When working to become debt free, one of the most common hills to climb is paying off your car. In some cases you may not be eligible for early pay off. However, the majority of car loans are structured in a way that should allow you to pay off your car loan early.
If you are making car payments and don’t have the ability to pay them off in one payment, I have some suggestions for you.
1. Round Your Payments Up
Rounding your payments up is an excellent method of effortlessly paying off your loans early.
It’s rare that a payment falls directly on to an even tens or hundreds spot. If your monthly payment comes to something like $233, it would be worthwhile to round your payment up. Try rounding that payment up to $250 monthly. At the end of 12 months you will have made an extra payment of $204 directly to your principle. Over the course of your loan you will find it almost makes an extra payment every year.
Of course you could get more aggressive and turn that payment up to $260 or $290. This may need to come with a little sacrifice. However if becomes a lot easier if you switch your Starbucks morning coffee to McDonalds Morning Coffee.
2. Extra Projects
Many evenings in American homes are filled with the mild glow of prime time television. By switching this dead time to something that allows you to make some extra cash you’ll find that little advances make a huge difference.
This doesn’t mean you need to go out and find a part time job (This is a good method as well). There are plenty of things that can be done either at home or locally to help you earn some extra cash.
You don’t need to save massive amounts of money to make a huge impact. All it takes is $13 here, or $20 there. Just think. If you are able to earn an extra $100 monthly, you’ll save $1200 extra dollars a year. If applied properly you will be able to reduce the overall number of payments and help you pay off your car loan early.
3. Use the “Snowball Technique”
Not everyone has the ability or resources to earn extra money or pay extra money from outside their budget. If you’re on a super tight budget have no fear, the snowball method might just be your answer.
The concept is extremely simple.
- 1. Lay out all of your debts from smallest to largest.
- 2. Pay minimum amounts on all of the debts except the smallest.
- 3. On the smallest debt do everything in your power to pay extra on this loan till is is gone
- 4. Use the money savings from the smallest debt and add it to your second smallest debt. Repeat this till it’s gone.
- 5. Then snowball those two payments and start paying them to the third smallest debt till it’s gone.
- 6. Continue till all your debt is gone.
Simply lay out all of your debts from smallest to largest. As you pay off your smaller debts you will free up some extra cash to begin to start paying extra on your car loan. Keep this process up till you car is completely paid off and keep rolling it up till you become debt free.
Pro-Tip: If you have high interest loans, consider paying these down first as they tend to cost you more money in the long run.
4. Make Bi-Weekly Payments
For some people, making bi-weekly half payment can be coordinated with a paycheck. There are several benefits that come from using this method:
- 1. It is very likely your auto loan is a daily unpaid balance loan. By upping the frequency of your payments you create a savings by not paying interest on the extra interest that accumulates over the coarse of a month.
- 2. You will inherently make an extra payment every year. Take your 12 full payments every year and cut them in half. Now you have 24 half payments. Well with 52 weeks in a year, if you cut that in half you get 26 “two-week” periods. So by making a half payment every 2 weeks you’re making 13 full payments every year. If you’re able to combine this with the rounding up method you’ll make some serious headway.
- 3. This method will help shave off months at the end helping you pay your car car loan off early.
Overall Benefits That Come When You Pay Off Your Car Loan Early
It goes without saying that more money in your pocket is superior to being deeply in debt. Just think about what you might be able to accomplish or have if you’re able to save an extra $200-$500 monthly? There are many fantastic methods to help you pay off your car loan early, amongst the least effective is making just the minimum payments.
Keep your goals in front of you and work hard to get out of debt now. Like Dave Ramsey Says “Live like no-one else now, so you can live like no-one else later”.