How exceeding your minimum loan payment pays off in the end


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When you need a little extra cash for a big-ticket item like a wedding, home renovation, or unexpected medical bill, taking out a personal loan may be the practical choice. But, managing your debt load can be stressful. Depending on your situation, making your minimum loan payment (or payments) can be discouraging if you feel like you’re not really making much progress.

When you’re making on-time minimum payments (without missing any), it still takes you five years to pay off a personal loan with a five-year term. While there are no quick tricks or easy fixes, one strategy is to accelerate the repayment of your loan. One way to accelerate your loan repayment is by regularly exceeding the personal loan monthly payment.

Related: Prepayment penalties: why they exist and how to avoid them

Paying more than your minimum loan payment

Exceeding your minimum loan payments on a regular basis may improve your financial outlook and potentially your credit score. Ultimately, getting out of debt sooner may give you greater financial freedom to do the things you want to do with your money.

But before you start prepaying your loan, be sure to check with your loan holder to confirm their policies regarding loan repayment. Some lenders charge additional fees for paying extra each month or paying your loan off earlier than planned.

One option, if you currently have a loan that comes with prepayment fees or penalties, is to consider looking for an alternative lender. While you’re at it, maybe you can find a loan with a lower rate and better terms.

Rethinking your debts

One of the biggest challenges that come with exceeding your minimum loan payment is budgeting that extra money to pay toward your loan. Once you’ve decided that this is your goal, take the time to review your finances and look at your overall debt. If you are carrying a few loans with different rates and terms, it could be time to reevaluate them.

If you’re trying to consolidate credit card debt, a personal loan might be the right solution.

Think of this as an opportunity to simplify and align all of your debt, and optimize your monthly payments. This may mean consolidating credit card or student loan debt. By refinancing your student loans, for example, you could reduce the number of loan payments you are currently responsible for tracking. You may even qualify to refinance with a better interest rate and terms. This may help get you on the right track and further encourage you to put more money toward your debt each month.

If you’re trying to consolidate credit card debt, a personal loan might be the right solution. Ideally, you would be looking for a personal loan with a low-interest rate and reasonable repayment terms. Before you commit to a new loan, it’s a good idea to consider the agreement in its entirety, including fees, penalties and terms.

Your long-term financial strategy

While debt consolidation is one piece of the puzzle, your long-term financial strategy could also include bigger goals like saving for retirement or perhaps buying a home. It’s also a good idea to put extra money aside in an emergency fund for unexpected expenses.

As your earning power increases, you can pay more than the minimum on your debt and start to move closer to debt freedom. In turn, this may allow you to then reallocate funds to other areas of your financial life. And just like that, you could be on your way to building the financial life you truly want.

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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

This article originally appeared on and was syndicated by

Featured Image Credit: wutwhanfoto / iStock.


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