Perhaps you'd love to make a change and start working your way from under credit card debt, student loan debt, your auto loan, or your mortgage, but you're living paycheck to paycheck and just don't see where that extra money is going to come from to pay everything off.
You may feel overwhelmed and feel like it's just easier to continue living how you're living rather than make any change since it's not likely to make a difference.
But that's not true!
Starting with anything is better than not starting at all! Can you come up with just $10 extra a month to pay towards debt? If you can, add it to your debt repayment. It's small, but it can make a difference over the long run.
If you pay just an extra $10 per month on a $150,000 mortgage with a 4% interest rate, you can save $3,243 over the course of your 30 year mortgage and shave 9 months off your mortgage. Plus, if you pay PMI on the mortgage, you'll likely be able to cancel it earlier than scheduled.
If you're paying off credit card debt with a much higher interest rate, it can have an even larger impact on your savings. Remember, every dollar you pay off is interest you don't have to pay over the long term!
The Power of Seeing the Balance Decrease
Once, you make that small change and start paying the extra $10 a month towards debt repayment, you're likely to discover that you like seeing the balance on your debt decreasing just a bit faster than normal, and you might be willing to make a few life changes to save some extra money so you can pay just a little more each month.
When we were paying off my student loans, I loved to see the balance dropping, and I was super motivated to find even more money that I could pay each month to get it paid off even faster. It turned into a game with me.
Do Extra Payments Automatically Go to Principal?
It depends on the loan. When we had an auto loan, extra payments just prepaid interest and advanced the payment due date rather than automatically going towards the principal. You don't want that to happen!
Call your lender and find out how extra payments are applied to the loan. If they don't automatically go towards the principal (the amount left on the loan), then find out what you need to do to pay down principal with extra payments.
In the case of our auto loan, we had to send extra principal payments to a separate address rather than just pay extra on the payment.
How about you? Do you feel like paying an extra $10 is not even worth it? If you've started paying extra on your loan, has it motivated you to find even more you can send in?
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