Use our interactive web calculation tool which shows how much your bi-weekly car payments will be and how much interest you will pay on your loan.
We all know that it takes hard work and dedication to focus on paying off debt. One almost painless way to speed up the process is to make bi-weekly payments instead of monthly payments. There are 52 weeks in the year which provides 26 bi-weekly payments. This is equivalent to 13 monthly payments, or essentially one extra payment a year. Check with your lender if this is possible and make sure your loan does not have a prepayment penalty. If your lender does not offer this option or charges a fee, you can always opt to do it yourself for free. Simply add an extra 1/12 of a car payment to your regular payment and apply it to principal.
While you're at it, why not just round up your monthly payments. If your payment is $268 round it up to $300 and the extra amount will add up to more than an extra payment a year. Instruct your lender to apply the extra to principal or they will automatically apply it to interest.
If you receive a lump sum of money, like a tax refund, don't be tempted to spend it all. A good idea is to spend half and put the other half on debt. This way you won't feel deprived while you are still reducing debt.
They say owning a house is the American dream, but I say the American dream also includes some wheels. Unfortunately, for many of us, the only way to own a car is via a car loan. We just can't save enough or can't save it fast enough. But owing money on a car is like taking one step forward and two steps back because it's an asset that depreciates in value. (Here's a helpful infographic on car depreciation.) Mortgage debt is the opposite. If a home is well maintained it will increase in value over the years. Cars lose value every year, so the faster you pay that loan off the better! Don't even think about a loan for 84 months (7 years)! "Why not you ask?" "The payments are so much lower," you say... Yes, but you must look at the bigger picture. How much are you actually paying for those lower payments?
You have to realize that a longer loan costs more in interest. That increases the total cost of your loan. For instance, let's pretend you are buying a car for $15,000 at 4%, and can't decide if you should finance it for 5 years or 7 years. $15,000 for 5 years will give you a monthly payment of $276.25 and total interest of $1,574.87. The same loan for 7 years will give you a monthly payment of $205.03, but the total interest rises to $2,222.70. This increases the total cost of your loan by $647.83. Wouldn't it be much better to sacrifice a little for the slightly larger monthly payment in exchange for two years of debt freedom and an extra $647 in your pocket? If you are really serious about paying down the debt, you could entertain the idea of a 4 year loan where the monthly payment is $338.69 and the interest is $1,256.92 saving you $965.78 as compared to the 7 year loan. This option also adds an additional year of debt freedom.
Yes, money doesn't grow on trees, but there is plenty of it hanging around ready for you to pick. You just have to know where to look. Besides the usual suggestions of brown bagging and skipping your morning latte, here is a savings list with over a hundred ways to cut back and a Washington, D.C. based organization that provides help and motivation to save more, America Saves. By incorporating some of these ideas, and adding a dash of perseverance, you will be driving your car down Debt Freedom Lane in no time.