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Tips to Paying Off Your Personal Loans
Want to free yourself from debt? Jora has several tips to pay off your loans, whether payday, personal, or another type of loan.
Personal and payday loans can be helpful when you’re in a pinch and need extra cash for a big-ticket expense or emergency. But it can be hard to manage multiple loans, especially if you’ve borrowed more than you can repay. If you’re not careful, you could end up with missed payments, late fees, or additional charges. These could also hurt your credit score and make it harder to qualify for credit in the future.
Fortunately, it’s possible to manage multiple payday and personal loans without defaulting on payments. Here are some strategies and tips to help you pay off loans that might be causing personal or financial stress.
Why It’s Important to Pay Off Personal Loans
Personal loans are often necessary and helpful since you can use them for nearly any reason. But it’s still a good idea to pay them back as soon as possible, especially if you have multiple loans and are struggling to keep up with the monthly payments.
If you’re still on the fence about paying off your personal loans or paying a loan off early here are the biggest advantages to doing so.
Avoid the Debt Cycle
A cycle of debt typically occurs when a borrower continues to take on more debt than they can afford to repay. This can lead to higher interest charges and other fees. It can also increase the risk of defaulting on the loans.
You may end up in a debt cycle if you:
- Do not make enough money to pay off what you owe
- Struggle to make on-time monthly payments
- Find yourself frequently having to extend your loan terms so you have more time to pay back your debts
A debt cycle is especially common with people who take out multiple loans or loans with short repayment periods. You can avoid getting into a cycle of debt by paying down your personal loans and other debts.
Avoid High Fees
Personal loans and other installment loans often come with different lender fees. Common fees include:
- Origination fee: Some lenders charge this fee when underwriting the loan. It can be anywhere from 2% to 5% of the loan amount.
- Interest rate: Personal loans usually have a fixed interest rate. It’s added to your monthly payment and depends on your credit score and other factors, like income.
- Annual percentage rate (APR): Most personal loan also disclose an APR, which combines the interest rate and other lender fees. If the loan does not have other fees, the APR and the interest rate may be the same.
- Prepayment penalty: If you pay a loan off early, you may have to pay a prepayment penalty.
- Nonsufficient funds fee (NSF): is a charge that a lender may impose when you do not have enough money in your account to cover your loan payment.
- Late fee: This happens when you miss a payment.
If you pay a loan off early, you might be able to save money on interest charges. But make sure the loan does not come with a prepayment penalty. If it does, you could lose any potential savings.
Freedom From Monthly Payments
Paying off your personal loans means you have fewer monthly payments to keep track of. Not only can this alleviate some stress, but it can also free up some extra cash each month.
This can be helpful if you’re struggling to make ends meet and need the money for everyday bills. It can also be useful if you’re juggling multiple loans since you can use the cash to get rid of these debts sooner.
Having one less monthly payment can also make it easier to achieve other financial goals. These could be anything from building an emergency fund to saving up for a down payment on a house.
Improved Ability to Apply for Other Loans
When you pay off loans, you increase your odds of qualifying for other types of financing, like a mortgage or car loan. This is because reducing your debt load can improve your debt-to-income (DTI) ratio and credit score — two important factors lenders often use in their decision-making process.
Your DTI ratio is essentially all of your monthly payments divided by your gross monthly income. For example, if you make $4,000 monthly and spend $3,000 on debts, your DTI ratio would be 75%. The lower your DTI ratio, the better your chances of qualifying for new loans.
Your credit score consists of several factors, such as your payment history and credit utilization — your available credit versus how much you owe. Some lenders, like Jora, will consider more than just your credit when deciding whether to lend you money. However, having good credit (670+ FICO score) could boost your approval odds for future financing.
Tips to Pay Off Multiple Payday Loans
A payday loan is a bad credit loan that can provide short-term financial relief in emergencies. But unlike personal loans and other installment loans, payday loans have short repayment terms — usually 2 to 4 weeks. They also typically come with high financing charges and fees.
The short repayment period and fees can make it difficult to repay these loans on time. In fact, around 80% of borrowers have to take out at least one new loan to cover the first one. Many people with multiple payday loans end up defaulting on their payments altogether.
It can take months or even years to get out of the debt cycle that comes with multiple payday loans. If you’re looking for ways to start paying off these short-term loans, here are your best options.
Debt Consolidation
Debt consolidation is the process of combining several smaller debts into one. Most people do this with an unsecured personal loan called a debt consolidation loan.
A debt consolidation loan typically comes with a single, fixed monthly payment. These loans also usually have a longer repayment term and lower interest rates than individual payday loans, which make it easier to manage the debt and repay it over time.
To qualify for a debt consolidation loan, you may need to have good credit or apply with a cosigner. You might also need a steady income and a low DTI ratio.Credit Counseling
A certified credit counselor helps people budget their money, build credit, and manage their debts. You can find one through a nonprofit credit counseling company.
Many credit counseling agencies also offer debt management plans (DMPs). With a DMP, you can enroll eligible debts — like payday loans — into one monthly payment plan. Each month, you’ll make a single payment toward your debts until you’ve fully repaid them.
Credit counseling is usually inexpensive or free. However, DMPs may come with a startup and monthly fees. The cost depends on several factors, such as the agency and the amount of debt you have.
You can find a reputable credit counseling agency in your area by visiting the National Foundation for Credit Counseling website.
Extended Repayment Plan
If you need more time to pay back what you owe, ask your lender for an extended repayment plan (ERP), which can lower your monthly payments while giving you more time to repay your debt. It can also help you avoid the payday debt trap.
Some payday lenders offer EPPs because of state law. Others may be willing to work with you if they know it’s the only way to get their money back. Either way, check with the National Conference of State Legislatures about your state’s payday lending laws.
Payday Loan Relief Program
Several types of payday relief programs exist. This includes DMPs, debt consolidation programs, and debt settlement plans.
Debt settlement is the process of negotiating with your lenders to try to reduce how much you owe. It can help if you're drowning in multiple payday or personal loans and are falling behind on other financial obligations.
Although you can do this process alone, many people go through a professional debt settlement agency. Someone from the agency will negotiate with your lenders on your behalf to try to settle your debts. If successful, you could end up significantly reducing what you owe.
When you go through an agency, you’ll typically need to make fixed monthly payments into a secured account. Once a lender agrees to settle a debt, the agency will use that money to pay it off in a lump sum.
During the debt settlement process, the agency might suggest that you quit making payments on your payday loans or personal loans.
This could lead to late fees and hurt your credit score. But it could also increase your success rate.
Chapter 7 Bankruptcy
An estimated 387,721 Americans filed personal bankruptcy in 2022. Although bankruptcy is generally a last resort, it might be necessary if you’ve exhausted all other options. Speak with a bankruptcy attorney before going this route to see if it’s right for you.
Depending on your situation, you might be eligible for Chapter 7 bankruptcy. This option lets you discharge — or get rid of — unsecured debts like payday and personal loans so you can have a fresh start.
However, bankruptcy comes with many risks. For one, it can ruin your credit score, making it difficult to qualify for other loans. You might also lose some or all of your assets when you file. In some cases, the court might garnish your wages to help pay off your debts.
Tips to Pay Off a Personal Loan
Most personal loans have a longer repayment term, higher loan amount, and lower interest rate than payday loans. However, they can still become overwhelming. If you’re dealing with a personal loan, here are some tips to help you pay it off.
Review Your Budget
If you do not already have one, now is the time to create a personal budget. Having a budget can give you a clearer idea of how much you make versus how much you spend every month. This can help you identify areas where you might be overspending and find ways to save.
Start by calculating your monthly take-home pay. Then, add up all fixed and variable monthly expenses:
- Fixed expenses: These are things that stay consistent every month. They typically include things like your rent or mortgage, insurance premiums, and other loan payments.
- Variable expenses: These are expenses that change each week or month, like groceries, utilities, entertainment, or gas payments.
Subtract your expenses from your income to see how much is left over. For example, if you take home $2,500 a month and spend $2,300, you have $200 remaining.
If you find yourself struggling with loan payments, it might be helpful to cut back on some of the nonessentials. For instance, a basic subscription to Netflix costs $6.99 a month — roughly $83 a year. If you have several subscriptions like this, you could cancel them to free up some cash for your personal loans.
Increase Your Income (or Get a Side Gig)
Many people have a side gig or secondary income stream to supplement their regular income. If you have the time, this could be a great way to increase your income so you can start paying off your personal loans.
When it comes to this type of work, you have many options. This includes tutoring, food delivery, babysitting, pet sitting, and more. Consider your current skill set and interests, as well as how much time you have, to see if adding more work is viable for you.
Start Making Extra Payments
If you’re in a position where you can pay more toward your loan, try to make an extra payment every so often. Or increase your monthly payment amount so you pay more than the minimum. Even if you can only do this a couple of times a year, it can still help you pay the loan off early.
Review your budget to see if you can cut back on spending at all. Or find other ways to save money. For example, you could skip a couple of nights of dining out and use that money for your personal loans instead.
If you pay off loans sooner, you could potentially reduce your total interest charges, too. But keep an eye on your budget. Otherwise, you could end up overextending yourself and fall behind on other things like utilities, groceries, or rent.
Check for a Prepayment Penalty
If your financial situation has improved since taking on your personal loans, you might be wondering, “Should I pay a loan off early?”
The answer to this depends on whether or not your loan comes with a prepayment penalty. Lenders typically make money through interest charges. But if you pay a loan off early, they lose out on this money. Because of this, some lenders add a prepayment penalty to their loans.
The prepayment fee varies by lender. It might be a flat fee, or it might be several months’ worth of interest charges. It could even be a percentage of how much you still owe. And, of course, some lenders — like Jora — do not charge a prepayment penalty at all.
Review your loan agreement carefully to see whether there’s a prepayment penalty. If there is one, ask your lender how much it is. From there, you can decide whether it’s worth paying off the loan early or not.
Consider Refinancing Your Personal Loan
You may want to consider refinancing your personal loans if your credit score, DTI ratio, and income have improved. Refinancing a loan could lower your monthly payment amount and free up some cash. Or it could get you a better rate and repayment term, so you can pay down your debt sooner.
Refinancing your current personal loans will not reduce your principal balance — the amount you currently owe. Also, some lenders do not allow refinancing. Read through the loan contract or ask your lender if this is an option.
Repayment terms tend to be very short when it comes to payday loans, though each state sets its own rules. See what your state regulations are before applying.
Why Jora Credit?
Bottom Line: Paying Off Your Payday Loans and Personal Loans
Many people have a side gig or secondary income stream to supplement their regular income. If you have the time, this could be a great way to increase your income so you can start paying off your personal loans.
When it comes to this type of work, you have many options. This includes tutoring, food delivery, babysitting, pet sitting, and more. Consider your current skill set and interests, as well as how much time you have, to see if adding more work is viable for you.
Start Making Extra Payments
Multiple payday or personal loans can be tricky to manage, especially if they have different repayment schedules and rates. When you have several loans, you also increase the risk of defaulting on payments.
If you need help managing payments, you have options. Depending on your circumstances, debt consolidation, credit counseling, debt settlement, or an extended repayment plan could be right for you.
And if you’re ready to pay a loan off early, consider making extra or larger monthly payments toward your debts. As you do this, you can see an improvement in your credit score. You could also boost your chances of qualifying for future financing.
Ultimately, loans do have their place. If you find yourself facing an unforeseen expense and need a short-term solution, consider an installment loan through Jora.
Jora offers two types of loans, depending on your state of residence – installment loans and lines of credit. To see which type of loan is offered in your state, please view the What it Costs page and select your state.
Jora Credit is the Lender. Jora Credit operates under state specific companies, licenses, and rules for the states that it services. Jora Credit does not lend or arrange loans or lines of credit in all states. Please see What it Costs for the serviced states and applicable terms.
You must be at least 18 years old and (19 if residing in AL):
- Reside in a state in which Jora does business
- Have a job or proven source of income
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