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

If you need to close several loans, and from different banks, you should first draw up a repayment 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 amounts necessary for payments. Perhaps the bank will send you an SMS on the eve of the date established in the contract, but it is better that you remember about it yourself.

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

How to pay off loans using the snowball principle

If there are several loans, then first you need to make a complete list of them, in which you place the debts from smallest to largest. It is also worth including the costs of credit cards.

Then you should pay off debts according to this scheme:

• Allocate funds from your budget for the minimum payments for each loan.
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• Calculate all your income and expenses and determine how much additional money you are willing to allocate to pay off loans. The size of this extra contribution should also be written down.
• Make all required loan payments.
• Starting next month, make an extra contribution. Send this money to pay off the smallest loan. Transfer them to the bank as soon as you receive the required amount - for example, on the day salaries. 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 the next month. You will be able to allocate a large amount for this purpose - your extra contribution plus the money that went towards the minimum payment on the loan you just closed.
• Having paid off the second loan, move on to the next one. Once again, the additional monthly payment will increase—this time by the amount of the minimum payment on the second loan.
• Do this until you have paid off all your debts.

The snowball method is good from a psychological point of view. He helps track your progress, gain satisfaction from a completed task, and move on to the next one with enthusiasm. When you happily cross off the first completed task from the list, then the second, you will want to do the same with the third and subsequent items.

Research showedthat this approach really works. Consumers actually reduce their debt load or become debt-free faster if they start with the smallest loan.

How to pay off debts using the avalanche principle

Here you are first repay 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 now.

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

• Set aside money for all minimum payments and planwhen you make required payments.
• Calculate how much additional amount you can use to pay off loans. Write down the amount of this extra contribution.
• Send all required payments to the banks.
• After that, make an extra contribution - transfer money to repay the loan with the highest interest rate.
• When close this loan, move on to the next one on the list. And again send an extra payment to repay it plus an amount equal to the minimum installment on the repaid loan.
• Continue this way until the loan is paid in full.

This method is worth choosing if you have large credit card debts. As a rule, the interest in this case is much higher than that of consumer loans. Therefore, the sooner you pay off the debt with the highest rate, the less overpay the banks.

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

How to pay off loans faster using loan consolidation

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

However, there is another way to make paying off debts more convenient. This consolidation is a special case of loan refinancing.

You can contact the bank to combine several loans into one - and all of them can be issued by different organizations. The bank pays all your debts to other creditors, and from that moment you pay off only one, consolidated loan.

It is easier to repay one loan from the point of view of both psychology and mathematics:

• You will probably not forget the date of mandatory payments. You will also know exactly when you will finally pay off your debt. Often, overdue loans arise due to the debtor’s carelessness: he simply forgets about one payment out of several. If you only need to make one contribution, you are unlikely to forget about it. This means there is less chance of getting fined, increasing the amount of overpayment and the deadline for final payment, and also spoiling 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 high overpayments. Or you have credit card debt, the rate on which is much higher than on consumer loans. A consolidated loan is often issued at a lower interest rate than the portion of the consolidated loans. This will reduce the amount of overpayment, sometimes by a very significant amount. This means it’s faster to pay off 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 must deposit the money into the account. And if you can make more than the minimum payment, you will see how ahead of schedule you are. This will serve as a great incentive to maintain or even increase the rate of payments in order to quickly pay off the debt. If, of course, income allows.

An important point: as a rule, banks more often issue consolidation to clients with good credit history. If the debtor has previously been in arrears, it will be more difficult to obtain this service.

And one more thing: until you pay off your previous loans, try not to take out new ones. Postpone large purchases unless they are absolutely necessary.