7 Strategies to Pay off Your Personal Loan in 2023

If you are also stuck with high monthly personal loan repayments and want to pay off your personal loan in 2023, continue reading this article.

You might have taken a personal loan in 2022 or before that for any of your financial requirements, such as medical emergencies and retail therapy. If you continue repaying your debt as per the loan repayment plan, you will have to carry the EMI burden for a long time. However, by following the tips below, you can pay off your personal loan by the end of 2023. Clearing off the debt earlier reduces your financial burden and stress and brings relief to be in a stronger financial situation.

While the personal loan closure is a freeing experience, the banks and NBFCs charge up to 5% of the total outstanding amount as a prepayment fee, which might not offer many benefits, especially if you consider foreclosing your personal loan at a later stage of the loan tenure. Therefore, it is advisable to consider your financial situation and do a cost-benefit analysis to know how much you will be able to save and opt for it only if you are able to save a considerable amount.

If your lender allows you to prepay your personal loan and you know you want to pay off your personal loan in 2023, the next question that may pop into your mind is how you can do it.

Here are the top 7 strategies to payoff your personal loan by the end of 2023:

1. Create a budget:

Preparing a budget is the key to being in control of your finances. A budget allows you to analyse your monthly inflows and outflows. If your outflows are excessive and leave you with zero to very little to save and repay your debt, then it is high time you start monitoring your spending habits.

It is advisable to establish a monthly budget for all your expenditures and be determined to follow it. You must curtail all the unnecessary splurging and save wherever you can to contribute towards your personal loan repayment.

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2. Cut down your expenses:

If you want to pay off your personal loan by the end of 2023, you must cut down your unnecessary expenses and luxuries like expensive dinners and holidays and buy expensive stuff, such as clothes, gadgets, etc., until you pay off all your dues. It is also advisable to rationalise the fixed expenses like food, electricity, mobile bill, etc. It can be hard initially to make such lifestyle changes, but they are worth getting out debt-free.

Needless to say, you should not add to your existing debt by shopping more on credit cards or through instant credit apps. Having extra credit can create a feeling of having access to large sums of money and can lead you to buy things that you may not even need.  Hence, it is crucial to keep track of every small expense, as these small expenses often amount to big bills.

3. Use your bonus and increment:

You might have received a Diwali bonus during the last Diwali or may receive a bonus/increment in 2023. The bonus and increment add to your net income. If you have made plans to spend it on a vacation or any other luxury, it is time to reconsider your plan. Instead of deploying it elsewhere, it makes sense to clear your dues first, as this amount can significantly reduce your personal loan due amount.

Apart from the bonus and increment, any windfall income received, such as gifts, lottery prizes, inheritance, divorce settlements, insurance settlements, lawsuit judgements, a retirement package, etc., should be utilised towards your personal loan repayment. It is tempting to use this money to fulfil your other wishes, however, it would be wise to first boost your financial health in order to achieve your other financial goals.

4. Start a side hustle:

You can contribute more towards your personal loan repayment by increasing your net earnings. However, that might not be possible for everyone. But you can try to do a side hustle, such as monetising your hobbies, renting out a property, negotiating for a salary increment, etc.

If your spouse is a homemaker, you can discuss the possible income opportunities together and share some financial load. The extra income which you will earn can be used to repay your personal loan, and the increased earnings will also help you reduce your debt-to-income ratio.

5. Consider selling an idle asset:

While using your extra savings is the first feasible option to clear off the personal loan, it might not be the right option if you do not have a sizeable amount of savings. In that case, you can consider using your investments to repay your personal loan. Selling assets like real estate property, gold, mutual funds, etc., could hurt emotionally, but it is a wise choice to liquidate them in times of need as it is the ultimate purpose of investing in them.

There is no point in keeping the assets while you are struggling to repay high debt. But, if the asset is something you or your family are emotionally attached to, it is advisable to consider taking a loan against it. Since these loans are backed up by collateral and the interest rate is lower than unsecured loans, you can consolidate your debts at a lower rate of interest. However, keep in mind that the lender holds the right to sell your asset to recover the dues if you are unable to pay a few EMIs on time or default on the repayment.

6. Negotiate on loan terms:

While most lenders do not allow any changes in the loan terms, it is a good idea to try negotiating with the lender on loan terms. If you have been an old customer with good credit history with them, they can consider your request and may lower your interest rate or waive off the foreclosure or prepayment charges. Personal loan prepayment charges vary from lender to lender and are considerably high; they generally range from 1% to 5% of the total outstanding amount. Waiving them off can make a significant difference in your loan repayment.

7. Opt for a balance transfer:

When nothing seems to be working, and you are paying huge interest to your current lender, you can consider a personal loan balance transfer. It allows you to shift your outstanding personal loan to a different lender for a better rate of interest and/or other benefits. Technically, when you transfer your personal loan to another lender, the new lender pays off the unpaid loan balance to your existing lender, and your current personal loan account gets closed. Simultaneously, your new personal loan account starts with your new lender, where you pay a comparatively lower rate of interest.

To conclude:

Since the interest rate on a personal loan is very high compared to the other loans, many borrowers try to foreclose or prepay the personal loan as and when they have excess funds. Since personal loans are more popular amongst salaried individuals, prepayment is common whenever they receive bonuses or increments. However, it is important to consider the prepayment charges and do a cost-benefit analysis before opting for personal loan prepayment.

Warm Regards,
Ketki Jadhav
Content Writer