As new homeowners, my husband and I are learning to live within our new budget. A lot of things have changed for us financially, and we are actively looking for ways to reduce our monthly expenses. We started by reworking our budget to cut out waste, and lowered the parts of our budget that weren't necessary like money for entertainment. We also created a plan to keep our utility bills in check. Our next step is to pay off our auto loan to free up more money each month.
This is how we plan to pay off the remaining $4,800 balance on our auto loan six months early.
Making our normal payments
The monthly payment set by our lender is just over $300 a month. However, we haven't been paying that since the beginning. We decided we would just round up $10, which means we pay $310 a month. Over the next eight months our regular monthly payments will reduce our remaining balance by $2,480, and will leave us owing $2,320.
Making an additional payment
My husband is paid bi-weekly, which means he gets paid twice a month. However, twice a year he gets paid three times a month. The way our bills are scheduled means this money isn't allocated for anything. In order to further reduce our auto loan we will use one of these paychecks to pay an extra payment on our auto loan. This payment will reduce our balance to $2,010.
Adding even more extra money to each payment
We already pay a little extra each month, but after looking at our budget we realized we could take that one step further. We plan to pay an extra $50 for each of the next eight months, and with the additional payment we plan to make. All told we will have put another $450 toward our balance, and we will be left owing $1,560.
Paying the remaining balance with income taxes
Being a family of two, we don't get a very large income tax return, but we can comfortably say we will get enough to pay off our auto loan. Once we make the final payment of $1,560 we would have reduced the length of our auto loan by a full six months.
Paying off our auto loan will infuse $310 back into our budget. That money will go a long way toward easing the financial strains we have now after buying our home.
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