Should I Pay all my Loans off Early?

Many of us have loans and we often see evidence that repaying loans early might save us money. This can make us feel like we under lots of pressure to repay loans. However, there are some loans that are worth paying off early and some that may not be worth it. It is good to have an understanding of features that might affect whether you would want to repay a loan early or not so that you can decide whether it is worth trying to do so or not.

Student Loans

Student loans are very different to other loans and should be treated as so. They get written off after thirty years and so if you feel that you will not repay all of the loan before this time then you will actually be worse off if you repay it early. The loan repayments are determined by your earnings and if your earnings are low or no existent then you will not have to repay any of the loan. If you are a high earner and think you will be consistently through the term of the loan then it could be worth repaying early as you will then pay less interest.

 Early Redemption Fees

Some loans have an early redemption fee. This means that you have to pay a fee if you want to repay the loan early. The amount can vary and sometimes it can be worth paying and sometimes it is not worth it. In order to work this out you will need to calculate how much the loan will cost you for the remaining term. To do this calculate how much interest you will pay. Then find out what the early redemption fee is and if this is less, then you will save the difference. If it is more, then it will probably be worth waiting and repaying the loan across the stated term.

Interest Rates

It is also worth looking carefully at the interest rates (and any other fees) that you are paying on the loans. It might be better to leave your money elsewhere if it is earning more. It is rare for savings to pay out more than you are charged on loans, but it is possible. If you have your money tied up in a bond, invested or you are lucky enough to find a high interest savings account then you should be able to make more money than you are paying on some loans. It will very much depend on what accounts you can find to put your money in and how much interest you are paying on your loans. Loan interest differs a lot, so you will need to check what you are paying. Usually a long term loan will have interest that is a lot lower than a longer term loan.

Managing other bills

While it can be really good to repay extra off your loans, so that you are able to whittle down your debt, it is worth making sure that you can manage all of your other bills as well. If you pay too much off the loans, then it may not leave you with enough money to cover the costs of everything else. This could mean that you will end up having to borrow in order to afford these and this will defeat the object of repaying early. So do make sure that you are aware of how much money you need and that you make sure that you are leaving yourself enough money.

Going without things

In order to repay more off your loans it may mean that you will have to go without things. You may need to cut down on spending on luxury items and possibly even on some essentials as well. This will be easier for some people than others and you need to consider whether this is something that you will be happy to do. It can be easiest to set a budget and then buy things from that so that you know that you are not buying too much but you are also confident that you are not spending too much money. It can be a good way to treat yourself without spending more than you can afford.

So, it is important to make sure that you only repay your loans early if it is financially better for you to do so. This will depend on the type of loan and the interest rate. You may need to go without things in order to do this, but you need to not only make sure that you are happy with doing this, but that you can afford to cover all of your other bills as well. It is worth thinking about this and putting together a plan so that you know how to move forward.

Is it Important for me to have Savings?

There are some people that really like to have a lot of savings, but others that are not really that worried about it. You may wonder whether you have the right attitude to saving and whether the amount of savings that you have is right. It is worth understanding the importance of savings and then you can decide whether they are right for you.

Can save you borrowing money in emergencies

If you are in a situation where you need money in an emergency then having some savings behind you can really help. It will mean that you will be able to use that money to buy what you need and you will not need to worry so much. If you did not have the money then you may need to borrow money which could take valuable time to arrange and will cost you money. So, by having the savings there, you will be able to avoid this.

Can pay for or towards big purchases you may need

If you need to buy something new which is expensive, such as a car or white good, then having some money to help out can be really useful. It can mean that you will be able to afford a better one as you have some money to put towards what you can afford to borrow or it may mean that you will not need to borrow in order to buy one. Either way it will be useful for you to be able to have some savings to help out in this sort of situation.

Can give you a feeling of security

We never know when we might have a financial problem. It might be that we need to replace lots of things at once, that we lose our job and have no income or something else. Whatever the situation, we will be better off if we have some savings behind us. We never know when this sort of situation might happen and so by knowing that we have some money there in case we need it, it means that we can feel more at ease all of the time. There will be no need to worry that we might get into difficulties in the future as we have the security of having the money there just in case.

Can earn you some interest

Savings accounts usually earn interest. Although it will not be enough to give you a significant income (unless you have a huge amount of savings) it is still a bonus and reward for saving the money. If you keep the interest in the account then you will be able to get interest on that, which is called compound interest and it means that your money will grow faster. Savings accounts do not pay out huge amounts but if you are prepared to tie your money up for a while you can get more. This might be in the form of a bond or in a notice account. Either of these options are suitable for anyone that wants to get more interest and is prepared to tie their money up. It is worth noting that if you do need your money quickly, you will be able to get it but you will lose interest as a result.

It is also worth thinking about your own personal situation. If you have commitments, such as a mortgage and bills to pay, a family to look after financially or a loan to repay then you will need to make sure that you have money available for this. If you lose your job or your source of income, then you will no longer be able to manage. However, if you have savings you will be able to manage for a little bit longer. It will buy you some time while you look for another job as you will be able to use the savings to pay for these things. It is therefore wise to think about how much money you may need to live off for three months or so and trying to save up that much so that you can feel confident that you will at least be able to manage for a little time. On top of this having some emergency money to fall back on can be useful in case you just struggle to make ends meet, have an unexpected bill or need to replace something expensive.

So, having savings can be really important. It can save you money in the long run due to potentially avoiding the costs of a loan and gaining interest. It can also give you a feeling of security. Therefore, it is something that we should all be aiming to do if we can. Even if we just save a small amount each month, putting something away for our future is really worthwhile.