How We Paid Off Our Car Loan

As I mentioned in last Friday’s post on automating your finances, we sent our last car payment in. It feels good to accomplish a goal and mark it off our to do list.

Our Financial Goals For 2009

Debt: We would like to pay off my car loan by March 31, 2009.
Spending: We’re going to limit eating out for dinner to twice a month.
Frugal: My husband would like to bring his lunch to work at least three times a week.
Savings: We want to have 6 months in the joint account in addition to building our house fund.

VW's last car payment has been sent off

Next week when I’ll review February’s progress on our financial goals, we might have another goal in its place, most likely something long term.

Tips On How We Paid Off Our Car Loan

Paying off the car loan didn’t happen by accident, we came up with a plan and followed through.

Developed a realistic budget

Having a joint budget gave us a clear picture of where our money was coming and where went. I think the key for us with budgets is to make it easy to use and easy to change, so we use a Google Spreadsheet. We budgeted a car payment slightly higher than the required payment.

If you’re having some trouble with creating a realistic budget, here are some tips on getting started.

Track what you spend in two weeks. It’s hard to cut back if you don’t what your weak points are. Having a little notepad or PDA with you and write everything you spend for 2 weeks.
Withdraw from your bank’s ATM once a week. Take out money you need to eat out, tolls, parking fees, etc. If you run out of money, then make peanut butter and jelly sandwiches or bring leftovers for lunch. Do not go back until the next week!
Use you cash, not credit cards. Don’t defeat the previous step by switching over to your credit card. This will help you to stop acquiring new debt, which in turn can drain your savings. National average for standard, variable cards is around 14%, so eliminating new debt will help you.

If you want to see how much a little extra can go when paying off your car loan, try using Money’s debt reduction calculator. Not only are you paying it off quicker, but you’re also reducing the interest paid on the car loan.

Snowflaked extra payments in the car payment schedule

We wanted to pay the car off faster, so we started making extra payments. It didn’t matter how small it was, we went ahead and used our bank’s Bill Pay feature to send in an extra $50 or $100 to the car loan in between payments.

Where can you find some money like an extra $50, $100 or more? Considering looking at some of your expenses to find a deal.

Look at your package deal for cable, phone, and Internet. Sometimes the deal they advertise on TV isn’t the best deal. Call your cable provider to see if they can give you a better rate. It works sometimes, but if they don’t, consider cutting back on the cable package or create a bundle yourself. You may not notice a big difference and keep the change. Either way you can save $30-50/month for this and that’ll help with your fund.

Examine your cell phone plan. Can you change your plan? With Alltel you can change it without getting an extension on your contract. I’m sure about the other plans.

Look at your land line plan. It didn’t make sense for my husband and I to have a land line AND our cell phone plans. So far, so good. If you must have a land line and a cell phone, you may want to take off long distance with your land line.

Compare insurance companies for auto insurance rates. I saved $50 a month on car insurance for the same amount of coverage. Shopping does pay off. Just make sure you’re given a policy that can comfortably cover you and your situation.

Go during happy hours when you decide to eat out. I know that many college students hang out as a part of the cultural, so it would be impractical to tell you stop going out, but at least save money while you’re there. There a great place down the street that offer 50% drinks and has 50 cent tacos. So we plan our eat outs around that time (4pm-7pm). It’s still just as fun, but a lot cheaper.

Get others’ opinions on how to tackle it

I’m grateful for this blog’s readers who have been kind enough to share their ideas. We used our economic stimulus check on paying down the car loan based on some feedback from Financial Highway readers. Thank you for your advice and support! We also followed personal finance tips from other bloggers.

If you want to read how others have reached their debt elimination goals and learned to pay cash for cars, here are some great posts:

Another bill bites the dust...

What are we going to do with the car payment money now?

The money will be redirected to our emergency fund in a high-yield savings account. Our ‘car payments’ are going to help build up our cushion during these rough times.

Photo Credits: Rojer and lemonjenny

Laura Martinez