Paying off my car loan debt

The Final Curtain Call For Our Car Loan Debt

Where it all began…

On July 31 2015, my beloved and I took out a $25,000 variable interest rate car loan for a used SUV with 7000kms on the clock. Throughout its term, the interest on this loan varied between 9.95% and 10.39%.

 

As I’ve spoken about previously, my beloved and I really didn’t need to upgrade our car so much. We had a sedan with just under 100,000km on the clock that we had paid $13,000 for with a  $15,000 car loan a few years before.

 

This car was still working fine. However, we decided to sell it for two reasons. Firstly, we had recently added a big boofy dog to our family and realised that a sedan wasn’t the best choice of car for a dog that liked to lay down in puddles and roll in the mud (or grosser things for that matter).

 

Secondly, we had been sucked into the myth that 100,000 kilometres is some kind of magical number where cars just start to fall apart after hitting the mark.

 

Consequently, we decided to sell our sedan for a small SUV with fewer kilometres on the clock.

 

Buying a car before The Flawed Consumer existed

As I mentioned in my post If I Could Turn Back Time, buying a car as my former alter ego, Spendy McSpender, was a financially flawed process.

 

My beloved and I were in the typical debt-cycle mentality of thinking that we could “afford” to increase our car loan debt by $10,000, or $100 a fortnight, because we had better jobs now and we “deserved” it.

 

So, we set about searching for a small sized SUV with minimal kilometres on the clock and all the mod-cons such as a reversing camera, leather seats, etc.

 

We found our car on the market for $27,500 and negotiated a sale at $25,000… Which was at the peak of our affordability/financing range.

 

Life with a car loan before The Flawed Consumer existed

Before commencing my Flawed Consumer journey, I was just paying off the standard car payments each fortnight and getting cranky at how much interest I was paying.

 

I would pay $300 a month and then see that reduced to a net payment of about $170 once interest came off. This was pretty depressing really. Seeing myself losing about 43% of what I was putting onto the loan each month really got me down.

 

However, at this point in time, I wasn’t in the right mind frame to think I could do something about this. I just assumed that losing a shitload of additional money to compound interest in the bank’s favour was an inevitable part of life.

 

Life with a car loan after starting The Flawed Consumer

However, after starting The Flawed Consumer, I started putting any additional income I earned on top of my standard salary onto the car loan.

 

This started to build equity and reduce the interest payable on the loan each month. This made feel a little bit better about having the loan. However, it still wasn’t good enough so I decided to do something about it…

 

New Year resolutions 2018

I’m not usually one for New Year Resolutions. Usually I don’t make them, and if I do, I don’t stick to them. However, this year I wanted resolutions and I wanted to be held accountable for them. So, I wrote them down and I posted them on this site as “New Year. New goals. New resolutions“.

 

As part of these resolutions, I outlined that I wanted to pay off our car loan and credit card by the end of the year. At the time of writing this resolution, I still had just over $10,000 left on the loan and $3000 on the credit card.

 

Logically, I should have focused on the small debt first as it would be quicker to clear. However, as we were paying more interest on the car loan and I was desperate to own our car outright, I decided to focus on clearing the car loan first.

 

As we had already adjusted our lifestyle last year to go from saving 5% to 25% of our incomes in 6 months, I already had 25% of my income free to throw at the car loan. After making some further adjustments, I determined I could afford to throw 40% of my net income at the car loan each fortnight.

 

No longer going 10 steps forward and 5 steps backward

As I was now putting 40% of my net income onto the car loan, my fortnightly repayments on the car went up from $250 a fortnight early last year, to $850 a fortnight 12 months later. It was here that I really started to see results.

 

My interest charge at the end of each month quickly dropped from over $100 to less than $50. Reducing interest payments like this is not only beneficial in that I was paying less interest to the bank for the pleasure of using their money, but it also has a counter compounding effect of making my payments go further.

 

This is because as a result of my additional payments and reduction of the overall liability of my loan, I was no longer going 10 steps forward and 5 steps backward each month, due to high interest payments. Instead, I was going 10 steps forward and 1-2 steps backward each month due to interest payments.

 

The final countdown

A couple of months ago, I realised that there was light at the end of the tunnel. My extra payments were making a massive difference and I was no longer going 10 steps forward and 5 steps backwards each month.

 

It dawned on me that for one of the first time’s in history, I would keep a new years resolution. In fact, I wouldn’t just keep it, I’d smash it! This made me excited… Bloody excited.

 

The big finale

June 6 2018 was the final curtain call for our car loan. With $855.09 left on it, we decided it was time.

 

To celebrate the occasion, we went to our local pub for a beer and some dinner. While we were waiting for our dinner to arrive, we transferred the remaining $855.09 and swiftly saw our car loan balance become $0.00… Two years, one month and 24 days ahead of schedule.

 

A feeling of euphoria flooded my veins. It was like a big weight had been lifted off the my chest and now I could take a take deep breath and actually feel what it’s like to be able to breath freely again.

 

My standing ovation

The next day I received a phone call from my bank asking me if I wanted to pay out the interest owed for 1-6 June ($2.20) and close my account. I swiftly answered “Yes, please!”.

 

As the client manager went through my account details, all of a sudden he started laughing. “You nicknamed your loan “Kill This Debt”?”, he said. “Yes. Yes I did” I responded. He paused for a moment and then followed up with “Well, you sure did that. Congratulations”.

 

And on that note, the curtain was closed. End scene.

 

Cheers, TFC.

Posted in My Financial Journey and tagged , , , , , .

The Flawed Consumer is a Gen Y consumer that is on a mission to achieve wealth simply by changing spending and lifestyle habits.

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