The benefits of paying off your debts early

Thinking of paying off your debts ahead of schedule? Here’s a brief breakdown of the benefits you stand to gain from doing so.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Have you suddenly found yourself with some extra cash? Perhaps you’ve received an inheritance from a beloved relative, a handsome work bonus, or a winning lottery ticket. Are you thinking of using the money to pay off your debts ahead of schedule?

Though paying things off early might not be the right choice for everyone. For some it can make total sense to start paying off debts such as their mortgage early. After all, most of us want to spend our golden years with peace of mind and a sense of freedom. It’s only natural to want to pay off debts as soon as possible, particularly when things are good and money is flowing.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Key questions

When thinking about paying off your debts early, it’s a good idea to assess your situation and ask yourself a couple of key questions, such as:

  • Is this truly the best use of my extra cash?
  • Are there any interest savings and are they really worth it?
  • Do I have an emergency fund?
  • If I am nearing retirement, will I still be left with enough money if I pay off my loans early?

If your answer to these questions is yes, paying off your debts early could work for you. Here are some of the main benefits that you stand to gain.

Save massively on interest

When you pay off a debt early, you reduce the amount of interest that you would have paid over the original loan repayment term.

For example, imagine you have taken out a new £ 225,000, 30-year, 4% fixed-rate mortgage. At this rate, your monthly payments would be roughly £ 1,074. If you were to add an extra £500 to your monthly payments, you could shorten your mortgage term by 13 years and 9 months and save over £ 80,000 in total interest payments!

This scenario applies to other kinds of debts, including car loans and credit cards.

Free up money for other things

Rather than forking out money to a lender, after paying off your debts, you will have more money in your pocket. You could use it for your children’s uni education, for travel and entertainment, for a new car, or that home improvement you’ve been putting off.

Have peace of mind

Carrying debt comes with a lot of stress, pressure, and anxiety. It can distract you from your financial goals, making  it harder to reach them. Paying off debts early, however, brings mental freedom and a sense of security. You may find you’ll no longer have to worry whether you’ll be able to make your monthly payments.

Handle any future financial crisis

Life is full of surprises, and financial emergencies can occur at any time.  It could be redundancy or even a medical emergency. Lenders still expect you to pay back the money you owe even when facing a personal financial crisis. Any delays in payments will lead to penalties, putting you further in debt.

When you pay off your loans early, you put yourself in a much better position to handle any financial difficulty you may encounter. You’ll be able to direct your full attention to it without the added worry of existing debt.

Retire on time

Paying off your debts early can help you retire on time. You can avoid having to postpone your retirement in an attempt to give yourself more time to pay everything off. Going into retirement debt-free also means that you have one less thing to worry about. You can just focus on enjoying your well-earned freedom.

Final word

Paying off your debts ahead of schedule can bring several key benefits. With that said, early debt payment is not always the best move for everyone. The key is to analyse your personal circumstances, determine whether it makes sense to pay off your debts early and then do it in a smart way that does not compromise your current financial well-being.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

MyWalletHero, Fool and The Motley Fool are all trading names of The Motley Fool Ltd. The Motley Fool Ltd is an appointed representative of Richdale Brokers & Financial Services Ltd who are authorised and regulated by the FCA, and we are permitted in this capacity to act as a credit-broker, not a lender, for consumer credit products (our FRN is 422737). The Motley Fool Ltd does not have permissions for, and does not advise on, investment products and services, but may provide information on investment products and services.

The Motley Fool receives compensation from some advertisers who provide products and services that may be covered by our editorial team. It’s one way we make money. But know that our editorial integrity and transparency matters most and our ratings aren’t influenced by compensation. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. The Motley Fool has recommended shares in Lloyds, Tesco and Barclays.

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »