Yep, I bit the bullet and just paid off my entire car loan… all $15,000 of it, and I actually feel really freaking good about it!
I never thought I would be saying that.
Normally, I like saving my money and holding onto every last penny, but after seeing how much money I was actually losing in interest, I decided that enough was enough.
The Paycheck to Paycheck Lifestyle
Who isn’t tired of constant bills and having to pay back on loans? I know I am.
As a society, we are taught to take out loans for things we can’t afford, which only traps us into this paycheck to paycheck lifestyle.
I am in a fortunate position in the sense that I don’t have to live paycheck to paycheck (although I still choose to spend and save as though I do), but I tend to be a very forgetful person. Sometimes I forget to pay bills on time.
If you’re living paycheck to paycheck and feel like money goes out as soon as it comes in, it’s time to start asking yourself: Which payments can I get rid of first?
For me, that payment is my car loan.
Paying off your car might not be the first thing that comes to mind when you look at your budget, but if you have a car payment, it’s probably hurting your income more than you know. Even with a low-interest rate, car payments just aren’t necessary to have for the 60-month average.
Paying Off $15,000 In Car Loans
Over the past decade, car debt has gone up 60%, and the average car payment is now $545! Per month…
I personally have a car payment of $275 per month. Not bad, but also not necessary. It’s a $16,000 car with a 5.35% interest rate over the course of 60 months.
I signed up for this interest loan basically unknowingly. By that, I mean I wasn’t really focusing on how much additional money I would be spending over the 60 months, but rather just saw the monthly payments as affordable so decided to go with it.
After looking at my life and knowing that I don’t want to live with any debt, I started asking myself “what’s the next best thing that I can do?”
For me, the next best thing was to pay off my car loan as that is my lowest debt. Once I pay off my car, then I will get cracking on my student debt.
Now, $15,000 at a 5.35% interest rate over 60 months may not seem like a lot, but it actually brought the total to $17,129. So basically, I was just giving the bank $2,129 of my hard-earned money when I didn’t really need to.
In being the frugal person that I am, when I looked at the amount and saw how much I was basically just giving the bank, it made me realize that I could use that money elsewhere.
Why Should You Pay Cash For Your Car?
After doing research, all I can say is that I will never have a car payment again. Why? Because my money could go elsewhere.
Here’s the thing, had I paid cash for my car or invested that $275 monthly payment into a mutual fund like the S&P500, over the course of 5 years, I would have had $20,463.84. That’s a $4,000 profit. Had I invested that $275 over 10 years, I would have earned $16,852.88 just in interest alone – enough to pay for my car in cash.
But I, like so many Americans, decided to take out a loan and am instead paying more than what my car is actually worth.
Why Paying Off Debt Is The Key To Wealth
I know people are going to think I am crazy when I say you should pay cash for your car and never take out another loan ever again. That’s because it’s not the “normal” thing to do. But if being “normal” means living in debt and spending more than something is actually worth, I don’t know if I want to be normal.
Between the two things that I have loans for (my car and student loans), I am paying $600 per month. Again, had I not taken out any loans and invested that money into a mutual fund that has an average return rate of 8%, over the course of 5 years, I would have earned $8,048.39 in interest instead of paying the bank interest.
The main point of all of this: you can’t be wealthy if you continue to take out loans for everything. Sure, you may be able to look as though you are wealthy, but when it comes to wealth, looks mean nothing. If you truly want to be wealthy, then you need to pay off all of your debt and start growing your money instead of falling into the trap of borrowing and spending more than something is actually worth.
What’s The Next Best Thing You Can Do?
Paying off my car loan was a big step for me. Actually, it was a HUGE step. It was not just a huge step in paying off my debt and living a debt-free life, but a huge step in trusting myself and overcoming my fear of losing money.
Want to know what motivated me more than anything? Asking myself what’s the next best thing I can do to get to the life I envision myself having.
Ask yourself what’s the next best thing you can do. If that’s with debt, start with your smallest debt, get it paid off, and as soon as you get your debt paid off, invest all that you can. If it’s with life, take the first step and trust yourself. Taking action towards a better life is always the right answer.