Smart Loan Repayment Strategies to Save Money on Interest

Being in debt is stressful, but having a plan to get out of it is empowering. The right strategy can shave years off your repayment timeline and save you thousands in interest.

The Cost of Minimum Payments

Lenders love it when you make only the minimum payment. Why? Because it maximizes the amount of time you stay in debt and the amount of interest you pay.

Strategy 1: The Debt Avalanche (Mathematically Optimal)

With the Avalanche method, you list your debts from highest interest rate to lowest interest rate.

1. Make minimum payments on all debts.
2. Throw every extra dollar at the debt with the highest interest rate.
3. Once that's paid off, move to the next highest rate.

Why it works: By eliminating the most expensive debt first, you pay less total interest over time.

Strategy 2: The Debt Snowball (Psychologically Powerful)

With the Snowball method, you list your debts from smallest balance to largest balance, ignoring interest rates.

1. Make minimum payments on all debts.
2. Throw every extra dollar at the smallest debt.
3. Once that's cleared, roll that payment into the next smallest debt.

Why it works: You get quick wins. Paying off a small $500 medical bill feels great and motivates you to attack the larger $5,000 car loan.

Bi-Weekly Payments

Another simple trick is to make payments every two weeks instead of once a month.

• 12 monthly payments = 12 payments per year.
• 26 bi-weekly payments = 13 full payments per year.

This "painless" extra payment goes directly to the principal, shortening your loan term effortlessly.

Conclusion

The best debt repayment strategy is the one you stick to. Whether you prefer the math of the Avalanche or the motivation of the Snowball, the key is to start today.