Took Out a Loan? Ramit Sethi Says You Should Always Know This Important Detail

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It’s something you don’t want to gloss over. 

Many people take out personal loans for different reasons. You may want to borrow money to renovate your home, fix up your car, or even start a small business.

The good news is that personal loans can be a very affordable way to borrow money (though it’s worth noting that right now, loan rates are generally higher across the board on the heels of numerous rate hikes on the part of the Federal Reserve). And another great thing about personal loans is they offer the benefit of fixed interest rates on the sum you borrow. This means that you don’t have to worry about your monthly payments becoming more expensive over time.

But still, a personal loan is a debt you owe, so it’s important to have a good handle on it. And that means being able to answer one key question.

Know your debt payoff date

Financial guru Ramit Sethi understands that sometimes, taking on consumer debt is unavoidable. But according to Business Insider, he also says there’s one question he likes to ask people with debt: When do they plan to make their final payment on their loan or credit card balance? A person who knows their payoff date clearly has a plan, he insists.

In the context of borrowing, it’s easier to stay on track with personal loan payments than, say, credit card payments. The reason? With a credit card, you have the option to only make your minimum payment each month and still be considered timely. With a personal loan, you have a preset payment you have to make each month, and you need to pay it in full.

In fact, this is another advantage of personal loans over credit cards. Aside from the fact that personal loans tend to charge less interest and come with fixed interest rates, there are also few surprises.

When you sign your personal loan, you’ll know what your monthly payments will be. And if you can afford them from the start, you’ll be less likely to fall behind (assuming your financial situation doesn’t change).

Accelerating your payoff date is not a bad idea

You may have a certain time frame for paying off your personal loan based on your initial loan agreement. But it never hurts to try to accelerate your payoff date if your budget allows for it.

Most personal loans do not penalize you for paying off your debt early (though it’s always a good idea to review the terms of your loan documents and make sure that this is the case). But that way, you might save yourself some money on interest, and also, you’ll have one less bill to worry about month after month.

Of course, if you can’t accelerate your personal loan payments, that’s understandable, too. Just make sure you stick to your schedule and know when your final payment is. That will give you something to look forward to and keep you motivated to continue paying off your debt until it’s gone for good.

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