I had decided a few years earlier that I didn’t want a car
note anymore. So I started a savings account for a new car. Having
a budget was a good start. Because I budget my bills every two weeks and basing
them on two pay checks a month, I was able to notice extra money left over that
I transferred to savings. By the time I had $6,000 saved my 12 year old car
started having mechanical problems. Within a 48 hour time frame I rushed to buy
a new car. I was conservative in my purchase, so with my trade-in and $6,000
down on a $18,714.93 car, I was still left with an $11,514.93 bill. Although I had made a conscious
decision to start paying cash for cars and ended up with a car note once again.
Well, this just wasn’t going to work so I had to devise a plan to pay my car
off as quickly as possible.
Being a government employee we all know that at any time we
could get hit with a furlough if a budget can’t be agreed upon. That also made me more determined to pay off
this note. Since I pay my bills early,
my credit was good enough to receive a 2.59% interest rate add that to my
decision to finance my car for 5 years my payment was $204.96 a month. I know
you are wondering why I financed my car for 5 years if the plan was to pay it
off early and the reason goes back to furloughs. Having my minimum payment that
low insured that I would able to continue making my payments using my emergency
fund in the event of another furlough.
So what was my plan afterwards?
My bills were based on working day shift without the premium
pay, so I decided to switch to working the midnight shift. Plus I started cooking more at home, buying
meats on sale and in bulk to freeze for later which lowered my food budget.
With all of this extra money I started adding it to the car note as a principle
only payment. This insured that the extra money I was sending in above my
monthly payment was being subtracted from the balance. My fist car payment was
$205 and $178.05 of that payment went to principle and the other $26.95 went to
interest leaving me a bill of $11,336.88. Once my payment was applied to the
loan I made a second payment to principle only for $500 which dropped the
amount owed to $10,836.88. Now my interest payment is based off the total
amount owed of $10,836.88 instead of the original loan amount of $11,514.93. So
my next payment of $205 of which $22.76 went to interest and even more of my
money went to principle $182.24. I continued on this path every month and when
I came upon the month when I was paid three times and had one extra pay check,
I took that money and applied it to the principle minus money for food and gas
for my car. Then when tax time came around and I was due a refund I applied the
entire refund to the principle. Now you should know that when I get a tax
refund I try to do something productive with it. I view it as extra money that
I didn’t have all year so I shouldn’t have to use it to keep my bills current.
So usually my tax refund will go to building my emergency fund or building my
new car fund which is why I had $6,000 built up for a down payment. Continuing
on this path and working holidays for the extra money allowed me to pay my car
off in One and a half years. In order to
keep my focus toward paying off my car as quickly as possible, I made a game
out of it. The game was “What’s the least amount I can pay to the bank?” So
every time I made payment, I kept up with how much interest I paid the bank and
when it was all over they only received $232.74 from me. Keep in mind that if I buy a new car, I usually keep it for a minimum of 10 years. I believe that is the only way to get the greatest value out of buying a new vehicle, and with my purchase price of $18,714.93 plus the $232.74 in interest my total cost is $18,947.67. Divide that number by 10 years and it costs me $1,895.76 a year to run my vehicle not including basic maintenance, insurance and gas.
Now if you are not able to switch to another shift for the
extra money you may be able to make the same strides by seeing what cuts you
can make in your budget or picking up a part-time job to obtain the same
results.
Ms. Smart
