Top 3 Mistakes to Avoid When Paying Your Loan Early

Posted on Sep 24 2018 - 12:06pm by Ceybizlanka

Debt payment and handing over of cashEveryone’s dream in life is to have financial freedom. This simply means you can finance your projects without asking for financial support. One of the best ways to enjoy your end-of-month pay is by paying off whatever kind of debts you may have as soon as you can.

However, if you blindly plunge into early debt payment, the result could be much costlier. According to financial expert Utah Money Center, here is what to avoid if you have to offset your debt ahead of time.

Not allocating extras to the principal

One needs financial discipline to be able to offset debts in time. However, if you channel all the extra cash towards your signature loan repayment without specifying whether to go to the principal or interest payment, your lender might just top up on interest.

This means the principal remains constant hence the interest payable stays high all throughout.

Failure to inquire about prepayment penalties

Like every other venture, financial institutions are out there to make money. One of the primary ways through which they make their profits is by charging interest on borrowings. When you pay your loan early, you deny them a fraction of reasonable profits.

This is why some of them try to charge extra fees for clients who settle their debts prematurely. Therefore, know if there are any fees on early payments. If they are there, are they worth paying the price?

Depleting yourself of cash

In as much as getting rid of your outstanding loans the soonest may be necessary, throwing every dime you get towards the debts can be risky. Eventualities do happen, and unless you have savings set aside for emergencies, you can never have peace of mind.

It’s prudent to have cash spared to cover your expenses for the next six months or so. After attaining such an amount, you can now be as aggressive as you want with the extra income you achieve after that.

One of the most sensitive aspects of a person’s life is managing finances. If you are not careful, you might change from riches to rags in an overnight. This is why you must weigh your expenses against revenue, before making any financial decision, however petty it may sound.