Here are some things to consider before you dive into becoming debt free ahead of schedule.
Should you pay off a loan early?
Before diving into the how, it’s important to consider the why.
Here are some pros and cons of early loan repayment.
Can you pay off a mortgage early?
Most mortgages allow you to make extra principal payments with no penalty.
This lets you pay down your mortgage faster.
see to it extra amounts are applied directly to principal and not just future payments.
Also confirm there are no prepayment penalties.
Tips:Make biweekly payments.
Round up monthly payment to nearest $100.
Make one extra principal payment per year.
Pros:Build equity and save on interest faster.
Cons:Less flexibility if cash needed for other goals before paying off home.
Lost potential investment returns.
Can you pay off an auto loan early?
Paying off an auto loan early can save significant money on interest, as rates are often high.
There are rarely prepayment penalties.
Pay extra each month, or send lump sums to be applied to the principal.
Refinancing at a lower rate can further accelerate payoff.
Tips:Pay half monthly payment every two weeks to add payments.
Pay lump sum with tax refund.
Pros:Own vehicle sooner.
Less interest paid overall.
Cons:Less flexibility if the cash is needed for other goals first.
Can you pay off student loans early?
Federal student loans and some private lenders do not typically charge early payment fees.
Paying these loans off faster can save you significantly on interest costs over time.
you’ve got the option to send extra or make biweekly half-payments.
Consider paying off the loans with the highest interest rates first.
Tips: Apply any extra payments towards principal rather than next month’s payment.
Considering refinancing to a lower rate if your credit score has improved.
Pros:Pay less interest over life of loan.
Free up cash flow sooner.
Cons:May lose some tax benefits or student loan forgiveness options.
Can you pay off a personal loan early?
Read the loan terms to see if prepayment penalties apply.
Pay down high-rate loans aggressively first.
Tips: Pay more than the minimum due each month.
Pros: Become debt free ASAP.
Cons: Less flexibility if cash needed for other things.
Revisit the loan terms first and ensure you take a strategic payoff approach.
