A few months back, my car situation switched from lease to ownership. As I noted when that first went down, I had to take out a loan in order to pull it off. I've been paying extra on said loan as a way to get rid of it sooner. Now, when I started, I expected the interest to act like it would on a credit card, where it is applied monthly and determined based on your remaining balance on a certain date. I figured if I came out swinging, I could save money on the back end.
Unfortunately, that's not really how loans work. The interest is basically baked into the repayment amount. If you do pay extra, it can be applied to the interest, but there isn't a "return" on that the way you would think. Basically, you're still going to pay the amount in the loan agreement one way or the other.
That being said, there are still gains to be had by paying extra on such a loan. You can still get the loan paid off early, which is a definite perk. Eliminating that expense from your budget and freeing up some cash every month is reason enough to pay extra anyway, but there actually is another benefit.
By paying extra, you can reduce, or even eliminate upcoming payments. After my most recent payment, I don't have another payment due until August due to the fact that I've been putting in more than the standard since I first took out the loan.
I'm not going to lie, it is tempting to use that breather with costs rising as they are, but that would put me back on schedule and I'd rather not do that. It would go against the whole idea of why I was putting in more in the first place. The whole idea is to go forward, not backward.
Still, it is nice to know that that buffer is there should I need it. You might not be able to include peace of mind on your balance sheet, but it is still an asset in every sense of the word.
With so many people living paycheck to paycheck and dealing with debt, this is something to consider as a way to help pull yourself out. It doesn't even have to be a huge amount to have an effect. Every little bit helps.
Now, this doesn't work with credit cards, unfortunately. Those you have to pay every month regardless. Student loans and mortgages, however, are also potential targets for this strategy.
Given the burden that the prior has become, this could be a way to give yourself some relief. It's better than twiddling your thumbs waiting for the government.
On larger fronts, I still maintain that attacking debt will help attack inflation. I seem to be the only one who holds this view, but the logic remains sound and it gives people a mechanism to address the problem rather than hope that the fed can figure it out.
Also, with the banking sector in a bit of a snag, this approach can potentially help bring some stability to that end of the economy.
Obviously, the benefits to yourself should be the priority, but if you want to make paying off your debts seem more epic, those are some angles to consider as well.
If possible, this is definitely something to consider. If you're sick of constantly being on your back foot financially, this can help give you a sturdier....footing.
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