Reasons Why Paying Off Debt Might not Always be Worthwhile
There are many people that will say that you should always repay your debt as soon as possible and that it will be better for you if you do. However, there are some circumstances when it will not actually be better to do this. It is worth being aware of these, so that you know when you should and when you should not be repaying your debt early.
When There is a Huge Early Redemption Fee
With some lenders, you will get penalised for repaying the loan early. This is for two possible reasons. They may have costs associated with you repaying early due to administering it and have to charge you for that and they may have a penalty for doing it to cover the loss in interest that they will get as a result. Some lenders have these and some do not and it varies between types of loans too. There will not be on for an overdraft or credit card but there could be one for a mortgage. It is wise to find out whether your lenders charge them so that you can find out how much they are. You could find that they are quite a significant amount of money. If it is high, then you will need to calculate whether it is worth repaying early or whether it will be better for you to just keep on with the agreed repayments. You will have to add up how much interest you will pay for the remainder of the loan in order to do this.
When You Can get Better Interest on the Money Elsewhere
There is a possibility, that if you do not repay your loan early, but save the money in an account, you could get a better return on it. This can be quite rare but if you can find a loan with very low interest and a savings account with very high interest then it could be best to save the money instead. Take a look at the rates and see what you can find. You may find that you will need to tie your savings up or put it in a notice account to get really good rates of interest but it is worth looking to see what is available.
When You Will Suffer
If you will have to go without basics to be able to repay your debt then perhaps it might be sensible to not do it. Think about everything that you have to buy and the costs of those things and whether you can really afford to repay extra. It might put a big strain on you to be able to stretch your money like this. Especially if you decide you want it paid off quickly and therefore have to really cut down what you are spending elsewhere. Consider what you and your family or household need as well and think about whether it is going to work for you to do everything that you can to repay the debt quickly.
Usually paying off a debt early is a good thing because you will save money and be free of the burden of the loan. However, it is good to think about whether it really is the right personal decision for you. There are reasons why you might find that it will not work out for you and you need to be sure that it is the right decision both financially and personally. So consider the above factors in light of the advantages so that you can decide what you think will be the right solution for you.