Debt Guide: Personal Loan Payoff Options

you will be connecting to our affiliated sites within the
SayPlanning / SayLending network

• Is this the right option for you:
  this may be an ideal option if your budget allows for an extra amount to be used to quickly payoff your loans.
  
  You may consider consolidating your existing loans under a lower rate and budgeting the same amount to payoff your consolidation loan: See Option 2: Consolidate Your Loan.
  
  
  
• First thing: analyze your budget:
  analyze your monthly budget to determine how much money you can allocate for this payoff plan.
  
  Link to our budget planning worksheet: click here
  
  
  
• Identity and list your loans:
  open this calc window to identify the loans that you would like to payoff. List the loans in order from the lowest loan balance to the highest.
  
  Let's illustrate this concept by using the following loan balances with a period of 5 years before the final loan is paid (assuming no additional debt):
  
  

  	Balance	Payment	Rate
  Loan1	$800	$32	12.5%
  Loan2	$1200	$40	12.5%
  Loan3	$2777	$67	12.5%
  Loan4	$8530	$175	8.00%
  Loan5	$18997	$453	6.75%
  Total Period to payoff final loan: 5 years

  
  
  
• Group your loans:
  group at least 2 low-balance loans together and pay them off within 6-12 months.
  
  (You may use a credit card transfer program to get the low transfer interest rate during your payoff period).
  
  Once you payoff these two loans, group the next low-balance loan and pay it off quickly over 12-24 months.
  
  This payoff grouping builds a momentum where you erase 1-2 loans quickly from your monthly payment plan. The savings can then be applied to other monthly loan payments to reduce your aggregate loan balances quickly.
  
  Example:
  
  Take the first two loans on your list (Loan1 and Loan2) and group them together.
  
  Set a budgeted payoff plan within 9 months:
  
  — your payoff balance: $2000
  — current debt payment: $72 ($32+$40)
  — additional payment needed to payoff within 9 months: $162
  — (see calculation)
  
  — total monthly payoff amount: $234 ($72+$162)
  
  The extra $162 per month will need to come from budget planning by reducing other monthly expenses:
  
  link to our budget planning sheet at our parent site: click here
  
  note that you will still continue to pay on your other outstanding loan debt
  
  
  
• Payoff and group again:
  once you have successfully paid off the two loans in 9 months, your current loan portfolio will look like this (assuming no additional debt and payment reduction on your other loans):
  
  

  	Balance	Payment	Rate
  Loan1	$0	$0	12.5%
  Loan2	$0	$0	12.5%
  Loan3	$2372	$67	12.5%
  Loan4	$7308	$175	8.00%
  Loan5	$15450	$453	6.75%

  
  Now take the next loan and apply the same payoff proceeds to this loan:
  
  — your payoff balance: $2372
  — monthly payoff amount: $301 ($234 above + $67 current pay)
  — time needed to payoff: 8.3 months (see calculation)
  
  Now after 9 months, you current loan portfolio looks like this (assuming no additional debt and payment reduction on your other loans):
  
  

  	Balance	Payment	Rate
  Loan1	$0	$0	12.5%
  Loan2	$0	$0	12.5%
  Loan3	$0	$0	12.5%
  Loan4	$6004	$175	8.00%
  Loan5	$11698	$453	6.75%

  
  
  
  
• Continue payoff:
  continue your group payoff by taking the next loan and applying the same payoff proceeds:
  
  — your payoff balance: $6004
  — monthly payoff amount: $476 ($301 above +$175 current pay).
  — time needed to payoff: 13.2 months (see calculation)
  
  After 13 months, your current loan balance will look like this:
  
  

  	Balance	Payment	Rate
  Loan1	$0	$0	12.5%
  Loan2	$0	$0	12.5%
  Loan3	$0	$0	12.5%
  Loan4	$0	$0	8.00%
  Loan5	$6079	$453	6.75%

  
  apply the same payoff proceeds to payoff your last loan:
  
  — your payoff balance: $6079
  — monthly payoff amount: $929 ($476 above +$453 current pay).
  — time needed to payoff: 6.9 months (see calculation)
  
  
  
• Summary:
  by grouping low-balance loans together and budgeting an additional $162 for debt payoff, you were able to eliminate this debt within 3 years. That is two years less than allowing these loans to run their term.
  
  The magic of grouping is that it eliminates low balance loans quickly so that you have the motivation and additional funds to pay down your next loans.
  
  You can achieve the similar payoff time if you allocated an additional $162 each month to pay down a consolidation loan. See example under Option 2.
  
  Grouping works best when you develop a spending plan that meets your budgeted allowance for living and debt payoff.
  
  See our topic on budget planning
  
  
  
• Lower your other living expenses:
  review our section on lowering your monthly bills in housing, transporation, living, recreation, and more.
  
  Click to view "lowering your bills"

• Is this the right option for you:
  this may be an ideal option if you can consolidate your loans under a repayment plan that offers an interest rate that is lower than the weighted interest rate charges on your existing loans.
  
  
  
• Estimate your weighted interest rate:

	1.	a: enter each loan balance that you want to consolidate b: enter your loan debt interest rate c: press calculate. calculate will multiply the balance by its current interest rate to give you a weighted factor for each loan:
		Loan Amt	Interest Rate	Weighted Factor
		X	% =
		X	% =
		X	% =
		X	% =
		X	% =
		X	% =
		X	% =
		X	% =
	2.	Sum the factors together to get a weighted average:
	3.	Sum the outstanding balance of all loans:
	4.	Divide the weighted average by the loan balance.		%
		The interest rate on your consolidation loan must be lower than this "weighted interest rate" to benefit from an overall lower consolidation interest rate.
	5.	You can remove low-interest rates loans from your list and pay them off separately. Then calculate your weighted average to consolidate your remaining loans.
	6.	Link to our Debt Consolidation Worksheet to estimate your repayment plan using a debt consolidation rate and term.

• Consolidation example:
  Let's assume that you had the following loans that will take 5 years before the last loan has been paid off (similar to the example above).
  
  If you consolidated the following loans under a consolidation rate of 7.00% with a 10-year repayment plan, you would save around $392 each month over current payments.
  
  These savings can be applied as an extra amount each month to pay down your consolidation loan within 4 years — 1 year earlier if you didn't consolidate.
  
  If you budgeted an additional $162 as illustrated under Option 1 above, you will be able to eliminate this debt within 3 years.
  
  

  Current Outstanding Loans
  	Balance	Payment	Rate
  Loan1	$800	$32	12.5%
  Loan2	$1200	$40	12.5%
  Loan3	$2777	$67	12.5%
  Loan4	$8530	$175	8.00%
  Loan5	$18997	$453	6.75%
  Total	$32,304	$767
  Consolidation Loan: 10-yr Repayment Term
  	Balance	Payment	Rate
  Total	$32,304	$375.08	7.00%
  Savings		$392.00	($767-$375)
  Payoff Amounts
  Current		$375.08	(payment)
  Extra1		$392.00	(savings)
  Extra2		$162.00	(budgeted amt)
  Payoff	38 months

  
  
  
  
• Loan Consolidation Options:

  1) If You Own a Home:
  by using the security of your home, you can secure a home equity or home refinancing loan at low rates with repayment terms of 5 or more years. You can use this loan to consolidate your credit card and other loan debt.
  
  This option allows you to setup a repayment plan with extended terms that can significantly reduce your monthly payment (depending on the amount being consolidated).
  
  You can also pay extra each month to quickly payoff your consolidation loan.
  
  Get up to four national lenders to review a consolidation option that fits your budget. Select the option that works for you. No obligation.
  
  no obligation debt consolidation request form
  
  
  2) For those who don't own a home:
  this deb reduction option is available for debt holders who don't have a home or who don't have enough equity in their home to consolidate. Debt professionals will tailor a debt reduction plan that works for you.
  
  This option allows you to setup a repayment plan with extended terms that can significantly reduce your monthly payment (depending on the amount being consolidated).
  
  no obligation debt reduction request form

• Is this the right option for you:
  use this option if you find yourself unable to repay your current debt balances and want to avoid bankruptcy.
  
  This may be the right option if circumstances such as unemployment, loss of income, or other unfortunate event prevent you from repaying your debts.
  
  This option is also recommended if you have collection agencies threathening action. Counseling services can advice and protect you from adverse action.
  
  
  
• Credit counseling services:
  credit counselors will be able to discuss your situation with your debt lenders to either forgive the debt or structure a repayment plan that fits your budget.
  
  They will also work with you to establish a budget that fits your current situation.
  
  
  
• How the program works:
  you first complete an enrollment form that authorizes the credit counselor to discuss your situation.
  
  click here to start that from our national list of debt counseling professionals
  
  

  the credit counselor will contact your creditors to negotiate a repayment plan that is significantly less than you currently pay — why? creditors will welcome partial payment rather than no payment.
  
  credit counselors will then setup a monthly repayment plan that works for you
  
  you will then make your monthly payments to the credit counselor who in turns divides the payment among the creditors based on the negotiated repayment amount
  
  in most cases, creditors will inactivate your credit cards to avoid charging additional debt.