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Last month I was able to pay off my auto loan, about a year and a half early. In addition to the positive effect it has on my credit score, and that I don’t like my hard earned cash going to someone else if I can prevent it, I wanted to pay off my auto loan before my maternity leave started in February.
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I was able to pay it off by following five strategies for paying off debt fast.
Setting up automatic payments means that I won’t forget to write the check and mail it. My hubby once forgot to pay a credit card that he charged a couple of Little Caesar’s Pizza to, and the $15 in pizzas blossomed to $100 once late charges and interest were added in.
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I had my auto loan set up for automatic biweekly payments, which means half the minimum payment is paid every two weeks. Besides that it lowers the interest portion of each payment than if I paid monthly, I actually make an extra payment on the loan, 13 monthly payments rather than 12 monthly payments.
Payments Larger Than Minimum Payments
While the minimum monthly payment was around $220, I actually made biweekly payments of $140, which means I paid $280 a month (plus the 13th payment of $280). Making the bare minimum payments drags out the loan, which is like pulling the band-aid off slowly.
Putting Extra Cash Towards Debt
Anytime I had extra cash, like a bonus or a tax refund, I applied a portion of it towards the auto loan. Anytime I noticed my cash balance was creeping higher, I also put a portion of that increase towards the auto loan.
Large final payment
Once I reach a point in the loan where the remaining balance can be paid off without causing a big disturbance in my cash balance, I make a large final payment. In January, I had $1800 left on my auto loan, so I bit the bullet and made an $1800 payment rather than the usual (automatic) $140 payment. And now, my car is paid off and I won’t have to make payments during my maternity leave. Yey!
These five strategies can actually be applied to any kind of debt, whether it be a credit card, auto loan, student loan, mortgage, etc. I tend to pay my credit card weekly, and I already paid off my student loan using these five strategies. I haven’t been using these strategies on my mortgage because I’m concentrating on eliminating the smaller debts first, and for some reason, the credit union won’t allow me to set up biweekly payments, or automatic payments larger than the minimum amount. I also have a personal loan for repairs on my roof, which I automatically pay biweekly an amount $50 more than the monthly minimum. I’ll start making extra payments once I return to work. That is, if daycare expenses don’t suck my cash flow dry.
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Now let’s see how fast I can pay off my personal loan.
It’s been almost two years since I last reviewed my overall household debt, which included my mortgage, student loans for both my hubby and myself, an auto loan, and our two active credit cards.
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The mortgage, which is our biggest single debt, decreased by about $2,500 in that time, down to $73,557.27. The payments are automatic so it’s never late.
My hubby’s student loan is our second biggest loan at $31,946.33, which is about $2,700 less than last time. His payments are also automatic so there’s a never problem with paying on time. My student loan was the next biggest loan back then, but with large monthly payments and refinancing to a lower interest rate, I was able put more than $14,000 to it and pay it off entirely by early May 2017.
It was great timing too because I got laid off on May 22. I have since found a new job, with higher pay, and I don’t have to pay any student loans. Woohoo!
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The auto loan for our Chevy Malibu was the next biggest loan after my student loan. My auto loan is set up for automatic payments at $60 more than the minimum monthly payment. It’s also biweekly, so I actually make 13 payments rather than 12 at $60 more than the minimum payment.
With this payment plan, I was able to pay a little under $6,000 towards the loan, lowering it to $5,700.42.
Our second to last debt is our credit cards, totaling $3,295.12. We tend to keep running balances on our credit cards to maintain activity on our credit histories, as well as collect credit card points that I use at Amazon.com. During the 6 weeks that I was laid off, I made smaller credit card payments to ease the cash flow, so my part of the credit card balance is a little higher than normal.
Lastly, we actually added a little debt to our financial situation. My hubby had the displeasure of getting a root canal earlier this year and financed it with a loan from WellsFargo, which is now at $2,282.08. We could pay it off now, but with interest free payments for 18 months, it’s better to put that cash towards his credit card and student loan for the time being.
Our total debt sums up to $116,781.21, which is $22,318.31 less than my last analysis almost two years ago.