Paying Off the Car Will Help Me Boost My Savings

Posted by in Articles, personal finance | 25 comments

One of the goals for this year was to get our car paid off in full. Towards end of last year, we realized we were so close to having our car paid off that if we could squeeze out a few extra payments over a 6-month period, we could potentially save a few hundred dollars in interest. Paying off the car early would also help us boost our savings account since we’d have an extra $322 a month left over that was originally set aside for car payments but could soon be applied towards our saving account instead.

I’m glad to say that we’re $378 shy of meeting our goal and will be completely car-loan-free by February 10th. Yahoo!

How did we do it? Last October, our stocks just weren’t doing so great. We didn’t have a ton of money invested, but what money we did have either wasn’t making much or was beginning to decline in value. Instead of watching them languish in the topsy-turvy market, we decided to cash them out after a slight gain and apply a hefty amount towards our car loan.

The amount we applied towards the car was equal to almost 5 car payments – that’s a big chunk paid off the loan. I was able to also apply an extra $500 payment last November (close to one and a half car payments). Then again, at the end of December, we realized we had some money in savings that we could apply towards our car and still have a comfortable amount left over for emergencies. That equated to the equivalent of 3 car payments.  Since I was still auto-debited each month for our car payments, the extra payments we made were on top of our scheduled payments.

Instead of having the car paid off in November of this year, we’ll have it paid off in February – 9 months early! If I stay dedicated to my savings plan, I should be able to increase my savings by almost $3,000 by applying the car payment amount towards savings each month. I’m also saving approximately $200 in interest off the car loan as well. I should soon see my savings bar grow!

Having a financial plan and seeing it work is a terrific feeling, especially so early in the year.

How are your plans and long-term goals going?

25 Comments

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  1. Money Beagle

    Good stuff. The key is to take that car payment amount and stash it so that you don’t have to have any sort of car payment at all next time that you need to purchase a new one. That’s the dream, right? :)

  2. Miss T @ Prairie Eco-Thrifter

    Wow, congrats. February is just around the corner. That is going to be such a great feeling. Best of luck with your new strategy.

  3. MoneyCone

    Congrats LH! You actually beat the market! I don’t know what your interest rate was, but I’m sure it was more than what the market returned last year!

    • Little House

      @Money Cone – We had considered that when we cashed out our stocks; it made more sense to pay off the car, get rid of the interest, rather than watch our stocks decline or stagnate. ;)

  4. Jeff @ Sustainable Life Blog

    That is awesome – I’m hoping to pay off my truck this year, a full 3 years early (Or more). IT will put so much cash back into my pocket!

    • Little House

      @Jeff – Three years early is great! Car payments take a big bite out of our budget, but our other auto costs are low so I can’t wait to rework the budget sans car payments.

  5. Jeffrey

    Glad you’re getting rid of the car payment! It always feels good to get a big chunk of debt off your back.

    I just paid off all my debt (yay!) and now I’m doing well saving up for quitting my job. My income situation was a bit complex last year, so I’m hoping to get a bit of a boost from a tax return, too.

    • Little House

      @Jeffrey – Congrats on paying off all your debt. I can’t say the same (still have student loans – yuck!), but the car being paid off is one more thing I can check off the list!

  6. Christa

    Congrats on paying off a big loan, and good luck in next year’s savings!

  7. Hunter - Financially Consumed

    Well done, there’s almost nothing worse than a car payment. Can’t wait to say goodbye to our final auto note. Enjoy the extra cashflow.

  8. Dan

    Just a heads up: When I first bought a car I made double payments to pay off the loan early, and I expected a rebate of some of the interest. Unfortunately, the way the loan was written, I had to pay all of the interest even if I paid it off immediately.

  9. Aaron Hung

    This is what I did to my car, paid all of it with the money leftover from the wedding. It’s a great feeling not having to think about it anymore :D

  10. AverageJoe

    @Money Beagle I’m with Money Beagle. Additionally, when I was a financial planner, I’d recommend that my client set up a separate savings account with the money to be the “next car” fund so you never have to pay off a car again. Cash from now on, baby! Congrats.

    • Little House

      @Average Joe – Thanks for that tip. I don’t think I’d set up the “next car” fund yet, but I might have to set up a “next bike” fund. ;) I’ve been drooling over some Dutch-inspired bikes lately. ;)

  11. Liz

    Congrats that was an excellent accomplishment.

  12. Sam

    Congrats indeed!

  13. John | Married (with Debt)

    Congratulations! We paid off our last vehicle last year. It’s nice to get those titles in the mail. It’s even nicer to get that immediate boost of money that you can plow into paying something else off.

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