Most people need a loan when they go to buy a new car because of the high costs associated with getting one. Sometimes we get carried away and agree to spend more than we originally planned. Here’s how to cope with that big, ugly auto loan and come out ahead financially.
Pay More Than the Minimum Monthly Payment
The easiest and best way to tackle a large auto loan is to pay more than the minimum monthly payment each month. This may mean increasing how much you pay toward your auto loan by a fixed amount or putting any extra money you get, such as tax returns and Christmas bonuses, toward paying off the loan. Make sure that whatever extra payments are made go to the principal and not just the next payment amount due. You’ll save the most money in interest this way.
Implement a Debt Repayment Plan
Dave Ramsey and Suze Orman both advocate debt repayment plans that many people have followed to get out of debt and create a more financially healthy lifestyle. Many of the people that have followed these plans have found success. If you pay off the smaller debts in the other areas of your life, you may find yourself with more money to pay off your larger auto loan.
Brown Bag Your Lunch and Reinvest Savings
Think about how you spend money in your daily routine. Do you get a latte every day from a coffee shop, buy lunch with your coworkers, or pick up dinner on the way home? Finding less expensive replacements for these common expenses, at least most of the time, makes it easier to save money. Whatever money you save from bringing your lunch to work instead of buying it from a nearby restaurant can be applied to the principal balance of your car loan.
Refinance Your Car Loan
In most instances, it isn’t smart to refinance your car loan. After all, you want to pay off your car loan sooner and for less money. Refinancing your car loan doesn’t make sense if it increases the amount of time you’ll be paying for the loan. If you can reasonably refinance your car loan for a lower interest rate or move up your payoff date to pay the loan off faster, it might make sense to use refinancing as a strategy to help get rid of the car loan.
Own Your Car Longer
The longer you own your car, the most cost effective owning a car will be. This means that you should invest in preventive maintenance such as oil and filter changes as recommended by the dealership. You should drive safely to prevent accidents. When your car loan is paid off, consider investing some money each month into a savings fund to help put a bigger down payment toward your next car so you’ll have lower monthly payments from the beginning.
Paying off debt can feel great and free up money each month. By using these strategies, you can pay off your car sooner. This will strongly reduce your family’s overall debt burden.