A car loan can be taxing. When you first get one, your credit score dips. If you bought a new car, you are automatically upside-down on the loan for at least two years. Then there is the danger of losing your job. Put it all together and you it can make you a nervous wreck. Since a car is a necessary part of life in most instances, the best thing you can do is find a way to pay off your loan early. Here are three payoff strategies that are easy to incorporate and do not require a huge additional payment every month.
Gigs For Goals
A fellow personal finance blogger on Budgets Are Sexy coined the term Gigs for Goals a while back. The concept is simple: take on extra work in the form of overtime or a side job, then set the funds aside for a specific goal. If you choose to use this method to whittle down your car loan, all you need to do is clarify your goal. Will you wait until you have an entire payment or will you send whatever you have made with your next payment? Setting the goal and sticking to it are key with this strategy.
Divide By 12
This is the way I have been paying down my car loan. I divided the monthly payment by 12, then added that amount to each monthly payment, effectively making 13 payments per year. For example a $250 payment divided by 12 is $20.83, so your monthly payment becomes $270.83. When I began doing this, my budget was very tight, so it was key to keep the extra payment fairly low. The method only adds $19 per month to my budget, it may be more for you as it is in the example above. When I am done, I will have shaved three months from my loan and saved approximately $100 in interest. While those numbers are not going to blow you away, every penny of my money that I do not pay for interest is a penny still in my account. If your budget becomes less tight, you can use this method in conjunction with the ”Gigs for Goals” to become debt free more quickly.
You can round your monthly payment up. The amount that you round it up to depends on your budget. For example, rounding your payment up to the next hundred ($300 instead of $237 for example) may be too much for you, but rounding it to the next fifty may work ($250 compared to $237). The amount may sound small and insignificant, but you will be starting down the path toward debt reduction and saving money on interest as well.
Each of these goals is easy and does not require a huge financial commitment. They should fit into any budget without requiring a sacrifice on your part. One other thought, if you bought your car at a time when you had bad credit, you may be able to refinance at a lower interest rate, thus saving yourself hundreds of dollars. No matter how you attack your car loan, good luck!