Even as household debt across the Greater Toronto Area and Canada continues to spiral upward, we maintain that most people take on only three common debts in a lifetime that could truly be called “unavoidable”: a mortgage, tuition for career education, and car payments.
As impressive as Toronto’s public transit systems are thanks to the foresight and progressive improvements of the TTC and GO Transit, an automobile is virtually essential to anything resembling a comfortable life in such a massive, sprawling metropolitan area. Unfortunately, many of our clients haven’t been properly coached in a sensible, expedient way to pay down a car loan more quickly.
- WORTHWHILE SACRIFICES
Everything starts with accepting the concept of sacrifices and trade-offs. Weigh both the value and lifestyle improvement that owning a car offers day-to-day against the non-essential purchases you make that take away money that could go toward having less debt and owning your ride entirely.
Which means more – the new wardrobe or the car payment?
Which means more – an extravagant night on the town or working that much harder to keep up with the loan schedule?
Let’s try something else: which would mean more, the sum of what you could make selling some unnecessary belongings and temporarily giving up some luxuries, or the sense of accomplishment that comes with having a completely paid-for automobile?
- SPEEDING THINGS ALONG
The system that frees you from debt isn’t necessarily complicated. It isn’t always “easy,” but it contains surprisingly few steps.
For starters, just make this debt the top priority and start thinking of it as deserving of some extra attention. Add up the sum of eliminating unnecessary expenses, then throw in allocations from “found-money” events such as job bonuses, income tax returns, and those two wonderful months a year when you get an extra monthly paycheck.
More on that in just a bit.
Next, round up your monthly payment to the next hundred-dollar amount. Just this one step, for a loan with 3.9 per cent interest, can knock off as much as five months from your payment schedule. Now, split that payment into two equal, biweekly payments. By doing so, and factoring in those two months each year with the extra paychecks, you’ve just made an extra payment each year.
If you’re feeling bold, pick one month out of the year when you make a double-sized payment, either via extra money from a one-time event or simple disciplined scheduling. That’s another month gone.
Done! Keeping to those simple steps has just knocked at least six months off your payment schedule, if not more, depending on how much extra set-aside income you’ve continued pouring into the note. In addition, you’ve just spared yourself month after month of interest by always paying on time.
Worth the time. Worth the effort.