Paying off debt can be a lengthy process. If you are in the process now, then I understand completely. I worked on paying off my debt for close to four years. There was nothing fun about it. The process took every ounce of my energy and my time. I remember when I was looking for ways to pay reduce my debt burden and I could find many different ways. There were hundreds of companies that could reduce my over debt and my monthly payments. While that was enticing, I found that most of them charged a fee and I didn’t want to take that route. I spent the money, so I needed to pay it back.
After researching time and time again, I found that the best way to pay down my debt was to make some extra money. While making extra money can be a difficult concept, there are thousands of ways to bring in some extra cash. I am not going to go into detail about how to make extra money because this blog is full of them. What I am going to show you is how powerful throwing some extra cash toward your debt can be.
I had an auto loan when I was in debt. I would pay it every month, but the monthly payment amount wouldn’t go down. It was a fixed cost. That being said, I decided that I wanted to put some extra money on the loan to bring the principle down faster. Here are the details of the auto loan.
My loan balance was $9,500 with an APR of 2.5%. The loan length was 48 month or 4 years with a monthly payment of close to $208. That means that I had to pay $208 for the next four years. That is daunting!
In an effort to reduce the amount of time and interest that I paid on this loan, I decided to find ways to make an extra $100 a month. If you think about it, making an extra $100 is not all that difficult, especially with 30 days to do it. After figuring out how to bring in the $100, I decided to put it all toward my auto loan each and every month. That would put my monthly payment at $308 per month.
With this information in hand, let me show you what this can do for you. If I make the extra payment each and every month, I will be able to reduce the length of my loan by 1 year and 4 months! Yes, you read that right. Instead of paying for 4 years, I now only have to pay for 2 years and 8 months. That is a huge win. Since my interest rate was relatively low, I don’t save much in the interest payments, but cutting the loan length down was more important.
That is pretty powerful. You can cut your loan by over a year by just using some extra money you worked for. If you wanted to cut the auto loan in half, you would need to make an extra $200 a month. If you could pay that extra money, you would reduce your loan length by half. You would also pay much less in interest. Check out this calculator to see how powerful this method can be for you.
I understand that making extra money might be a difficult concept to swallow. It can be hard to think about working more, especially when you work so hard each and every day. The answer I have to that is that you are just working to pay down your debt. Debt should not be a life-long payment. You need to figure out ways to cut the amount of time you are paying on your debt and how much you will owe in interest. You can grow your net worth until you pay off your debt. You are working toward zero and until you get to that point, you can build your personal wealth. I think that is the main goal for everyone, so why not use the power of making extra payments on your loans to get there? It worked well for me and it was very empowering. Now, it is time to empower yourself.
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