Dollars and Sense: When to Pay Off Your Debt Early

It doesn’t matter what you borrow — every personal loan and line of credit comes with a due date. You have to send your payment by this time to avoid late penalties until you pay off your debt entirely.

Following this predetermined schedule is the bare minimum you must do as a borrower to keep your account in good standing. But let’s face it — some loans come with payment schedules that last weeks, months, and even years. That’s a long time to be paying off debt.

To free up your budget, you might be interested in paying off your loans early. Before you send an extra payment, keep reading. Deciding whether to pay off a loan early or stick to the lender’s payment schedule depends on several factors.


Interest is one of the biggest factors in your decision to pay on time or early. Interest is the cost of borrowing, and it, along with other finance charges, adds to what you owe above your principal.

Most lenders talk about interest in terms of APR or annual percentage rate. APR tells you the total cost of borrowing over a year, expressed as a percentage.

Generally speaking, the higher your APR, the more borrowing costs. You may want to pay early if your payments affect how much interest you pay over the lifetime of your loan.


Timing of your payment schedule plays a big role in this decision — whether you have short term vs long term personal loans. The longer your term is, the longer it ties up your budget. So, you might want to start paying it off faster to free up your budget if you have other financial goals in mind.

Timing is especially important when it comes to revolving credit. With a revolving line of credit or credit card, interest accrues every time you carry over a balance.

The longer you keep a balance, the more time interest has to accrue. You will accrue more interest for as long as you have a balance, even if you don’t make any additional draws against your account.  

You stand to save interest if you pay your revolving balances faster. Compare this to a short term personal loan that includes the cost of compounding interest in every scheduled payment. The interest you pay won’t change whether you pay on time or early.

Lender’s Policies

Some lenders encourage their borrowers to make additional payments at their convenience; others only want you to make the scheduled payments. Don’t make any payment outside your expected payments until you know where your lender falls. Otherwise, you may face a pre-payment fee.

In many cases, this fee isn’t worth the extra payment. But it doesn’t hurt to crunch the numbers to see if you save more in interest than the penalty you pay.


When it comes down to it, your budget has the final say on whether you can push more money toward your debt each month. You have to ensure you can cover your other responsibilities while paying back what you owe.

Check in with your non-essential spending to see if you can cut back on the fun stuff. Anything you manage to cut frees up cash you use on your loans online. While this might sound counterintuitive, don’t cut everything out of your budget. An extreme budget of just essentials is only necessary in extraordinary circumstances.

Bottom Line:

The decision to pay off debt early is highly individual and depends on several factors. Use this article as a rubric to determine which option works best for your finances.