Pre-Pay your Bills and Debts to Save Fees and Interest

If you have a particularly good month, quarter, or year, there are a number of options to take.

You could increase your savings rate, and bank the money.

You could increase your spending rate, and improve your lifestyle by purchasing goods and services you want or need.

You could invest the money, and try to build wealth for the future,

Or, if you carry a large debt burden, you could try to pay down debts faster.

I like the idea of getting a guaranteed return on my money, and by paying down my loans faster I can reduce my principal and cut down my payments overall.

Even other bills, like rent, insurance, and phone service, can usually be negotiated ahead of time and paid for, so that it is possible to go for a considerable length of time with no impending bills other than utilities and unexpected expenses.

While you might be sacrificing some flexibility with that money, you are gaining security in that you are guaranteeing that you will have no late fees, no lapses in coverage or service, and a better track record with those companies.

The best part of paying down a loan early is that you are reducing the overall cost of that loan. Especially early in the repayment process, reductions in the principal, or amount of money that is accumulating interest, can drastically reduce the amount of interest paid. For my student loans, for every dollar that I pay down now I am saving 2 dollars in interest payments over the term of the loan, and for people with mortgages and lines of credit, this is doubly true.