When it comes to borrowing money, there is healthy debt, and then there is debt that is less beneficial to you. Mortgages are considered a healthy type of debt because they allow you to borrow money to buy a specific asset – a house – that can increase in value over time. Credit card balances, on the other hand, are considered less healthy. This type of debt can cost you a lot of money in interest, and often it does not lead to ownership of a valuable asset. Plus, just carrying a balance on a credit card can hurt your credit score.
Personal loans fall somewhere in the middle. Typically, you’ll pay less interest on a personal loan than on a credit card. And as long as you stick to your monthly payments, having a personal loan shouldn’t negatively impact your credit.
Still, you might not like the idea of being in debt, which means that if you have a personal loan balance, you might be motivated to pay it off by the end of December. This way you can start the New Year debt free.
Now, one thing you need to know about how personal loans work is that some lenders charge a penalty for prepaying a loan. But as long as yours doesn’t, then reversing that balance could give you peace of mind until 2022. Here’s how to do it.
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1. Reduce your leisure expenses
You can’t necessarily spend less on housing, transportation, utilities, or food. These are all things you need to be able to function. But the only category of expenses where you may having some leeway is a hobby.
Maybe you meet up with friends for dinner and a movie once a week. Or maybe you get together for a weekly activity like bowling or pottery. As difficult as it can be to ditch these plans for a period of time, if they are costing you dearly, it is money that could be used towards your personal loan balance. And remember, we’re not talking about giving up hobbies forever – just for a few months so you can reach your goal of getting debt free by the end of the year.
2. Find a second job
Maybe you don’t want to cut back on your leisure expenses (or have nothing more to do). Or maybe it won’t reduce your personal loan balance enough to make it worth it.
If so, consider having a sideline in addition to your main job. The beauty of a sideline is that the money you earn won’t be spent on other expenses. Once you’ve posted the taxes you owe on that income, you can apply the rest to your loan balance.
If you’re not sure what kind of side gig to get, think about the things you like to do. If you like to DIY, you may be able to knit scarves or design jewelry on the side and make a decent income from it. If you love animals, signing up to walk dogs or babysit your pets is a great bet.
Granted, your side activity may not end up being something you enjoy. You might find that the easiest way to get extra cash is to enter data at home, which is probably not a hobby for you. But remember, you are trying to reach your goal of getting rid of your debt by the end of the year. So if you really don’t like it, your side business doesn’t have to be something you stick to after your personal loan is paid off.
3. Sell things you don’t need
You probably have items around the house that aren’t very useful to you, like the air fryer that you bought but haven’t taken out of the box yet. Now might be a good time to sell these items. You can use the money you collect to pay off your personal loan balance.
If you have older items that might not make a lot of money individually but could be worth something collectively, consider taking them to a consignment store. That way, instead of spinning your wheels to earn $ 5 here and $ 10 there, a consignment store may be willing to pay you a lump sum for all of your possessions. Or, that store might write you a nice check with some of their proceeds once your items sell out.
While having a personal loan isn’t necessarily a bad thing, you might want to pay off that debt over the next few months. These steps could help you start 2022 with a clean financial table and a fully paid personal loan balance.