What Is the Principal Amount of a Loan?

A personal loan can be a helpful financial tool when someone needs to borrow money to pay for things like home repairs, a wedding, or medical expenses, for example. The principal amount of a loan refers to how much money is borrowed and has to be paid back, aside from interest.

Keep reading for more insight into what the principal of a loan is and how it affects repayment.

Loan Principal Meaning

What is the principal of a loan? When someone takes out a loan, they are borrowing an amount of money, which is called “principal.” The principal on a loan represents the amount of money they borrowed and agreed to pay back. The interest on the loan is what they’ll pay in exchange for borrowing that money.

Does a Personal Loan Have a Principal Amount?

Yes, personal loans do come with a principal amount. Whenever a borrower makes a personal loan payment, the loan’s principal decreases incrementally until it is fully paid off.

Recommended: What Is a Personal Loan?

Loan Principal vs Loan Interest

The loan principal is different from interest. The principal represents the amount of money that was borrowed and must be paid back. The lender will charge interest in exchange for lending the borrower money. Payments made by the borrower are applied to both the principal and interest.

Along with the interest rate, a lender may also disclose the annual percentage rate (APR) charged on the loan, which includes any fees the lender might charge, such as an origination fee, and the interest. As the borrower makes more payments and makes progress paying off their loan principal amount, less of their payments will go towards interest and more will apply to the principal balance. This principal is referred to as amortization.

Recommended: What Is the Average Interest Rate on a Personal Loan?

Loan Principal and Taxes

Personal loans aren’t considered to be a form of income so the amount borrowed is not subject to taxes like investment earnings or wages are. The borrower won’t be required to report a personal loan on their income tax return, no matter who lent the money to them (bank, credit card, peer-to-peer lender, etc.).

Recommended: What Are the Common Uses for Personal Loans?

Loan Principal Repayment Penalties

As tempting as it can be to pay off a loan as quickly as possible to save money on interest payments, some lenders charge borrowers a prepayment penalty if they pay their personal loan off early. Not all charge a prepayment penalty. When shopping for a personal loan, it’s important to inquire about extra fees like this to have a true idea of what borrowing that money may cost.

The borrower’s personal loan agreement will state if they will need to pay a prepayment penalty for paying off their loan early. If a borrower finds that they are subject to a prepayment penalty, it can help to calculate if paying that fee would cost less than continuing to pay interest for the personal loan’s originally planned term.

How Can You Pay Down the Loan Principal Faster?

It’s understandable why some borrowers may want to pay down their loan principal faster than originally planned as it can save the borrower money on interest and lighten their monthly budget. Here are a few ways borrowers can pay down their loan principal faster.

Interest Payments

When a borrower pays down the principal on a loan, they reduce how much interest they need to pay. That means that each month as they make a new payment they reduce their principal and the interest they’ll owe in the future. As previously noted, paying down the principal faster can help the borrower pay less interest. Personal loan lenders allow borrowers to make extra payments or to make a larger monthly payment than planned. When doing this, it’s important that borrowers confirm that their extra payments are going towards the principal balance and not the interest. That way, their extra payments work towards paying down the principal and lowering the amount of interest they owe.

Shorten Loan Term

Refinancing a loan and choosing a shorter loan time can also make it easier to pay down a personal loan faster. Not to mention, if the borrower has a better credit score than when they applied for the original personal loan, they may be able to qualify for a lower interest rate which can make it easier to pay down their debt faster. Having a shorter loan term typically increases the monthly payment amount but can result in paying less interest over the life of the loan and paying off the debt faster.

Cheaper Payments

Refinancing to a new loan with a lower interest rate may reduce monthly loan payments, depending on the term of the new loan. With lower monthly scheduled payments, they may opt to pay extra toward the principal and possibly pay the loan in full before the end of the term.

Other Important Information on the Personal Loan Agreement

A personal loan agreement includes a lot of helpful information about the loan, such as the principal amount and how long the borrower has to pay their debt. The more information the borrower has about the loan, the more strategically they can plan to pay it off. Here’s a closer look at the information typically included in a personal loan agreement.

Loan Amount

An important thing to note on a personal loan agreement is the total amount the borrower is responsible for repaying.

Loan Maturity Date

A personal loan’s maturity date is the day the final loan payment is due.

Loan Interest Rates

The loan’s interest rate and APR should be listed on the personal loan agreement.

Monthly Loan Payments

The monthly loan payment amount will be listed on the personal loan agreement. Knowing how much they need to pay each month can make it easier for the borrower to budget accordingly.

The Takeaway

Understanding how a personal loan works can make it easier to pay one-off. To recap — What is the principal amount of a loan? The principal on a loan is the amount the consumer borrowed and needs to pay back.

Consumers looking for a personal loan may want to consider a SoFi Personal Loan. With competitive interest rates and a wide range of loan amounts available to qualified borrowers, there may be a personal loan option that works for your financial needs.

Learn more about SoFi Personal Loans today


What is the principal balance of a loan?

The principal balance of a loan is the amount originally borrowed that the borrower agrees to pay back.

Does the principal of the loan change?

The original loan principal does not change. The principal amount included in each monthly payment will change as the amortization period progresses. On an amortized loan, less principal than interest is paid in each monthly payment at the beginning of the loan and incrementally increases over the life of the loan.

How does loan principal work?

The loan principal represents the amount borrowed. Usually, this is done in monthly payments until the loan principal is fully repaid.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Can I Pay off a Personal Loan Early?

Perhaps you’ve gotten a raise or a bonus, and you want to pay off the remaining balance on a personal loan. Is that possible? The short answer is “yes” and, in many cases, it can be a wise decision.

But if there’s a prepayment penalty, then this loan payoff may be more costly than you’d expect. Learning how a prepayment penalty might affect your payoff amount can be helpful in making the decision whether or not to pay off a personal loan early. And if you’re gathering information about a personal loan early payoff without incurring a prepayment penalty, you do have some options.

Is It Possible to Pay Off a Personal Loan Early?

It’s unlikely that a lender would refuse an early loan payoff, so yes, you can pay off a personal loan early. What you have to calculate, though, is whether it’s financially advantageous to do so. If a personal loan early payoff triggers a prepayment penalty, it might not make financial sense to do so.

Overview of Prepayment Penalties

It may sound strange that a lender would include this kind of penalty in a loan agreement in the first place.

Some lenders may, though, to ensure you’ll pay a certain amount of interest before the loan is paid off. It is an extra fee that, when charged, helps lenders recoup more money from borrowers.

You can find out if you’d be charged with a prepayment penalty by looking at the loan agreement you signed with the lender.

If you have one, the penalty could be in effect for the entire loan term or for a portion of it, depending upon how it’s defined in the loan agreement.

Does Paying off a Personal Loan Early Affect Your Credit Score?

Personal loans are a type of installment debt. In the calculation of your credit score, your payment history on installment debt is taken into account. If you’ve made regular, on-time payments, your credit score will likely be positively affected while you’re making payments during the loan’s term.

However, once an installment loan is paid off, it’s marked as closed on your credit report — “in good standing” if you made the payments on time — and will eventually be removed from your credit report after about 10 years. Paying off the personal loan early might cause it to drop off of your credit report a few earlier than it would have and no longer help your credit score.

If I Pay Off a Personal Loan Early, Does My Interest Rate Decrease?

Since a personal loan is an installment loan with a fixed end date, if you pay off a personal loan early, you won’t pay less interest. You won’t owe any interest anymore because the loan will be paid in full.

Recommended: What are the average personal loan rates?

Advantages of Paying off a Personal Loan Early

There are definitely some advantages to personal loan early payoff. One obvious benefit is that you could save on interest over the life of the loan. A $10,000 loan at 8% for 5 years (60 monthly payments) would accrue $2,166.50 in total interest. If you could pay an extra $50 each month, you could pay the loan off 14 months early and save $518.42 in interest.

Not owing that debt anymore can be a psychological comfort, potentially lowering bill-paying stress. If you’re able to make that money available for something else each month — maybe creating an emergency fund or adding to your retirement account — it might even turn into a financial gain.

If you no longer owe the personal loan debt, you’ll essentially be lowering your debt-to-income ratio, which could positively affect your credit score.

Disadvantages of Paying off a Personal Loan Early

If your personal loan agreement includes a prepayment penalty, paying off your personal loan early might not be financially advantageous. Some prepayment penalty clauses are for specific time frames in the loan’s term, e.g., during the first year. If you pay off the loan during the penalty time frame, it could cost you just as much money as it might if you had just paid regular principal and interest payments over the life of the loan.

You might be thinking of a personal loan early payoff so you can put your money to work somewhere else. But if the interest rate on the personal loan is relatively low, it might make financial sense to put your extra money toward higher-interest debt, or to contribute enough to an employer-sponsored retirement plan so you can get the employer match, if one is offered. If you don’t have an emergency fund yet, you might also consider starting one with a bit of extra money each month until it’s at a comfortable level.

Another thing to consider is whether paying off your personal loan early will hurt your credit. As mentioned above, making regular, on-time payments to an installment loan like a personal loan can have a positive effect on your credit score. But when the loan is paid off, and marked as such on your credit report, it’s not as much help.

Advantages of early personal loan payoff Disadvantages of early personal loan payoff
Interest savings over the life of the loan Possible prepayment penalty
Could alleviate debt-related stress Extra money could be better used in another financial tool
Lowering your debt-to-income ratio Removing a positive payment history on the loan early could negatively affect your credit
More cushion in your monthly budget Taking money from another budget category might leave an unintentional financial gap

Things To Ask Yourself Before Paying off a Personal Loan Early

Everyone’s financial situation is different. Priorities that are important to you might be less so to someone else. Considering how a personal loan early payoff might affect you can be a good way to start making the decision.

Will Paying off a Personal Loan Early Put Me at Risk?

There can be some drawbacks to paying off a personal loan early — some that might be considered risks.

If you’re thinking of putting extra money toward a personal loan balance, but you don’t have any money set aside in an emergency fund, that’s a financial risk. If you encounter an expensive, necessary financial need without the means to pay for it, you might be tempted to use high-interest debt like a credit card.

If you consider it risky to pay more than you need to for something, then paying a prepayment penalty could be considered a financial risk. If paying a loan early will cost you extra money, you might think about where that money could be better spent.

Will Paying off a Personal Loan Early Improve My Debt-To-Income Ratio?

Lowering your debt-to-income ratio can have a positive effect on your credit score, and paying off a loan will accomplish this. But you might weigh that positive against any potential negative effect that might come with paying off your personal loan early, such as not having a positive payment history included on your credit score after your loan is closed.

Does Paying off a Personal Loan Early Have Clear Benefits?

There are absolutely clear benefits to paying off a personal loan early. Saving money in interest charges over the life of the loan is at the top of the list, as long as any savings is not offset by a prepayment penalty.

Having more money in your monthly budget — since you wouldn’t have that loan payment due each month — might lower your financial stress.

Types of Prepayment Penalties

If and how a prepayment penalty is charged on a personal loan will be stipulated in the loan agreement. Reviewing this document carefully is a good way to find out if the penalty could be charged and how your lender would calculate it.

If you can’t find the information in the loan agreement, asking your lender for the specifics of a prepayment penalty and for them to point out where it is in the loan agreement is another way to be certain you have the right information to make a decision.

There are a few different ways a lender might calculate a prepayment penalty fee.

Interest costs

In this case, the lender would base the fee on the interest you would have paid if you had made regular payments over the total term. So, if you paid your loan off one year early, the penalty might be 12 months’ worth of interest.

Percentage of your remaining balance

This is a common way for prepayment penalties to work on mortgages, for example, and you’d be charged a percentage of what you still owe on your loan.

Flat fee

Under this scenario, you’d have to pay a predetermined flat fee for your penalty. So, whether you still owed $9,000 on your personal loan or $900, you’d have to pay the same penalty.

Avoiding Prepayment Penalties

Finding out whether a prospective lender charges a prepayment penalty — and not using that lender if it does — is at the top of the list of ways to avoid a prepayment penalty.

If you’ve already taken out a loan that includes a prepayment penalty, there are some options.

First, you could simply decide not to pay the loan off early. This means you’ll need to continue to make regular payments on the loan rather than paying off the balance sooner, but this will allow you to avoid the prepayment penalty fee.

You could also talk to the lender and ask if the prepayment penalty could be waived, but there is no guarantee that this strategy will succeed.

If your prepayment penalty is not applicable throughout the entire term of the loan, you could wait until it expires before paying off your remaining balance.

Another strategy is calculating the amount of remaining interest owed on your personal loan and comparing that to the prepayment penalty. You may find that paying the loan off early, even if you do have to pay the prepayment penalty, would save money over continuing to make regular payments.

Types of Personal Loans

In general, there are two types of personal loans — secured and unsecured. Secured loans are backed by collateral, which is an asset of value owned by the loan applicant, such as a vehicle, real estate, or an investment account. Unsecured personal loans, on the other hand, are backed only by the borrower’s creditworthiness, with no asset attached to the loan.

You might hear unsecured personal loans referred to as signature loans, good faith loans, or character loans. Typically, these are installment loans the borrower repays at a certain interest rate over a predetermined period of time.

Personal Loan Uses

Acceptable uses of personal loan funds cover a wide range, including, but not limited to:

•   Consolidation of high-interest debt.

•   Medical expenses not covered by health insurance.

•   Home renovation or repair projects.

•   Wedding expenses.

While there are benefits to borrowing a personal loan, it might not always be the right financial move for everyone. Personal loans offer a lot of flexibility, but they are still a form of debt, so it’s a good idea to weigh the pros and cons before signing a personal loan agreement.

Awarded Best Personal Loan of 2022 by NerdWallet.
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Personal Loans at SoFi

If you’re looking for an unsecured personal loan with no prepayment penalties, a personal loan from SoFi might fit your financial need. There are no application fees, no origination fees, and no hidden fees attached to unsecured personal loans with SoFi.

A SoFi Personal Loan can be used to consolidate credit card debt, make home improvements, pay for relocation costs, repair your vehicle, make a major personal purchase and more.

The Takeaway

If you’re in a secure enough financial position to be able to pay off your personal loan early, that’s terrific. But before you do, it’s a good idea to calculate whether it’s a good financial decision or not. A prepayment penalty could take a bite out of any savings you might see on interest costs.

Comparing interest rates for a personal loan, along with lenders’ fees and other charges, including prepayment penalties, is a good way to find the lender that meets your financial needs.

Ready to explore SoFi personal loans? Check your rate in just one minute.


Is it good to repay a personal loan early?

Paying off a personal loan early can be a good financial decision, as long as any prepayment penalty charge doesn’t cost more than you might pay in interest.

If I pay off a personal loan early do I pay less interest?

Paying off a personal loan early doesn’t affect the interest rate you’ve been paying up until that point. It would mean, however, that the total amount of interest you’d pay over the life of the loan would be less than anticipated.

Does paying off a personal loan early hurt your credit?

Because making regular, on-time payments on an installment loan such as a personal loan is a positive record on your credit report, removing that history early can have a slight negative affect on your credit.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.


Source: sofi.com

Bad Deal at the Car Dealership? Here’s What You Should Know.

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Oops, you realized you may have gotten a bad deal at the car dealership. Maybe it was an impulse purchase or a very convincing salesperson persuaded you to go beyond your budget. Or perhaps you’re now struggling to pay your other bills after purchasing the car and don’t feel comfortable with the monthly payment amount. 

If you’re experiencing mechanical problems, you may be able to take it back to the dealership, depending on your warranty (if you purchased one) and your state’s lemon laws. If there are no mechanical issues with the car, under contract, you must continue paying for the vehicle and likely cannot return it to the dealership. 

Whatever situation you’re in, if you’re thinking of getting out of your car loan, there are a few options. Figuring out which one makes the most sense depends on your situation and preference for wanting to keep the car and refinance the loan, sell or trade it in, for example.

Here’s what you need to know to put yourself in a better financial position if you believe you’ve gotten a bad deal at the car dealership. 

How to determine if you got a bad deal on your car loan

The definition of “bad” is subjective, but generally speaking, determining if you got a bad deal on your auto loan boils down to affordability and your monthly budget. These factors may likely make your car a source of strain for you:

  • Your payments are too high and you’re stretching your budget too thin.
  • The interest rate is high for your credit score range. (If your credit has improved since the time you took out the loan, you may be able to qualify for a less expensive interest rate.)
  • The price of the car was too high.
  • The “extras” you purchased (i.e., vehicle warranty) were too expensive or unnecessary. 

What is considered a good interest rate?

The interest rate should generally not be higher than what you’d pay on a credit card. At the time of writing, the average credit card interest rate is around 18 percent. If it’s higher than that, you should consider getting out of it quickly with a refinance. 

According to Experian, these are the average interest rates you might expect to pay for an auto loan, based on your credit score range. 

Credit score range Average APR for new auto loan Average APR for used car
Super Prime (781-850) 3.65% 4.29%
Prime (661-780) 4.68% 6.04%
Subprime (501-660) 7.65% 17.74%
Deep Subprime (300-500) 14.39% 20.45%

Refinance your car loan

Consider refinancing if you’re unhappy with the interest rate, monthly payment, terms of your auto loan, or all of the above. If you’re concerned about keeping costs down, refinancing makes more sense than going out to get a new car. Keep in mind there are a few fees to pay when you refinance, and Upstart takes care of these fees for you. When you refinance, over purchasing another vehicle, you’ll also avoid expensive sales tax as well as the temptation to purchase a pricier car.

When you refinance, you’re essentially getting a brand new loan to pay off your existing one with the goal of lowering the interest rate and monthly payment. 

Check your credit score before you decide to go this route. If your score needs improvement, you may need to spend a few months paying your bills on time or paying down other debt before you apply. Otherwise, you may not qualify for a better interest rate. 

Some lenders examine alternative data outside your credit score to determine whether you qualify. For example, Upstart-powered banks also looks at your education* and employment, which is one reason why Upstart’s underwriting model is unique from other lenders. 

How to refinance your auto loan

Because you’re taking out a brand new loan when you refinance, you can change the term, or length of how long you have to pay back the loan. If you originally took out a three-year loan but found it difficult to keep up with the high payments, you could refinance to five years. Keep in mind that a longer loan term means you will pay more over the life of the loan in interest. 

Before you jump into a refinance, make sure you won’t have to pay any fees or penalties for paying your current loan off early. Once you confirm you won’t get charged, you can start shopping around for the best interest rates online. 

Remember that you can still shop around for the best score within a certain time frame (usually 30 days) and the hard pull will only count as a single inquiry. This is referred to as rate shopping.

Alternatives to fixing a bad deal at the dealership

If you don’t want to refinance, there are a few other options to consider. 

Trade-in your car: If you’re going this route, go for a less expensive vehicle. This downgrade will help reduce your overall auto debt.

Sell your car, private party: This may require more effort and time on your part, as there are a few more steps involved when selling your vehicle without your title (meaning, it’s still technically owned by the bank), including:

  • Asking your lender for the payoff balance
  • Obtaining the value of your car—you can do this through Kelly Blue Book or Edmunds
  • Paying off the vehicle so the lender can release the title to the new owner

There’s a possibility that you may also end up upside down on your loan, which means your car’s value is less than your loan’s payoff amount. For example, if your car is worth $20,000 but you still owe $25,000 on the loan, you may have a tough time finding a private buyer who would be willing to pay you $25,000 for the vehicle. 

Avoid getting a bad auto loan next time

Mistakes happen for a reason and sometimes, the lesson needs to be learned first-hand in order to avoid making the same ones in the future. Here’s what to do in order to not make the same mistakes the next time you need to purchase a car:

  • Shop around for the best rates and compare multiple offers from lenders.
  • Choose a loan term that is realistic for you, even if it’s longer than what you want.
  • Put a down payment of at least 20 percent, if you can. This helps reduce the overall cost of your loan.

Refinancing from a high to lower interest rate can make a big difference in your monthly budget and can help you better manage your payments. 

The good thing about refinancing is that you can do it completely online and receive your interest rate almost instantly. 

Find out how Upstart can help you get out of a bad deal at the dealership and get your rate in just a few minutes without affecting your credit score. 

State Restriction: Car refinance loans not available in IA, MD, NV, or WV. Car refinance loans in IL and MO are originated by Cross River Bank or Midwest BankCentre. All other car refinance loans are originated by Cross River Bank, an FDIC New Jersey state chartered commercial bank.

*Neither Upstart nor its bank partners have a minimum educational attainment requirement in order to be eligible for a loan

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Plan Your Financial Future at Any Age

Long-term financial goals take five or more years to accomplish and generally apply to major life events. Some of the most important long term financial goals people have include saving for retirement and paying off their mortgage.

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It’s natural to feel overwhelmed when thinking about your finances several years down the road. Seeing your responsibility for a mortgage, credit card debt, or personal loan can often feel unmanageable when viewed as a whole. The key to overcoming this feeling is to prepare yourself long before the need arises. Setting long-term financial goals early in life can make the process more manageable.

Long-term financial goals take five or more years to accomplish and generally apply to major life events. To boot: You can set them anytime in your life. This guide breaks down how to set a long-term financial goal at any stage of your life and provides tangible financial goal examples to inspire your planning.

Why Are Long-Term Financial Goals Important?

If you only focus on financial goals relevant to your current situation, you may find yourself unprepared when you experience future life events. For example, saving an emergency fund is an incredibly useful short-term goal, but if you don’t save money outside of that fund, then you will be unprepared for retirement. Long-term financial goals bring awareness to events that may be decades away and help to ensure you’ll be prepared for when they arrive.

Long-Term vs Short-Term Financial Goals

While long-term financial goals focus on several years into the future, short-term goals are concerned with the present. Short-term goals can generally be accomplished within a year and are usually easy to achieve. Typical short-term financial goals include establishing a monthly budget and saving an emergency fund. Establishing key short-term goals can help investors achieve their long-term money goals by getting them on the right track early on.

A venn diagram defines short-term, mid-term, and long-term financial goals.

Long-Term vs Mid-Term Financial Goals

Mid-term financial goals are a gray area in financial planning. They often overlap with short and long-term goals—taking longer to achieve than short-term goals, while less difficult than long-term goals. Saving for a down payment can fall under either type of financial goal since the amount you need to save can vary based on the size of the purchase. It can take more than five years to save up for a house down payment depending on your income and the cost of the house.

Long-Term Financial Goals For Your 20s

Your 20s represent a unique time in your financial journey since many people start out with a blank page. Knowing where to begin can be a challenge, but this time in your life has the power to set the stage for decades to come. Setting financial goals now can improve your quality of life and answer the question, “Where should I be financially at 25?”

 A chart identifies the long-term financial goals a person should set for themselves in their 20s.

Identify Your Retirement Needs

Although your retirement is likely several decades away, identifying your future needs will increase your likelihood of meeting them when they arise.

Think about likely expenses you’ll have at this time in your life. How much might you receive from social security? Will you have rent or mortgage payments? How much will you need to receive from your retirement account to cover your estimated retirement budget?

You can build your current monthly savings plan around your expected future needs. Comparing these needs to your current income will help you determine if these goals are realistic and if you need to find new income streams.

Open a Retirement Account 

Saving money early on is the one of the greatest ways to secure your financial future. The interest you earn on your savings will compound, leading to exponential growth by the time you’re ready to withdraw it. The rule of thumb is to save 15 percent of your pre-tax income each year.

There are multiple options for where to invest your money. A couple of the most common include individual retirement accounts(IRA) and 401(k)s. It can be very beneficial to participate in your employer’s retirement program since they often include company contributions, which is like an addition to your salary.

Save For a House Down Payment

Most people dream of owning property. Building equity in an appreciating asset instead of spending money on rent can be a great way to eliminate future expenses after you pay off the mortgage.

The amount of money you need to save will be dependent upon the cost of your desired home. A down payment of 20 percent can lower your interest rate and eliminate the need for private mortgage insurance (PMI). If your desired first home costs $300,000, then you will need a down payment of $60,000 to meet this requirement. Smaller down payments are possible, but they will affect your interest rate and the likelihood of being approved for the loan.

Pay Off Credit Card Debt 

Credit cards can allow you quick access to funds when you need them most, but carrying credit card debt can quickly wipe out your financial progress. In a perfect world, you’ll be paying off your credit card monthly without accruing any interest.

In the event that you have accumulated credit card debt, it should be a top priority to pay it off. High interest rates, sometimes surpassing 15 percent, offset the gains you’d be making by investing that same money while holding the debt. Use a credit card payoff calculator to learn how long it will take to settle your debt.

Increase Your Earnings Potential 

Making more money is the simple answer to securing your financial future, but how do you go about making it happen? Evaluating where you want to be in five years is a great starting point. Does your career path require a higher level of education than you currently have? Does your current job have a glass ceiling preventing growth?

Talk to your boss about your aspirations. There may be training they can recommend to put you on the ladder of success. If your current employer is unable or unwilling to help, consider upskilling on your own. Get certifications independently or enter a graduate program. Proactively finding ways to increase your earnings is better than wasting years at a dead-end job.

Long-Term Financial Goals For Your 30s

Entering your 30s often brings a new degree of stability to your finances. Ideally, you will be on a career path that allows you to meet most of the long-term financial goals you set for yourself in your 20s. However, with age comes life changes that may require you to shift your priorities.

A chart identifies the long-term financial goals a person should set for themselves in their 30s.

Pay Off Student Loans

The sooner you pay off your debts, the more money you can put toward other financial goals. If you have no higher commitments, it can be better to aggressively pay off your student loans early. Variable loans may be manageable for you at the moment, but if interest rates rise, your loan could quickly increase by more than 5 percent.

Large payments are not a possibility for every investor’s goals. Putting just 10 percent of your gross income toward your student loans can still be enough to whittle away your outstanding debt. As your income increases, aim to pay a larger monthly amount until the loan is eliminated. Using a student loan calculator can help make your goal attainable.

Improve Your Credit Score

A good credit score makes it easier to meet a number of personal financial goals. You can get approved for a better apartment or receive a better interest rate on your car loan and mortgage payments. Although it depends on the scoring system, aiming for a credit score above 700 will generally give you more favorable terms.

Ways to improve your credit score include:

  • Paying your rent on time and not breaking the lease early
  • Using 30 percent (or less) of your total credit limit
  • Paying your credit cards in full each month
  • Keeping old lines of credit open
  • Limiting the number of hard inquiries into your credit
  • Settling any delinquencies

Set a Retirement Date

In your 20s, you might have had a general idea of when you wanted to retire. In your 30s, it’s time to think about a precise date that you can plan around. Your potential retirement year will vary based on your income, debts, and personal commitments.

If you were unable to stick to the goals you made in your 20s, then you may need to adjust your financial planning for retirement to something more attainable. If you are committed to retiring in a specific year, you may need to ramp up your savings and cut unnecessary purchases. Identifying when your mortgage will be paid off and when your kids will be finished with school can also affect your retirement date.

Create a Last Will and Testament

A last will and testament is the legal document used to allocate your property after you die. It also identifies the executor of your estate—the person responsible for settling your outstanding debts and seeing that your will is honored.

Without a will, your assets will be distributed by the government after you die. This can be a costly process with no guarantee that your wishes will be honored. If you have plans for who inherits your belongings, meeting with an estate planning attorney should be made a priority.

Long-Term Financial Goals For Your 40s

Life in your 40s is full of responsibilities. You likely own more assets now than at any other time in your life, your family is growing, and your goals are changing. Now it’s time to reorient your long-term financial goals to your current situation.

A chart identifies the long-term financial goals a person should set for themselves in their 40s.

Pay Off Non-Mortgage Debt 

Aside from your mortgage, which can follow you into your 50s and 60s, all other debt elimination should be prioritized. Just because you eliminated some debts in your 20s and 30s does not mean new debts haven’t appeared.

You may have new credit card debt or student loans from returning to school. Automobile purchases can happen at any point in life. Regardless of the reason for the debt, you won’t want high APR payments lingering when you are approaching retirement age.

Evaluate Life Insurance Policies

Life insurance is what your dependents will use to bolster their lifestyle in the event of your death. Having a comprehensive policy can ensure their needs are met even if your savings at that time are not enough.

Due to the financial obligations the average 40-year-old has, it is often recommended to purchase more life insurance than you initially thought you’d need. You’ll want to make sure your family can cover their living expenses and settle any debts without your income.

Invest in Your Child’s College Fund

Saving for your children’s education is one of the best ways to set them up for financial success. If they can avoid the early debt of student loans, then they can focus on other financial goals earlier.

A college fund is a large investment and it will take a long time to accomplish. Depending on when you have kids, you may want to start their college fund before your 40s to ensure it is adequate by the time they graduate high school.

Maximize Your Earnings Potential 

Most people reach their peak earning potential at some point in their 40s. Putting yourself in a position to maximize this number will set the stage for your quality of life in retirement. A larger income will enable you to max out your retirement contributions.

This is another time to analyze if your current job aligns with your long-term financial plans or if you need to make a change. Look for ways to make more money by negotiating for a raise, earning a promotion, starting a side hustle, or changing employers.

Long-Term Financial Goals For Your 50s and 60s

These two decades in a person’s life often have a large degree of overlap. Your personal commitments are simplified, and your set retirement date is finally within view. All that is left for you to do is tie up loose ends.

A chart identifies the long-term financial goals a person should set for themselves in their 50s and 60s.

Become Entirely Debt-Free

Paying off your mortgage is a major financial goal and getting it done before you retire is a huge accomplishment. Knocking it out while you’re still working full-time enables you to put more money into your retirement portfolio. The same goes for any other outstanding debts that are persisting. These monthly expenses can prolong your time in the workforce past what you originally intended.

Plan Long-Term Care Options

There may come a time in your life when you are no longer able to take care of yourself. You’ll want a plan in place before that happens so your finances will be enough to meet your needs. Make sure your family is aware of your wishes so they can prepare as well. Some things to consider include:

  • Who will be your guardian?
  • Will you receive in-home care or move to a live-in facility?
  • If you require a live-in facility, which one will it be?

Long-term care services are a costly addition to your retirement budget. Setting up funding for such an event years before the need arises can make it more manageable.

Re-evaluate Your Estate

Many changes may have occurred in your life since you first drafted your will. Re-evaluating what assets are currently in your possession will make the process of managing your estate go much smoother. This is another opportunity to discuss your financial affairs and wishes with your family. Avoid unexpected revelations after your death, so there isn’t fighting amongst your loved ones.

Downsize Your Living Expenses

Implementing cost-cutting measures in your life before retirement can help put your future lifestyle into perspective. You may realize that your initial retirement budget can’t meet your needs and you need more time to save.

The house you raised a family in may no longer be necessary once your kids are out of the house. Selling it for a smaller property can add to your savings while reducing expenses. The same can be said for owning multiple vehicles or vacation properties.

Everyone has unique needs and obligations that influence their financial journey. Budgeting and saving can keep you on track to meet your long-term financial goals. Regardless of where your finances stand today, it’s always a great time to prepare for many of life’s important events.

An infographic overviews how to set long-term financial goals, no matter your age or stage of life.

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