house loan…have you ever dream of being debt-free faster?
Actually, in personal finance perspective, the faster you can pay off your loan, the more money you can save for yourself.
For instance, Tony have $500,000 house loan, with 30 years loan term, fixed 4.8% interest rate. Thus, his monthly repayment is $2623.33, total cost of loan will be $944,397.64, and there are near half of cost are interest payment ($444,397.64)
Let’s say, if Tony try to pay off in 20 years, with same amount loan and interest rate, the total cost of loan will be $778,748.96, he will save $16,564.68 for himself.
Now, I believe everyone will answer yes! There are 4 simple tips for you to make debt-free very soon!
Paying extra repayment every time
Paying a bit more than your required repayment every time is the first method to pay off your loan faster.
Let’s say if your repayment is $456 per week, you could just round-up very small amount to $500 per week. Just $44 dollars gap per week, could lead to $2288 dollars in one year, and save your money for sure. The more you pay, the faster you pay off!
Making one extra payment
If you are paying monthly now, change to fortnightly; if you are paying fortnightly, change to weekly. There are 12 times per year, if you choose to pay monthly, but 26 times per year if you choose to pay fortnightly, and of course more times if you choose to pay weekly.
If you have $2000 repayment every month, you will pay off $24000 per year. While, if you pay $1000 every fortnight, you will pay off $26000 per year. As I mentioned before, the more you pay, the faster you pay off.
Spend less & earn extra
Saving your money for loans is not hard to understand, but how to earn extra? Sell your old clothes, books, furniture on eBay; find a part-time job on weekend; ask your boss for overtime work and etc. Making money as much as you can, and use to pay off your loan.
Having an extra account
There are many banks offer customer a products called “offset account”, the offset account is a saving account related with your mortgage. Instead of earning interest from your saving, you could pay less interest payment on mortgage.
If you have $200,000 mortgage, and $50,000 in your offset account, bank will only charge you interest on the difference, $150,000.
Moreover, the offset account could save your tax cost as well, in this case, you do not have to pay income tax on interest you earn on your savings.
Being debt-free is very hard, but try these five simple tips today, could help you pay off loan faster definitely!