Should I Pay Off Debt Ahead of Time?

We generally make money when you get a product (like a credit card or loan) through our platform, but we don’t let that cloud our editorial opinions. Learn more about how we keep this compensation from affecting our editorial views.

Should I Pay Off Debt Ahead of Time?

In our daily lives, we struggle to balance our jobs, families, social activities...the list goes on. Juggling different forms of debt is no different. Like any part of life, dealing with your debt is all about setting priorities.

You may want to pay off your debt as soon as you can and set your mind at ease - but wait! Although debt is generally thought of as a bad thing, a reasonable amount of debt can actually be good for your credit health if you manage it well. Making timely payments on your loans shows lenders that you're a reliable borrower who is likely to pay back debts in the future.

So, think twice about paying off any of your debt early. It may be right for you, but it may also backfire. Let's talk about both scenarios.

How can you benefit from paying off your debt early?

  • Less debt means you have a more flexible cash flow. You will have more money at your disposal to spend on the big picture, like setting up an emergency fund and maxing out your retirement accounts. Breathe easier and live a little.
  • Paying your debt off early lowers your debt-to-income ratio and credit card utilization. Lowering your credit card utilization could improve your credit health since the recommended usage is 30% of your total credit limit. If you want to apply for a new credit card or loan, having fewer payments on your back could also make you less of a risk in a lender's eyes.

What are the downsides to paying off your debt early?

  • Some contracts have prepayment penalties baked into them. Since lenders benefit from the interest you pay on a loan, they don't want you to pay debt off early. Review your contract or check with your lender before getting hit with a hefty fee for being proactive.
  • Your credit score may be affected if you pay off an account and it's reported as closed. Having multiple open forms of debt diversifies the types of accounts you have and lengthens the average age of your credit history.
  • You lose out on tax benefits. The interest you pay on your student loans and mortgages is tax deductible. This is a key reason why some people jump into the housing market.

Of course, paying your debt period is another story. Why should you always pay on time?

  • Not paying your mortgage could cause you to lose your home, and missing your monthly auto loan bills could result in your car disappearing before your very eyes. Say goodbye to a roof over your head and the open road.
  • Unlike credit cards, student loans can't be forgiven or discharged through bankruptcy, so if you fail to pay these off they will remain on your record forever.
  • If you're 30 days late on any payments, your lender could report the account as delinquent to the credit bureaus. The debt could also be sold to collections agencies.

It pays to pay on-time.

It's probably a good idea to pay at least the minimum balance requirement and definitely to pay on-time. Being late on any payments will impact your credit and could cause you to lose your home or car. Whether you should pay off your debt early is another story. Weigh the pros and cons and take control of your debt.

About the Author: is the Communications Coordinator at Credit Karma. When she isn't writing her way through life, you can find her reading about the latest in entertainment and watching television almost every night of the week. Say "hi" @noodlemaine!

Editorial Note: The opinions you read here come from our editorial team. While compensation may affect which companies we write about and products we review, our marketing partners don't review, approve or endorse our editorial content. Our content is accurate (to the best of our knowledge) when we initially post it, but we don't guarantee the accuracy or completeness of the information provided. You can visit the company's website to get complete details about a product. See an error in an article? Use this form to report it to our editorial team. For questions about your Credit Karma account, please submit a help request to our support team.

Advertiser Disclosure: We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.

Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.

Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.

All Comments

Results 1-10 of 15Results per page: 5 | 10 | 25Page 1 of 2   Previous | Next
1 Contribution
2 People Helped

Helpful to 2 out of 2 people

why is it that filco score from banks are more higher then kramas

8 Contributions
25 People Helped

Helpful to 18 out of 21 people

YES! ABSOLUTELY!! I always pay my Credit Card off 10 days early and it always makes my score jump!

Top Contributor
47 Contributions
27 People Helped

Helpful to 13 out of 15 people

I paid off my morgage about 7 years early.  During the timeframe I sped things up, I couldn't find any "safe" places to put additional savings that would equal the 5.75% on my mortgage.  Savings accounts were much lower.  During 2008-2010, the stock market wasn't a good looking safe investment.

Yes, the mortgage interest was deductible.  But if I was paying taxes on a 4% investment, I would still have been underwater.

With the benefit of hindsight, I could have put the money in a good stock index fund, and came out ahead.  But I could also have come out ahead if I had withdrawn my 401K from stocks and put it into stable funds.  

Just leave enough money available that, if there is an emergency, you don't have to pay high credit card rates for emergency loans.

1 Contribution
8 People Helped

Helpful to 8 out of 9 people

You'll want to pay your debt off more quickly if the interest rate is high. My student loan interest rate is at 6.125%. I could try to beat that in the market or take the sure thing and pay it off quicker. I still set aside some for investments, but I don't mind paying it off ahead of schedule for ease of mind and the sure-thing long term savings.

Top Contributor

Reply by
CKCharmaine

512 Contributions
1094 People Helped
Helpful to 3 out of 4 people

Ah, interest, it can't be escaped -- that's a really good point.

Top Contributor
22 Contributions
4 People Helped

Helpful to 2 out of 3 people

i pay on time u people still take my score down not fair i pay my bills never missed a one what wrong wirt u people i want this fixed un fair

Reply by
dadandty

3 Contributions
11 People Helped
Helpful to 5 out of 6 people

I know this seems like a very unfair system, but what you need to understand is that the credit report/score is built on debt and how those payments are managed, not being debt free or purely current on your bills alone. Consider this, all your utility payments are never reported, like cell phone bills, rent if you don't have a mortgage, short term loans of less than 6 mos (payday loans), cable/satellite tv bill etc. The score and report will reflect those items only when you are late, so continue to make those payments. Mostly credit and credit scores will consist of personal, student and other loans over 6 mos, mortgage payments, auto loans, credit card payments with good utilization (less than 30%; take total credit limit and divide by 3) and do not exceed that level in your credit card balance. If your spending power is increased by an increase in wealth/income, then ask for a credit limit increase from your credit cards and probably wait 6 mos or more between requests since inquiries will ding your credit score and continue to show up for about 25 mos. Hope this helps...good luck!

5 Contributions
24 People Helped

Helpful to 1 out of 1 people

want to find a credit card to consolidate all bills, and have one payment, so i can make double payments and suggestions for help ..to many little bills want to consolidate

Top Contributor
25 Contributions
213 People Helped

Helpful to 5 out of 8 people

I've been paying off my student loans with the snowball method and already have one completely paid off! I think the key to paying off debt is doing what works for you. This is an article that talks about different tactics you can take: http://blog.morethanwheels.info/2014/05/19/the-secret-to-paying-off-debt/

2 Contributions
7 People Helped

Helpful to 4 out of 6 people

I have learned a lot from you're information. It has been of great help to me in getting my credit score up. I work on it all the time to improve it, hopeing one day to be able to buy a home...Thank you very much...

Top Contributor

Reply by
CKCharmaine

512 Contributions
1094 People Helped
Helpful to 4 out of 5 people

That's great to hear :) Good luck!

1 Contribution
1 Person Helped

Helpful to 1 out of 1 people

This is helpful! I have several student loans totalling ~$200k, the smallest of which is only $3k. I was ready to pay it off just to get it off my plate. But then I realized it was my oldest open account by at least 2 years (8 yrs vs 6 for my next oldest accounts). Since the interest and payment is so little on such a small amount, I think I will keep it around a bit longer!

8 Contributions
53 People Helped

Helpful to 4 out of 7 people

Always pay off debt as quickly as you can. Sell something! Be gazelle intense!

Reply by
dadandty

3 Contributions
11 People Helped
Helpful to 5 out of 5 people

What do you base that recommendation on? Being debt free?! Sure, that sounds great, but not really beneficial to one becoming financially secure since it results in paying cash for everything like cars, homes, etc. Who has the cash money to do that consistantly and for the long term? Plus, if you do ever come into a deal that you can't purchase and need to loan, you cash spending history will not be there to save you since it doesn't show in your credit report or score. Your only other option would be borrowing, short of liquidating everything you own. This debt free philisophy also doesn't really allow the time needed for money to be leveraged in your favor. You many want to rethink wise saving and spending in how that affects purchasing power and affordabilty.

Results 1-10 of 15Results per page: 5 | 10 | 25Page 1 of 2   Previous | Next

Your Credit Scores Should Be Free. And Now They Are.

View your scores and reports anytime.

SIGN UP NOW

Comment on this Article

Write your comment:
Enter Your Comments