A Factory Working, College Grad Getting Out of Debt

The Car

The biggest goal of my entire debt plan is to get the car paid.  It’s the biggest bill in my budget every month, so if I can get this out of the way, the rest of that money can go to my college loans or even to my credit cards later.  A little over $300 a month going to those two bill categories?  Can you see how those raindrops could become the river?  Yeah, pretty sweet right?

Okay, so here’s the kicker.  In order to get my car (a Dodge Stratus RT), I took out a 6 year loan.  Yes, I know… six year loans are not the best thing in the world when it comes to car loans.  However, I’m making it work.  I got the loan in March 2009, and my first payment was April 2009, and the starting balance was approximately $16k and some change.  The car loan total as of September 6th is $4,564.49.  Not bad right?  So you’re probably wondering how did I get all almost three-fourths of the loan paid off in almost 3 years right?

It’s pretty simple.  The monthly payment is $250.51, and I put an additional $50.49 on the principle every month since I purchased the car.  It’s killed the principle and the building interest of 6.5% at a considerable rate.

So what is possible in the future?  Well, I’ve calculated according to this loan calculator and it will take only 16 more months to pay off the car.  So according to my calculations, my last payment will be January 2014.   That’s one year and 3 months ahead of my loan.  How awesome is that?!

So, with that kind of motivation, should I consider some more money towards the bill to decrease the months in which I have to make a payment?  Why not right?  I can spare $20 a month. So, if I increased that payment just by an additional $20 a month, according to the calculator, it would be 15 payments… just one month less.  Boo.

Although getting the payment out of the way is probably something that those like Dave Ramsey would suggest, I just can’t go with it.  It’s only a one month difference, and honestly.. I can do more with the $20 to a different bill than the car payment.  So, looks like I’m staying with my current plan.

Do you have a car payment?  Do you pay minimum or put a little extra towards the principle?

Count those raindrops!

Decmeadow

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3 responses

  1. Meg

    we have never had a car loan or had to buy a car, we have been very fortunate. but i will suggest to add to your plan at the end, “and drive this car until the wheels fall off”. cars are the kind of investment that you will never get back, so you might as well keep the wheels turning as long as possible due to low resale values. so, yea, you might WANT a new car, we sure do, but we don’t NEED a new car. so yes, you may end up not being able to get a new car for 10+ years, but think of it this way, thats a bit over 300/month for TEN YEARS that can be used for other things (36K!). we had a 21 year old car a few year ago, with very few problems. now we have a 17 year old car with very few problems. and no car payments. yes, they are old, but they are paid for!! and the insurance? yea, it’s 20 bucks a month!

    September 24, 2012 at 10:56 pm

    • decmeadow

      I totally agree! The only reason I have this car right now is because it was cheaper to get a “newer” used car than it was to replace the entire engine of my old one. And then, the engines that were available were right near where my car’s engine had died so it was kind of pointless at that point. My goal is to keep this one’s maintenance up to date and just drive it until it can’t any longer.

      Though to be honest, with the way the economy is going and education jobs being scarce, I might decide to just work my way up a couple more in the ranks and get a company car and only use this car for when I absolutely need to do so 😉 Of course, that’s a pipe dream, but it could happen!

      September 25, 2012 at 1:37 am

  2. Since car loans (and mortgages) are amortized in a way that you pay the bulk of the interest in the first payments, and by the end of your loan term you are paying a few dollars in interest…it might be worth running the calculations to see how much more interest you owe on the car, total.

    You may be down to owing $500 or less on the car. I dunno — but find out how much you’d pay in interest with your current $50+ overpayment, and how much you’d pay in interest if you switched over to regular payments at this point.

    I do understand the psychological motivation for paying off your car asap. The math in the situation wants me to urge you to consider putting that $50 toward the car toward a credit card. I don’t know if you have 1 card or a few, but if you have a few could you perhaps wipe out the smallest balance fast?

    Credit cards amortize interest in an entirely different way than a car loan. With the car, you have a definite end-payment. With credit cards…much harder. Much harder to gain traction on anything with a credit card payment.

    October 1, 2012 at 9:01 am

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