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Why should you pay-off loans early

Updated on June 2, 2011
Trapped in Loans
Trapped in Loans | Source

Pay off Loans or Invest?

Do you get depressed or always think how to pay-off all your loans?? Well, you are not alone; many people around the world feel the same heat after taking loans. Personally, I also have couple of loans, but also paid off some of them recently. What people normally do is that they forget to clear the loans and want to have money in their account or invest in order to grow it multifold. For the loan, they keep on paying hefty interest amount and forget to pay the principal amount. But as the time passes, it becomes somewhat difficult to clear off loans easily due to added responsibilities or extra expenses.

Now, it becomes a burden to pay off loans and also it becomes more difficult to take any other loan (e.g. Home Loan) as you already have several other loans. So, in order to pay off your existing loans, you may have to dispose all your investments and clear out your savings account. But if you have paid the principal amount instead of investing money, you would have saved enough money you paid as interest. It is always better to first pay off your loans and then start investing to grow your money.

Why to pay off loans early

Once you pay off all your loans, you will feel very relaxed. Also, it will be easy for you to take other required loans to buy a house or any other kind of loan, which otherwise would have been more difficult and out of your pocket. Even if you would have taken money from some friend or relative, better to pay them back as early as you can; do not delay as you do not have to pay any interest. Any borrowing is always a burden on your mind and you can never predict about future. May be down the years it will be difficult for you to pay back the borrowed money.

Unpaid loans can be disastrous

Suppose you have invested some amount in stock market and suddenly it fell down and you lost half of the invested money; and at the same time your friend needs his/her money back; then what will you do? But if you would have given the money back instead of investing, you will not have to feel ashamed and more importantly, you will live tension free life. So always make a habit to pay off all your loans first and then start investing for yourself. Even I did the same mistake, but realized it before it would have been difficult for me to pay off loans. I paid off couple of loans now which I would have paid one year before very easily. As I paid my loans, it helped me to take another loan which was really important for me; but if those loans would have tend to continue, then managing my finances would have not been an easier task for me.

So if you have money, better to pay off your existing loans as you never know when you will be requiring another loan which you can not afford even to take or to miss.

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