Before I start this post, just a warning, I’ll be talking about money management and paying off one of my loans. I know that’s not the most exciting topic, but it’s important nonetheless and I think everyone can benefit from learning more about it. While I’m not the perfect steward over my finances I’m learning more and more as time goes on, and putting what I learn to good use. Today I want to share some of what I’m doing to maximize my finances, and what steps I took to pay off my car and save at the same time.
Let’s get into it!
Journey To Paying Off My Car
For those of you that can’t tell already – I paid off my car! Yay! In March 2021 I made the final payment on my car and received the title in April making it official. Although it wasn’t easy I did this in just 18-months and during the pandemic. I still can’t believe it!
When I tell people how quickly I was able to pay off my car their first question is always, “how did you do it?”. It’s a seemingly simple question, but the answer is complicated because the truth is I don’t know what to tell them. I did so much to get to that point and I’m very aware that what I did may not work for everyone. But what I do know is that money management played a HUGE part in me accomplishing my goal and I know that with a little discipline anyone can accomplish what they want. So instead of going through a step by step of how I paid off my car, I’m going to talk about how I managed my money and made it work for me.
I set a budget.
I’ll be honest before I bought my car I had no real reason to set a budget for myself. I didn’t have any bills because I was in college, so this sounds bad, but I spent money as I pleased. It wasn’t until I got my car and began having real bills to pay that I realized “hmmm…maybe I should set a budget!“. At first, this was hard to do because I learned that setting a budget means I can’t always afford everything I want right away. But as I got the hang of it and began seeing the benefits of budgeting I stuck with it.
I build my budget check by check. I understand that some people do their budgets month by month, but check by check works best for me. When I was paying my car off I had to make every single penny count. Because of that I never spent all of the “allowance” that I would give myself. For example, after I paid my student loan, car payment, and insurance for the month I would typically have $500 left from each check. From that $500 I would only spend half so that the other half could be added onto the next check I received. This method of budgeting allowed me to always have money to spend on fun and pay extra on my car each month.
I still do this and have found that it’s muscle memory now. I would also like to say that I do live at home, so I spend less than someone who is living on their own. That’s why when it comes to budgeting I encourage you to find what works for you and stick to it. Whatever you can budget is good enough!
I paid twice a month.
It’s natural to think that because you owe a monthly fee on your loans you should only make one payment, but that’s not the case. Early on I fell into the trap of only making one payment a month on my loans. While it did bring the amount down overall, I found out later that I was cheating myself! Let me explain.
Over a month your loan will accrue a certain amount. Waiting until the end of the month to submit what you owe in a month will actually cost you more in the end. Splitting your payment in half and paying twice a month is how you pay your loan down quicker and save yourself money. For example, say your car payment is $200 a month and it’s due on the 27th of each month. If you always wait until the 27th to pay the full $200 you’ll earn interest that could have been avoided. You can save more money over the life of your loan by paying $100 mid month and $100 on the 27th of each month. While interest will still be accruing, it won’t be as much.
Doing this helped me to see results much quicker. I honestly was paying close to $1,200 a month on my car because I would challenge myself in different ways with this tactic. For example, when mid month came I would pay my whole months loan payment in full and then some. When it came time for my second monthly payment I did the same. So in the end I was paying double my car payment + any extra cash I could pull together. For some this may sound like a huge sacrifice, and it was, but trust me once you see a zero balance getting closer your motivation to finish will be through the roof.
I picked up side jobs.
My friends and family know that I love to write. I mean, if I didnt, would I have this blog? During the process of paying off my car I found ways to turn writing into a way to bring in extra cash. My advice to you is if you have a hobby you enjoy, find a way to monetize it even if it’s just for a season. You’ll be thankful you have extra money coming in when things get tough.
I began freelance writing last winter to put extra money towards my car and I’m still doing it today! It’s actually grown into something I absolutely love and has helped me discover a lot about myself. On a good month when I was paying off my car I would bring in about $350 extra. Now in a month I bring in close to $1,000 extra, which luckily is able to go towards my savings.
Having a side hustle will no doubt give you the space to make extra payments on your loan, but also don’t be afraid to use that money for fun either. After all, you earned it, so do as you please. But make sure you have a plan. There were plenty of times where I used an extra $100 to buy new clothing items, but I knew next check I would have $100 less to have fun with because I had to put it towards my loan. It’s all a trade off. You just have to find what works for you!
Extra money was money I never had.
This step took the most discipline by far. I’d also like to say that I am very blessed to have had multiple streams of income during the pandemic as well as a supportive family, should I ever need anything. Because of that I was able to put my tax return, yearly bonus, and all three stimulus checks towards my car, savings or investing. I never touched that money because to me it was money I never had, so why miss it?
Even though I knew I was going to receive those extra pieces of income, I never planned any of my personal “wants” or “needs” around it. I knew as soon as it hit my account it was going toward my loan or right into savings and I WAS NOT touching it. Again, I know that I am blessed to have had that option because many did not. However, I think this is a smart step that everyone should take. When you get a large sum of money, if you can save and/or invest at least 50% of it. This is yet another practice that I still put into play, and I don’t see that changing.
My Reason Why
I’ll admit I’m not done paying off loans just yet. I have a couple student loans that I’m working on, and when those hit a zero balance EVERYONE will hear about it! there’s actually a reason I paid my car off first believe it or not. I’m following the snowball method of paying off debt. That means you pay off your smallest loan first and work your way up to the biggest. Each month you put extra money towards that small loan while still paying the minimum amount on your bigger loans.
That’s why I chose to tackle my car loan first, because it was the smallest amount I owed. Nothing fancy! I also believe that it’s important to be faithful over the little things (Matthew 25:21), and that’s how I saw my car payment. Take that with a grain of salt because as i’ve said, everyone’s situation is different.
As I continue on this snowball journey I’ll continue to update you guys. I promise! If you are also looking to pay off debt or already have and have tips for readers feel free to comment below. Share the wealth my friends!
For more information on my debt free journey click here.