why you should pay off your debtA loan is used by many individuals and businesses as a method of making large purchases that they could not afford under normal circumstances, improve their businesses or take advantage of an opportunity; to the lender, it becomes a loan while to the borrower it becomes a debt. A debt-based financial arrangement gives the borrowing party permission to borrow money under the condition that it is repaid at a later date, usually with interest.

A lot of times, it is easier to take a loan than it is to repay it. While there may be several reasons for a debtors’ incapacity to pay a loan, there are usually many strong consequences for failing to repay a loan. Loans seem like “easy money” and for many on the due date for repayment, it becomes a burden to make the payment.  Since failure to repay loans when expected attracts certain consequences, this article is about why you should pay back a debt you owe, whether it becomes favorable or not.

Let us start by defining what debt is in layman’s language.

What Is A Debt?

Debt is simply anything owed to a person or organization. According to Investopedia: debt is an amount of money borrowed by one party from another1.

Understanding Debt:

The most common forms of debt are majorly financial loans and auto loans. Under the terms of a loan, the borrower is required to repay the balance of the loan at a certain date. This is determined by the terms of the lender. It could be daily, weekly, monthly, quarterly, semi-annually, or annually all determined according to the terms of the lender. The terms of the loan also stipulate the amount of interest that the borrower is required to pay daily, weekly, monthly, semi-annually or annually. Interest is used as a way to ensure that the lender is compensated for taking on the risk of the loan while also encouraging the borrower to repay the loan quickly in order to limit his total interest expense.

Why you should pay off your debt!

Majorly, the reason why many plans to pay off debt fail is that there is no real motivation behind them. You may start out fully motivated to become debt-free but easily become discouraged with the time and effort it takes to see your plan all the way through.

If you want to keep the momentum in your debt payoff, you have to continually remind yourself of the reason why you want to get out of debt. How will paying off your outstanding debts benefit you?

Here are ten reasons why you should pay off your debt.

1. It increases your financial security:

Debt is a serious threat to your financial security because it is a financial obligation that will continue to exist until it is repaid. This means that it is a threat to any income you would make no matter what you earn, there will always be the risk that your creditor will come knocking on your door for repayment. More so, what you spend on debt payments could be stashed away for a rainy day, your retirement, your kid’s college education. Once you become debt-free, you would be able to work towards becoming financially secure.

2. You could Spend on Things You Enjoy (Without Feeling Guilty):

Paying off debt leaves you with less money to do the things you really want to do in life.

Unfortunately, this is the reason many people end up going deeper and deeper into debt. They cannot afford to buy things because of the debt they have, so they use more debt to make purchases until they reach the end of their borrowing rope. Paying off your debt ends this vicious cycle and frees up your money to buy the things you enjoy.

3. Paying Off Debt Reduces Stress in Your Life:

Debt can lead to extra stress as you worry about how you are going to cover all the debt payments and other living expenses. Constant stress can lead to serious health issues including migraines and even heart attacks. In some cases, becoming debt-free can literally save your life.

4. It Reduces the Number of Bills You Have to Pay:

The more people you owe, the more bills you have to keep up with and pay. Once you become debt-free, you would have fewer bills coming in up every month. You will only have a few monthly expenses to worry about e.g. utilities, insurance, as well as expenses that don’t have minimum payments and interest charges, and long-term obligations.

5. It Improves Your Credit Score/Rating:

Too much unpaid debt can have a negative impact on your credit score/rating. When your credit rating shows unpaid debts with default charges and exceeding repayments date, your credit score takes a hit. The flip side of this is that as you pay off your debt, your credit score will improve. This, in turn, can offer a wide range of potential benefits for future lenders to see you are indeed creditworthy.

6. Increase Your Future Earnings

Whenever you take out a loan, you are simply borrowing from your future income. So, the N10,000 or N100,000 you spend today will be taken from what you earn in the days to come.

Truthfully, it decreases your future standard of living, by giving you less money to live on than what you have today. Make the most of the income you expect to earn by taking steps to become debt-free.

7. Get Out of the Mercy of Your Lenders

As long as you have outstanding debt, you don’t get to make the decisions about your money; your lenders do. They decide how much you pay them and when you pay them. Paying off your loan and becoming debt-free puts you in complete control of your money.

8. Debt Puts You at Risk of a Major Disaster

One of the worst things about being in debt is the risk it brings into your life. If you are already in debt and have no emergency savings to fall back on, you are always just one financial blow away from disaster. A job loss or a major medical crisis could leave you unable to meet the payments on your loan, which could result in: Constant calls from collections agencies, being sued for nonpayment, and possibly having your wages garnished, having your car repossessed.

Being debt-free removes these risks. It gives your budget room to breathe so you don’t have to worry about a single unfortunate event ruining your financial and personal life.

9. Increases Work Efficiency

Being in debt can also hold you back at work. Worries about money can keep you up at night, which makes you a lot less productive on the job the next day.

If you have reached the point where you have to deal with debt collectors, the problem is even worse. They’re likely to call you up at the office, interrupting your work, and impairing your productivity. Knowing the benefits of being debt-free is one thing, but actually, by contrast, paying off your debt makes your job more satisfying. You feel a lot more motivated to work harder when you get to keep the money you make, rather than spending it all on loan payments. 

10. Being Able to Help Others

It’s only when you have disposable cash, that you can help others, getting out of debt has one more big benefit: It makes it possible for you to help out others when they need it. For instance, you can lend money to friends or family members who need it to get through a tough period. If they’re struggling with a loan, you can also give them the benefit of your experience to help them figure out how to get out. Sharing your success story can inspire others and give them the boost they need to tackle their own financial problems.

In addition to helping out people you know, being debt-free allows you to give money to charity. Happiness economists have found that spending money to help others is one of the most rewarding things you can do with it. It’s a great feeling to know your money is helping to make the world a better place.

Debt in itself is a tool that can be good if used correctly. Please refer to our article on Good vs Bad Debt.


Knowing the benefits of paying up your loan and why you should, is one thing, but actually figuring out how to do it is another. Fortunately, there are lots of resources out there that can help. Start by constant communication with your lender, it is understandable there are so many unforeseen circumstances and reasons why you might not meet up with your financial obligation, but your constant communication with your account officer or the lender gives the lender a better picture of what might have happened or transpired, also you do not have to wait until you have all the money before you pay like they say little drops of water make an ocean. Ensure that you do not borrow an amount you know you do not need or don’t have the repayment source to offset the loan.

If you are in really desperate straits with debt, try looking for outside help. See if you can negotiate with your creditors to reduce the balance you owe them. Consider talking to a credit officer about setting up a waiver/extension/moratorium, etc. to enable you to pay up your debts gradually.


  1. https://www.investopedia.com/articles/pf/08/invest-reduce-.asp 
  2.  https://www.moneycrashers.com/reasons-get-out-/
  3. https://www.cnbc.com/2020/01/27/how-to-pay-off-.html
  4. https://www.daveramsey.com/blog/how-to-pay-off-
  5. https://www.moneyadviceservice.org.uk/en/articles/should-i-save-or-pay-off-
  6. https://usacreditrepairinc.com/why-it-is-important-to-pay-it-off-/

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