Paying off loans can seem daunting when faced with a large amount owing on debts like personal and car loans. We all wish to get rid of them but where to start and how to continue paying them off incrementally to achieve more financial freedom? Why pay off loans early? Does it provide any real benefits? What’s the difference if I just keep paying the minimum repayments? Let’s discuss.

Assessing Your Debts

To decide what’s best for you will ultimately depend on your financial situation. Paying off debts early is rarely a bad idea however. You should first understand what type of debt you have.

Evaluate the debts. Kind of like a pros and cons list (which we usually create for most major financial decisions) Evaluate how you benefit from debt compared to how debt disadvantages you. Write down everything from how you first felt gaining the debt to how you feel now paying it back. The list will most likely weigh towards the negative with disadvantages of having debt being the winner. 

Save Money

The most predominant reason for paying off loans early is to save money and stop paying interest. Interest is the silent killer here. When paying any loans you will undoubtedly be faced with paying interest on that loan. 

Interest doesn’t give you anything in return for paying it. Over the course of paying a 30 year mortgage the interest doesn’t give you anything but a larger whole in your wallet. Paying off loans early reduces the amount of interest you are charged. Plain and simple. 

You cannot spend your way out of recession or borrow your way out of debt.

Daniel Hannan

Avoid Paying The Minimum

Paying the minimum repayments on any loan means 2 things. You are going to pay a substantial amount of interest and you are stuck in that loan for the full term. I have been stuck in a personal loan for almost 5 years now paying the minimum. Until I finally kicked into gear and began paying it down faster to reduce the amount of interest charged, as well as break free from the loan chains!

Paying the minimum repayments means you are only paying a small amount towards the principal on the loan. Most of your repayments will be swallowed up by interest. Now too mention you are stuck in the loan for the full term. Like I was..

financial strength pay off loans early

Improving Financial Strength 

Once you pay off loans early you’re in a better position financially. That money you were slugging towards paying off those loans now becomes available to you for other uses. It’s now money in your pocket to spend on whatever you like. If you have other debts you can now put more towards them with this.

If your financial goals are set to try and achieve more debt like a mortgage, getting rid of personal loan debt will help that. Lenders need to make sure you have enough income to repay loans. Existing loans eating away at your income will compromise your financial strength and ability to repay new debt. From a lender’s perspective you become more attractive as a borrower.  


Paying off loans and getting rid of debt early can be super rewarding and reduce stress immensely. Whether you are doing it to gain financial freedom or just sick of paying interest the benefits almost always outweigh the cons. 

Debt is, for most of the time, considered bad. The concept of owing money weighs down many people’s finances for most of their lives. Freeing yourself from the metaphorical chains of debt can be liberating. At Least that’s what I hear anyway. I’m yet to get there myself but can’t wait for that feeling!

When Not To Pay Off Loans Early

The key to paying off loans early is budgeting and learning how to make your money work for you. If however, your extra debt repayments overwhelm your budget and cause you to spend more than you earn then you’ll need to reconsider your strategy. 

Paying off loans early might mean you will go without some luxuries. You may have to skip a couple fine dining experiences and make do with a smaller cash cushion for the while you are hunting the end to your loan repayments.

If you can only afford to make the minimum repayments then there’s a couple path options you may want to consider:

  1. Reassess your monthly budget to find out what’s really needed in order to find more money to put towards your debts
  2. Compare your current loan with other providers and make sure you are getting the best rate.
  3. Consider Consolidating your loans
  4. Make more money and contribute that extra income towards debt (I know, this ones easier said than done which is why it’s the last on the list)
pay off loans early

How To Pay Off Loans Early

Firstly, I highly recommend reading Barefoot Investor (not just because it’s an affiliate link and I’ll earn a commission either). The buckets strategy author Scott Pape sets out is a sure winner. I know of many people and friends that have used this strategy and am in the process of using it myself.

Second, the Snowball method. You may have heard of this method of reducing debt. Make a list of all your debts smallest to largest. Focus on paying the smallest off first whilst making only the minimum repayments on the others. As you pay off each debt you move on to the next larger one.

Speak to your lender. Ask how to proceed so that your payments are properly applied to paying down the loan’s principal so that you know exactly what to do and how much extra to send.

Seek Financial Counselling. Financial counselling is a free and confidential service offered by community organisations, community legal centres and some government agencies. They are skilled and helpful professionals that will listen to your problems and help you.

National Debt Helpline — 1800 007 007

Why Pay Off Loans Early

Do your due diligence and assess your financial situation and needs thoroughly before embarking on the path to paying off loans early. The prospect of being free from debt is attractive to everyone seeking financial independence, financial freedom or just extra money in their homes. Paying off loans early is one of the best ways to do this.