When your goal is to get out of debt, paying more up front can save you a LOT of money in the long run.
Here’s how:
Let’s start with a mortage. If you pay off half of your mortgage payment every two weeks, instead of making one payment once a month, you will end up making 13 payments a year instead of 12. You will barely notice the difference, if at all, but the long term effects are huge. You will save tens of of dollars over the life of your mortgage loan and you will end up paying off your loan significantly faster than if you paid the traditional way. So with each paycheck, pay off half of your monthly mortgage payment – have it withdrawn automatically.
Pay off extra towards the credit card bill with the highest balance each month, and as soon as you have that one paid off, pay off the next credit card.
If you owed $5000 on a credit card with a 17 percent balance, and had a minimum payment of 3 percent a month…you would end up paying that off in MONTHS and paying an additional $4030 in interest charges!
So paying off more than the minimum on your credit always makes sense.
If you are buying a new car…first of all, it’s better to buy a USED car rather than a brand new car. But either way, if you need to take out a car loan, putting a bigger down payment towards the loan – paying more up front – will save you money in the long run.
So whenever you can, pay off more than the minimum, and pay larger down payments, to save big bucks in the long run.