Generally, paying off debt when you have the money is a great idea. This not only has psychological benefits but also comes with several financial perks. While there are sometimes better options than paying loans early, it’s not a bad move. In most cases, people save money by getting rid of debt as soon as possible, but there are some instances where it might make more sense to wait.

The advantage of paying off debt in advance is that you won’t accrue additional interest charges. With high-cost debt especially, minimum payments are never ideal – you’ll keep more money if you continuously make more significant than minimum payments.

Being debt-free gives you more control over your money. The funds you use to make monthly payments can now be used for other purposes, like savings or paying off additional debts. 

By paying off your loans early, you’re becoming more attractive to lenders and increasing your chances of being approved for a new loan on excellent terms. Lenders need reassurance that you’ll be able to repay any future loans and that existing loans don’t already take up too much monthly income. They calculate the percentage of income dedicated toward debt payments, known as a debt-to-income ratio.

Part of your credit score is based on how much you’re currently borrowing compared to the maximum amount you could borrow, known as a debt utilization ratio. If you reach the limit, your credit scores will be lower, but paying off debt improves your chances of having available borrowing power when needed.

If you elect to pay off your debt early, you might have less money each month for other pursuits than if you solely paid the minimum amount due. This could result in cutting back on monthly wants or having a smaller cash buffer, making it more challenging to manage unanticipated costs.

Also, understand that there’s an opportunity cost. You’d need to come up with extra funds to save for future objectives, such as retirement or a down payment on a home.

If your loan is precomputed, repaying early won’t save you money because the costs are already figured into the loan. Most loans calculate interest daily or monthly based on the balance due. Ensure you understand your loan terms before deciding to repay it early to avoid surprises.

It’s time to pay off your debt. Research whether paying loans off early is right for you. Ask your lender to know your goals, then ask about the best way to move forward so that future payments go towards paying down the loan principal. By following this advice, you can become one step closer to being debt free.