Are you being crushed by your car payments with an insanely high interest rate?
In a different post, I wrote (and plan to write more) about some simple ways that you can reduce the cost of owning a car. However, what if you didn’t read that article and you went out an bought a new car instead of a used one? If you’re like everyone else in America, (me included), you probably have a crazy monthly car payment with an even crazier interest rate. Unlike student loans which usually have an interest rate between 2-6%, car payments usually have one of the highest interest rates (next to credit cards). As you might assume, the higher the interest rate, the more money you’re going to end up paying throughout the life of the loan.
This is exactly why you need to begin paying off your car debt ASAP.
I recommend (and have been using) the debt avalanche method to pay off my debts in the most mathematically logical way possible. This means that I am paying off all my debts in order from highest interest rate to lowest. If you haven’t put the two together yet, car debts have a high interest rate which means it is toward the top of my avalanche list and will get paid off quicker than my other debts.
I do it this way in order to save as much money as possible in interest, and to knock out my debts in the fastest way possible.
Everyone’s income and budget is different. I’m not saying you’ll be able to pay your car off overnight, but the avalanche method will get you there quicker rather than later. Start taking any additional money you can round up, and apply it to your debt with the highest interest rate – most likely your car or any credit card debt.
It’s going to be painful at first but before you know it, you’ll start to see the amount you owe drop lower and lower. This will give you the motivation you’ll need to keep you on the path to financial independence.
Have a question? Ask me in the comments! I’m always willing to help where I can.