1-2: pay off loans

This post is a continuation of the post 10 ways to reduce your monthly expenses. Here are numbers one and two on the list, and how we accomplished them.


1.  Pay off smaller loans

We had some small loans that were the result of zero percent financing for so many months that would have very high interest rates when zero percent financing expired. For example, Alex had a new air conditioner put in his house that offered him zero percent financing for 6 months but was about to change to a very high interest rate. Paying off the small loan allowed us to avoid the high interest rate and eliminate a monthly payment.

Paying off high interest loans first also means you are paying less in the long run. The way that Alex and I have dealt with this is to make a spreadsheet of all of our loans, complete with interest rates. We then prioritized which loans would be paid off first, based on balance (how feasible is it to pay it off) and interest rate (how much will it cost us to keep it).

2. Pay off a vehicle

This was a big one for us, as it reduced our monthly expenses by $200/month. However, that being said, it’s a big financial commitment to pay off a vehicle and that decision should be well thought through.

It made sense for us to pay off a vehicle, since we had already paid off all of our high interest loans. We paid off our cheaper car first, since it would make the lesser dent in our savings. (We have plans to pay off the other car, but given the balance of the loan and the interest rate it hasn’t made sense to do that yet.)

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