As of October 16, I OWN MY CAR. My car is 4.5 years old and has approximately 63,000 miles on it. I haven’t owned a car straight out since I was 18, and therefore I have had a car payment for 19 long, payment-laden, financially strapped years.
Not only did I finally pay off my car, but I paid it off six months early. So now, for those six months I have ‘extra’ money to put toward my other debt and not a fancy white sand beach vacation. Even though I’d love nothing more, I have a goal.
It is a very, very simple concept, but it can be very difficult to actually implement.
ALWAYS PAY MORE THAN THE MINIMUM AMOUNT DUE.
I live by this and I pay extra on every bill that has interest. My car, credit card, mortgage…
So I did this with my car, I paid an extra $50 every single month. I started out paying $50 more so it never felt like I was paying extra, it was just the amount in my budget for the car payment.
And with that extra $50 per month, I was able to reduce the interest paid and saved myself six months of payments.
Let me give you an example (I used a vertex42 loan calculator – love their calculators!):
Car cost: $25,000
Loan: 5% interest for 5 years
The payment is $471 and you will make that payment for 60 months and pay $3,306 in interest.
In the end you have actually paid $28,306 for that $25,000 car.
Now take the same information and add $50 to the payment. Yes, paying extra hurts, but in the end it is so worth it to keep as much of your own money as possible.
The payment will be $521 and you will pay for 54 months and pay $2,945 in interest.
In the end you will pay $27,945 for the car. Effectively reducing interest by $361.
For me, $360 is a big deal. And if you can manage to make little changes such as this one in your budget, they all add up to a lot. And you will become debt free, err free-ER, quicker.
I get that paying extra is hard, but even if you add $20 each month you will pay the vehicle off two months early and save almost $150 in interest.
That two months at $491 is IN YOUR POCKET. So keep paying the same amount, but to your credit card, mortgage, or another debt that hangs over your head.
You might look at me and go wow, now you’re free of that car payment so you’ve got some extra money in your pocket huh? But I don’t. I’m paying off my credit card, which works the same way.
I often complain of having no money, or my budget being so tight, but it is for this reason. I have had a goal to be debt free in five years. The last year of that five is 2014. I will meet my goal by taking little steps that add up.
I don’t care what you’ve read or heard there is no path to becoming debt free, or saving money that is easy.
Little steps can make it easier and quicker to meet your goal though, and you can find more on how to set up a budget and stick to it on my budget page.And learn even more about simple money saving tips too.