Emotional vs Financial Decision
Paying off debt feels great. But feeling great and making the optimal decision aren't always the same.
When to Pay Off Early
- High interest (8%+): avoiding 8%+ beats most investments
- You have minimal savings: once paid off, redirect payment into emergency fund
When NOT to Pay Off Early
- Low interest (under 4%): high-yield savings pays around 4% now
- You have credit card debt at 20%+ — pay that first
- Not maxing retirement: investing historically returns 7-10%
- Prepayment penalties: check your contract
The Hybrid Approach
Deposit "extra payments" into a separate high-yield savings account. When it equals your loan balance, you choose: payoff or keep liquidity. This gives flexibility for emergencies.