Long-Term Thinking Saves You Money

Pay more than the minimum and watch payments decrease!

(Photo: flickr.com)

(Photo: flickr.com)

Whenever you purchase something on credit, whether it’s a product or service, we all find out about the magic of revolving credit. Whether it’s a mortgage, student loan, car payment or credit card payment, you’re paying two different things if you don’t pay off the credit in full immediately: principle and interest. Pay off the former and you’re done. If you’re only paying the latter, your adventure has just begun. It may leave you with a bit more cash til payday in the short run, but you’ll end up having to pay much more in interest charges over the long haul. The reverse – which is the more healthy financial decision – means that while you may find yourself in need of a cash til payday loan once in a while, you’ll be saving much more money over the years.

Go above and beyond

The best way to quickly reduce the principle balance of a loan or line of revolving credit is to make payments that go beyond the minimum monthly payment. This is contrary to what most Americans do, however. Making the minimum payment each month may free up short-term cash for consumers, but it ends up costing much more in the long term, thanks to compounding interest.

But won’t that leave you broke?

Not if you budget properly. As everything is expensive these days, it’s understandable that people aren’t looking to part with additional funds each month. This is typically the kind of thinking that goes into making minimum payments each month on loans and credit. Yet the best way to protect your finances long-term is to pay more than the minimum each month. That way, both interest and principle are paid down more quickly.

Get a jump on your financial future

If getting a jump on those interest and principle balance payments is your goal, some planning is in order. The best way to do this is to look at your budget. Once you’ve taken care of the monthly essentials, see how much you can afford to pay above and beyond the monthly minimum. If you’re used to paying a minimum of, say, $900 per month on your mortgage, try $1,000. With credit cards, try to pay at least double the minimum if you can, as these cards typically bear high interest rates. The more you can pay now, the less you’ll be paying for months and years. Sure, use a cash til payday loan if you need in an emergency… the end result will be all the sweeter. I’ll even give you a magic button you can use to request one, in case you’re in that spot right now

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Like anything else, making radical changes – in this case to your budget – requires a significant adjustment period. Be patient and understand that unexpected expenses do happen. Be flexible; you will have to adjust on the fly. Once you get the hang of it, however, you’ll be well on your way to paying off your major purchases. Paying off a 30-year mortgage or a 48-month car loan before their time ends up costing you much less in the long run. Who wouldn’t want to do that?

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