Author Topic: Attacking debt  (Read 1162 times)

Shophat

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Attacking debt
« on: December 15, 2018, 09:41:46 AM »
Hi everyone. New to the forum. Love this place. Question. I want to try and pay my car off faster. From what I am seeing it is better to make a large payment vs additional higher monthly payment. Would like to knock this car payment out next year.

DreamFIRE

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Re: Attacking debt
« Reply #1 on: December 15, 2018, 09:46:03 AM »
Hi everyone. New to the forum. Love this place. Question. I want to try and pay my car off faster. From what I am seeing it is better to make a large payment vs additional higher monthly payment. Would like to knock this car payment out next year.

You didn't actually ask any question.  But I say pay it off and don't turn around and buy another one.

Shophat

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Re: Attacking debt
« Reply #2 on: December 15, 2018, 09:56:23 AM »
My question is large payment once a year or higher monthly payment.

SavinMaven

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Re: Attacking debt
« Reply #3 on: December 15, 2018, 10:14:19 AM »
Generally a higher monthly payment is better than saving to make one large payment.

1) The faster you decrease the principle, the lower the amount of interest you will ultimately pay. If you owe 1,000, and have minimum monthly payments of $10 but decide to pay $100/month starting in January, in February you only owe interest on $900. Then in March you pay interest on only $800. By April you're paying interest on $700. On the other hand, if you keep paying just $10/month, in February interest is charged on $990, in March $980, in April $970, and so on. Get the balance down, as fast as you can.

That is the best reason to pay higher all along, but, if you need another:

2) A large lump-sum might create temptation to splurge in unintended ways in newer Mustachians.

Shophat

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Re: Attacking debt
« Reply #4 on: December 15, 2018, 10:22:04 AM »
Yes I have been paying about 70.00 more a month since first payment. Have money sitting in a high interest savings account and may pull some out to pay down the principal at the beginning of the year. And keep paying the same monthly payment as I have.

DreamFIRE

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Re: Attacking debt
« Reply #5 on: December 15, 2018, 11:41:20 AM »

The last time I had a car loan, I waited for a CD to mature, then I immediately paid it off in a single payment rather than paying extra each month.

The penalty on the CD was high, so I was better off having a loan for a few months.

Mustache ride

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Re: Attacking debt
« Reply #6 on: December 15, 2018, 01:32:56 PM »
Whatís the interest rate on the car loan? If itís lower than what youíre getting in a savings account just pay the minimum.

Dave1442397

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Re: Attacking debt
« Reply #7 on: December 15, 2018, 02:31:56 PM »
If you pay extra, make sure they apply it to the principal, not to the interest on the loan.

Firehazard

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Re: Attacking debt
« Reply #8 on: December 15, 2018, 02:59:32 PM »
If you pay extra, make sure they apply it to the principal, not to the interest on the loan.

Yes, watch them on this.  I added large extra payments to my mortgage payment every month for the past two years and almost every month I had to call the bank to explain that the additional payment was principal reduction, not me just making regular payments in advance.   I can't imagine that extra principal payments are all that unusual, but it seemed to vex my bank, even when I put a note in with the check.