Paying your personal loan early is a worthwhile proposition. Whether your lender is charging a prepayment fee or not, eliminating debt before it matures can save you a ton of money. After all, regardless of how long your loan term is, most of your early payments will go toward the interest. In other words, the principal amount does not decrease significantly during the first half of the term. The sooner you pay off your personal loan in Singapore, the less interest you will incur overall.
Moreover, getting rid of one debt helps free up cash and allows you to keep more money in your pocket every month. It can also be a strategic move to take out a mortgage successfully because it will reduce your Total Debt Servicing Ratio (TDSR). A lower TDSR tells the lender that you are more financially capable of handling another debt.
Without a personal loan to worry about, you can start saving for your retirement. As a result, you can funnel more money into the stock market or other investment instruments to help grow your wealth passively.
But the question is, how can you pay your personal loan early? Apart from controlling your expenses and increasing your income through a side hustle, here are some tips to keep in mind.
Prioritise Other Debts With Higher Interest
If you have other debts attached with greater interest than that of your personal loan, focus on paying them off first. Consider paying minimums on your other debts to finish the most financially detrimental ones much earlier. Once your higher-interest debts are gone, you can use more money to pay the others sooner.
Go Above and Beyond
Do not limit your payment to what is required. After all, you do not have to pay your personal loan early in a lump sum. You can make incremental increases to your standard monthly payments to cut more of your principal balance every single time. Before you know it, you may pay your six-year loan in under four years.
Use Your Windfalls
Many people do not know what to do when money falls into their lap. This is why windfalls usually end up getting wasted. Instead of splurging all of your surprise bonuses or unexpected lottery winnings on indulgences you could not normally afford, use the cash to reduce your loan balance. Freeing yourself from a personal loan can cause more lasting happiness than a single ‘feel good’ hormone rush.
Finishing your loan ahead of schedule may involve important lifestyle changes and sacrifices. However, this does not mean you should drive yourself to depression for the sake of paying your debt down. Feeling little to no stress is key to achieving your loan prepayment goal. If you are unhappy while doing it, you may inadvertently feel being punished.
Paying your loan early should be a rewarding experience, especially when you know that you will save and have money at the finish line. While there are many ways to attain your objective, avoid overdoing anything to prevent the process from feeling overwhelming.
Not all people have what it takes to pay a personal loan early. But if you want to succeed, you need discipline and strategy from start to finish.