Pay Off Debt Faster Using Compounding Extra Payments

Pay Off Debt Faster Using Compounding Extra Payments

I’m Jason with the honest finance Channel and today I want to talk about how you can pay off debt faster using compound interest so let’s say that you finance a house for $200,000 at 30 years at 5% interest over the life of that loan you’re gonna pay a hundred and eighty six thousand dollars in interest just from making your normal payments now let’s pretend that you had an extra five thousand dollars laying around and you put that towards the loan on your very first month well now at the end of that loan you’re gonna pay a hundred and seventy thousand dollars in interest and that’s a savings of over sixteen thousand dollars just because you had that extra five thousand dollars at the beginning of the loan now I know that coming up with five grand is a lot of money to go towards one payment I’m just trying to make a point here that the more money you can put down on your loan at the beginning of the loan the more it’s gonna help save you money in the long run the reason that extra payment saves you so much money over time is because of what I like to call reverse compound interest I’m sure there’s a fancy Bank term for it but that’s what I call it reverse compound interest is happening in this example because when you put that $5,000 towards that mortgage you’re gonna say five percent interest on that amount year after year and it’s also gonna be on top of five percent and on top of five percent and that’s because that’s how compound interest works its interest on top of interest and don’t forget the extra payments also help your equity grow as well so what I’m trying to say here is pay extra as early as you can in your loans so that you can save as much on interest as possible you want to get the compound interest rolling as soon as you can because that’s the fastest way to pay off your loan with extra cash and keep in mind that these numbers will totally fluctuate depending on your loan how long it is and your interest rate and obviously how much extra you’re paying on the loan just find a loan calculator online and find out for yourself how much you’ll save depending on how much extra you pay towards the loan you don’t need to do a bunch of fancy math just find a loan calculator and plug in the numbers I really just want to get the point across that an extra payment is like a snowball the snowball is gonna start out small but it’s gonna grow a lot bigger over time because of the compound interest and in this case you’ll be saving money and interest because of your extra payments because of what I call reverse compound interest paying extra on your loans really does pay off the loans faster once again I’m Jason with the honest finance Channel if you did find this information helpful feel free to subscribe or at least give the video alike that’s all

Pay Off Debt Faster Using Compounding Extra Payments