Sunday, December 22, 2013

Save That Money, Honey!: Paying Off Your Car Faster

I am always trying to pay things down quickly.  I hate debt and I love saving everything I can.  I'm becoming addicted to the challenge of saving as much as possible everywhere I go and in everything I do.  So one way I do that is by paying a little more every month and making payments more frequently.  

Let me explain.  Let's say my monthly payment is $450.  I pay $50 extra per month and build it into my monthly budget.  Over the course of a year, I will have paid an extra $600 which is more than an extra payment a year.  

Another strategy to pay off your car loan sooner is by making weekly payments instead of monthly ones.  So I take my $500 monthly payment and divide it by 4 weeks in a month.  That's $125.  I then schedule that payment to be withdrawn every week from my bank account so that it isn't something else I have to keep up with.  I should note that not every month has 4 weeks, in fact, there are 4 months that actually have 5 weeks.  So, you will need to allot for that extra payment for those months.  Doing this will mean you will make an additional $500 payment towards the principal of your loan over the course of a year.   

Making weekly payments will also actually save you on interest.  For me, that comes to about $11 saved on interest every month.  That may not sound like a lot, but $11 times 12 months = $132 a year.  

So let's add up what I save: $600 (from extra $50 payment made every month applied directly to principal) + $500 (extra payment made over the course of year from making weekly payments) + $132 (interest saved every month by paying weekly instead of monthly) = $1,332 additional money applied to your car loan every year.  Nice!

Over the course of four years that's $5,328 and over five, $6,660 additional monies applied directly to the principal of your car loan!  My car loan could be paid off a year sooner!

Now, how much will YOU actually save?  Well it all depends on your loan interest rates, if you are paying extra per month, how frequently you are making your payments, etc.  Regardless, it's definitely worth doing the math, looking at your budget, and talking to your bank to make sure they will accept weekly payments.  

One thing is for sure, though, I LOVE how a little planning, organization, and persistence can make a HUGE difference for your wallet.  

How about you?  How do you go about saving money on your car loan?  I would love to hear any other suggestions!


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