A Little Money Goes A Long Way

Most of us have financed something at some point in our adult lives; a car, a home, credit cards, appliances, or furniture.  We make monthly payments until the item is paid.  Part of the payment includes a nasty little thing called interest, which is the cost of buying something over time.  The better your credit score is, the better the interest rate will be, but if your credit isn’t great, you end up paying a lot more.

Even if your interest rate is high, there is something you can do to lower the amount of interest that you pay.  In the beginning of the loan, interest is charged on the entire principal of the loan, so a large portion of your initial payments will mostly be interest.  Whether you are trying to lower your car payment or your mortgage, or pay off credit cards, the key to lowering what you pay toward interest is how much extra you can apply to the principal of the loan over time.  If you add $20 to your payment each month or if you make just one additional payment a year, at the end of the contract, you will have saved on the amount of interest you pay, and will have cut a few payments off the length of your loan.  That money you paid ahead is essentially money you are no longer paying interest on.   The best way to see how much you are paying is to consult an amortization chart, which can be found free online.  One stipulation, please make sure your loan doesn’t have a prepayment penalty clause before you attempt to prepay your loan