How to pay off several loans at once to repay them faster

If you need to close several loans, and in different banks, you should first make a payment schedule. And keep it not in your mind, but on paper or in digital notes. This will help you plan your budget in advance at the beginning of each month and allocate the necessary amounts for payments. Perhaps the bank will send you an SMS on the eve of the date set in the contract, but it is better that you remember it yourself.

If you want not only to make minimum monthly payments, but to cope with debts faster, you can try two popular planning methods: "snowball" and "avalanche". Let's add debt consolidation to them.

How to pay loans according to the snowball principle

If there are several loans, then first you need to make a complete list of them, in which to place debts from less to more. It is also worth including expenses on credit cards.

Then it is worth paying off debts according to this scheme:

• Allocate funds from the budget for the minimum payments for each loan.
• Calculate all your income and expenses and determine how much additional money you are willing to allocate to repay loans. The size of this extra charge should also be recorded.
• Make all mandatory loan repayments.
• Starting next month, make an extra payment. Send this money to repay the smallest loan. Transfer them to the bank as soon as you receive the required amount — for example, on the day of salary. This way you will avoid the temptation to spend this money on something else.
• When you pay off the smallest loan, start paying off the next one from next month. You will be able to allocate a large amount for this purpose — your extra charge plus the money that went to the minimum payment on the loan that was just closed.
• After paying off the second loan, move on to the next one. And again, the amount of the additional monthly payment will increase — this time by the amount of the minimum payment on the second loan.
• Act like this until you pay off all your debts.

The snowball method is good from a psychological point of view. It helps How the Debt Snowball Method Works / Ramsey Solutions track progress, get satisfaction from the completed task and enthusiastically move on to the next one. When you are happy to cross out the first completed case from the list, then the second, you will also want to deal with the third and subsequent items.

Research has shown The ‘snowball approach’ to debt / Kellogg School of Management Northwestern University that this approach really works. Consumers really reduce their debt burden faster or get rid of loans completely if they start with the smallest loan.

How to pay off debts according to the avalanche principle

Here you first repay the How to Use the Avalanche Method to Get Out of Debt / The Wall Street Journal the loan with the highest interest rate. Therefore, you also need to make a list of all debts, but arrange them in descending order of interest accrued by the bank. At the same time, do not pay attention to the size of the loans themselves, this is not the main thing for you right now.

Then proceed according to the scheme similar to the previous one:

• Allocate money for all minimum payments and schedule when you will make mandatory payments.
• Calculate how much additional money you can use to repay loans. Write down the size of this extra charge.
• Send all mandatory payments to the banks.
• After that, make an extra charge — transfer the money to repay the loan with the highest interest rate.
• When you close this loan, move on to the next one in the list. And again, send extra payments plus an amount equal to the minimum contribution on the repaid loan to repay it.
• Do this until the loans are fully settled.

This method is worth choosing if you have large credit card debts. As a rule, the interest in this case is much higher than for consumer loans. Therefore, the sooner you pay off the debt with the highest rate, the less The Debt Avalanche Method: How It Works And How To Use It / Forbes overpay the banks.

To calculate which method is right for you, you can use a credit calculator. For example, with this. The resource supports only English, but you can use an online translator.

How to pay off loans faster by consolidating them

There are two financial mechanisms that are well known to borrowers: loan refinancing and loan restructuring. They are worth using when it becomes difficult to pay regular contributions. Lifehacker wrote in detail about these financial instruments.

You can contact the bank to combine several loans into one at once — and all of them can be issued by different organizations. The bank pays all your debts to other creditors, and from now on you pay off only one, combined loan.

Paying off one loan is easier from the point of view of both psychology and mathematics:

• You will certainly not forget about the date of mandatory payments. And you will also know exactly when you will finally pay off the debt. Loan delinquencies often occur due to the inattention of the debtor: he simply forgets about one payment out of several. If you need to make only one contribution, you are unlikely to forget about it. This means that there is less chance of getting fined, increasing the amount of overpayment and the deadline for final settlement, as well as ruining credit history.
• You can pay less interest to the bank. This is one of the main advantages of consolidation. Often the debtor has one or two loans with a high overpayment. Or there is a debt on a credit card, the rate of which is much higher than on consumer loans. A combined loan is often issued at a lower interest rate than part of the combined loans. This will reduce the amount of overpayment, sometimes by a very significant amount. This means that it is faster to pay off the debt .

In addition, it is easier to plan one payment than many small ones. You know exactly the monthly amount and the date by which you have to deposit money into the account. And if you can make larger amounts than the minimum payment, you will see how much ahead of schedule you are. This will serve as an excellent incentive to maintain or even increase the pace of payments in order to repay the debt faster. If, of course, the income allows.

An important point: as a rule, banks more often issue consolidation to customers with a good credit history. If the debtor had delays before, it will be more difficult to get this service.

And one more thing: until you pay off your old loans, try not to take out new ones. Postpone major purchases unless they prove to be vital.