counting money

Smart Amortization Strategies You Should Know

On average, an American has a debt of $90,460. This includes all types of consumer debt — credit cards, personal loans, student debt, and mortgages. The average American millennial has $87,448 in debt, while the average Gen X person has $140,643. People from Generation X have the highest debt on average. 

Big ticket items like a new house, tuition fees, and a new car require most of us to take out loans. You may be paying off multiple loans at once, trying — even struggling — to stay financially afloat while putting a dent in your loan balances. This is where good amortization strategies come in. Being debt-free may seem like such a daunting goal to work for, but careful planning and strategizing can help you pay off loan amortization quickly. 

Strategies for Paying Off Amortization

The Snowball Strategy

One key component in effective debt management is motivation. The debt snowball method’s purpose is to keep you focused and motivated to pay off your loan amortization.

How do you do it?

The idea is to start with the smallest debt and work your way up to the largest. The first thing you want to do is to list all your outstanding debts and the monthly amortization for each one. Then, every month — or every paying schedule — pay as much money to the smallest debt as possible. Once you’ve cleared one debt, you then re-allocate the money for that debt to the next one in line — all while paying the minimum required payment for the rest of your debts. Do this until you’re debt-free.

People who use this method cite the positive psychological effect as one of its main advantages. It gives debtors the boost of seeing one debt getting paid off at a time, instead of watching all outstanding balances at the same time for years.

The Avalanche Method

This strategy is similar to the snowball method, but instead of ordering your debts by balance, you do it by interest rate. Make a list of your debts from highest to lowest interest rate. Then, focus on paying off the highest-rated debt first, while paying the minimum amount for the rest. Once it’s paid off, reallocate the budget to pay off the next one. 

This works for those with high-interest debts, and prioritizes saving on interest. Both the Snowball and Avalanche methods’ goals are to make your debts more manageable, and ease the stress of paying off multiple monthly amortization.

Employer Repayment Programs

If you have recently been employed or are currently looking for a job, this is something that you may want to explore. Some companies offer opportunities for employees to pay their debts, especially student loan debts, more quickly. 

Since employer repayment programs are a bit uncommon, the method of repayment has not been standardized. So, it goes in many ways. For example, there are cash payment programs in which the company pays a fixed amount each month toward your loans, on top of your own payments. Some employers match their employees’ monthly payments, instead of paying a fixed amount. 401(k) payment match programs, on the other hand, allow you to pay off student loans and invest at the same time by making a 401(k) contribution that matches your student loan payment. 

Debt Consolidation Plan

Another strategy, specifically suitable for those who are having a hard time keeping up with their monthly amortization, is debt consolidation. In this strategy, you take out another personal loan or use a new credit card to pay off your existing loans. The lender will then pay off all your amortization and roll them into a single debt. Note that you might get a higher interest rate than some of the other debts you had, but this can potentially help you save on late fees and penalties. 

Before jumping into this strategy, calculate your blended interest rate by totaling all the interest you’re paying annually and dividing it by the total principal amount you owe. If the interest rate of debt consolidation is lower than your computed blended interest rate, then this strategy might be good for you.

Other Tips

Aside from the strategies cited above, here are a few tips that can help you pay off your amortization faster.

Look for another income stream.

You can opt to allot your free time to take an additional job or a side gig. This can be a short-term sacrifice that can help you in the long run. If your evenings and weekends are free, you can consider the idea of taking part-time jobs or even work-from-home gigs to come up with extra cash for your loan amortization. 

Allot any extra cash for loans.

If you stumbled across extra money — for example, you got an inheritance or a significant tax return refund — take this opportunity to put a huge dent in your loan balances. It may not be as glamorous of a choice as going on a Eurotrip, but it is definitely a more responsible one. You will thank yourself later. 

Live more simply.

Every day, we are bombarded with ads telling us what to buy and to buy them right away. It takes discipline to focus on your goal to be debt-free soon and to resist the urge to purchase every other thing on sponsored posts on Facebook. The little savings you get from every resistance become great in the long run. Make your own coffee, cook your own food, and bake your own sweets. Once in a while, review your budget to see if there are other areas that you can cut down on — subscriptions, membership fees, etc.

Final Thoughts

There is no hard and fast rule for paying off loan amortization quickly and efficiently. It is best to constantly and carefully look into your finances to see which strategy will work for you. An apt strategy coupled with good money habits can definitely help you manage your debts better and give you financial stability and freedom sooner.

It is also best to do due diligence in choosing the right lender. Payment1 offers loans that don’t break the bank 一 we consider your budget and ability to pay when coming up with a payment plan. 

Complete your loan application entirely online without having to go to our office, or contact us for questions, today.