When is the last time you sat down and really evaluated your debt, calculated your total interest amount paid toward all loans, and truly established a proper relationship with your debt? For my buddy Fred… that time is now!
“Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.” – Romans 13:8
Fred called me the other night to talk finance. Always the lover of money talk, I quickly perked up my ears. Fred recently sold his house, is in the market to buy a new house, has a large chunk of money saved, but has a high rate auto loan that he just started to really examine – which was the main reason he was calling.
Here is Fred’s story and what he decided to do…
Fred’s Debt Repayment Testimonial
You know that new car mistake? Yeah… I fell for it a couple of years ago. I was on my way home from work when I decided to stop by the Ford dealer – and there it was: A Black Mustang GT with red leather interior, V8, and 5-speed trans – a car guy’s dream!
Long story short, I drove it home that night. I think I had about $7 and change in my pocket, but financing wasn’t a problem. They took my Grand Prix on trade, which I still owed on, and they just rolled it in to the new payment. Rolling the old car in to the new loan really was not the best thing to do; especially considering the car wasn’t worth what I owed on it, not even close, but that Mustang had me in a bad case of the wants!
Don’t get me wrong , what a great car! But I live in Michigan and Mustangs are not the best winter car out there. So there it sat in the garage – all – winter – long – with me making $500 monthly payments, plus insurance. I did that for just over 2 years, then recently started really considering the interest I was paying...
I sold my house about a month ago and even in this market I was able to get a few bucks out of it. Combining the earnings from the house with what I already had saved brought my savings up to around $70k. Now we are currently looking for a new house. While it would have been great to use most of the savings toward a down payment, the Mustang loan started bothering me more and more. After rethinking the fact that my bank was only paying 0.25% interest on my $70k, but I was paying 8.8% on the Mustang ($341.08 towards the principal and $158.92 in interest), what I needed to do suddenly became very clear.
On October 21st, 2009 I paid $19,414.66 on the Mustang, the finial payment! We still have over $50k left to put towards a down payment on a new home, and now that the auto loan is gone we can build our savings back at a much faster rate. Also, by paying off the loan I am basically putting that 8.8% interest in my pocket which makes the savings grow that much faster.
There are many reasons to pay off your car, and today I can give you 19,414.66 of them… and boy does it feel great!
Way to go Fred! Congrats man.
What About You?
Do you need to sit down, calculate your monthly interest amount paid, and make a few steps toward improving your financial situation? Now is the time people, and you are the only person who can set your finances in order. By paying off the 8.8% loan, Fred reclaimed over $150/month in interest payments and is now essentially earning 8.8% on that money over the next 4 years (life of loan). What kind of money does that calculate out to? $3,451.05 – This is the amount Fred saved by paying off his loan early.
Now not everyone has a $70k bankroll sitting around to work with, but this story should pique your interest (no pun intended) to at least pay extra payments toward your loan principle. Even a small amount toward extra principle payments will save you much more than you may first think.
It’s time to roll up your sleeves, get motivated, and get ready to destroy some debt!
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DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.