Should You Pay Down Debt Early?

Find out what you should do with your extra money. 

Laura Adams, MBA
4-minute read
Episode #223

When you’re trying to decide whether you should send extra payments to pay off your debt—like student loans, auto loans, credit cards, and mortgages—it can be really confusing to know whether doing that will get you ahead financially. In this article I’ll make it easy for you to know where you should put your extra money by giving you three money questions to answer and three online resources.

Money Question #1: Do You Have Dangerous Debts?

In my new book, Money Girl’s Smart Moves to Grow Rich, I give you lots of advice about managing debt. An important point I cover is that your first financial priority should always be to pay off any dangerous debt like delinquent taxes, overdue child support payments, or a judgment from a collections agency. Those types of debts are very serious because they can result in garnishment of your wages or having to serve jail time. Surprisingly, some people ignore them until it’s just too late.

Money Question #2: Do You Have Enough Cash on Hand?

If you don’t have any dangerous debt looming over you, the next consideration is whether you have enough savings to get you through a financial crisis. You’re probably tired of hearing that, but having cash reserves is the only way you’ll make it through a rough financial patch without having to make expensive credit card charges or taking out a loan. 

Losing your job or having a big unexpected expense could make you wish you never sent your spare cash to a lender. So before you ever consider parting with your excess money, be sure you’ve established an emergency fund at an FDIC-insured bank that’s equal to least three months’ worth of your living expenses—and ideally, even more than that.


About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlersbook is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.