How I Paid Off My Car A Year Early (Despite Being Laid Off Twice)

I’ve owned three cars so far in my life. One I won in a contest, one my parents helped me buy, and the third I took bought using a car loan. I didn’t want to get a loan and borrowing from my parents again wasn’t an option but I didn’t have enough in the bank to pay all cash.

Because I’m not a fan of debt I was determined to pay off my car loan early and I worked hard to try and make that happen. I knew there was no penalty for paying the loan off early so my goal was to pay it off in three years - two years earlier than the end of the loan.

I wanted to pay my car loan off early because I hate the idea of owing someone else money. But also I knew that I would be saving money in the long run.

How I Paid Off My Car a Year Early | A Relaxed Gal
(I am not a financial expert. All information is based on my own personal experience and research. This information is not meant to be financial advice and is just for educational purposes. This post includes some affiliate links. Should you click an affiliate link and make a purchase I may receive a small commission at no extra cost to you.)

The reason I would be saving money is the interest of a loan is calculated based on the loan balance or principle. So making extra payments towards the principal can help reduce the amount of total interest paid over the life of the loan.

Then life happened and I was laid off. I got a new job about four months later, but the salary was about $10,000 less than I was making previously. I changed jobs six months later and a year after that I was laid off again. This time for about seven months. It seemed like my goal of paying off the car loan early may not happen.

Despite all of that, one month after starting my next new job I was able to pay off my car - about a year before the end of the loan.

So how was I able to pay off my car a year early? First I set a goal. Then I created a plan with eight action items to help me achieve that goal.

1. Set and stick to a budget

Understanding your budget is probably the best place to start when you’re trying to pay off a loan. A budget helps you to see where you can cut costs so you can divert that money to loan payments.

And to understand your budget you need to create one. To create my budget I used the site After making my budget I had a better understanding of where I was spending too much money. Those areas ended up with smaller budgets or got cut completely if they weren't necessary.

In order to stick to my budget, I monitored it weekly. So if I was overspending in one area I could adjust and spend less in other areas to make up the difference and still come in at or below my overall monthly budget.

I would then take a portion or all of the savings or leftovers and use them as extra payments to pay down the principle of the loan.

2. Live frugally

At the time that I bought my car, I knew that the payments would comfortably fit into my budget but I knew I was going to have to make some lifestyle changes if I wanted to pay off the loan early.

Having a budget helped me to find ways that I could more frugally or below my means so I was spending a lot less than I was bringing in.

Some of the things I did to save more money were
  • Stuck to my budget. If I spent more in one area I spent less in another to make up the difference
  • Didn't take expensive vacations each year
  • Cut off my expensive cable and lowered my Internet speed
  • Kept my eating out to no more than once or twice a month
  • Didn't spend a lot on clothes or furnishings by buying things used, with gift cards, or at end of season sales
  • Didn't buy things I didn't need such as knick-knacks
  • Lived in apartments that cost less than I could comfortably afford
  • Stopped purchasing gifts for everyone I knew and spending a lot on gifts I did buy
  • Didn't buy brand name products unless they were on sale and I could coupon stack

Tips for paying a car loan off early | A Relaxed Gal

3. Earn extra income

When it comes to budgeting you can reach a point where there isn’t anywhere else you can cut. That’s when you know you need to bring in more income.

You can earn more income by getting a raise at work but that isn’t something you can control. It can also take a bit of time to get one. So you may need to look at other earning streams.

Some quick ways to earn extra cash are
  • Get a part-time job
  • Sell items online
  • Have a yard sale
  • Do work from home jobs
  • Use reward apps to earn cash or gift cards
  • Take online surveys 
  • Earn gift cards - one of my favorite places to get gift cards is the Bing rewards program

I sold several items online and used reward apps. While I didn’t earn thousands of dollars I was able to earn enough to make small extra payments on the principle of the loan. This helped to decrease the amount of interest I was paying over the life of the loan and saved me some money in the long run.

4. Refinance

This probably had a big impact on my paying off my car loan early. My initial loan was through a regional bank. I knew the rate was a bit high, but it was the lowest one I qualified for because I never had a loan before.

After about a year into the loan, I shopped around and found a better, much lower rate with a local credit union. With the lower rate, my monthly payment decreased quite a bit, but I kept paying the same amount I had been to pay down the principal.

5. Have a rainy day fund

While this bucket of money won’t be used to pay off the car, it can be helpful when you’re trying to pay off your loan. Should some financial emergency come up you, hopefully, won’t have to skip or decrease any payments on your auto loan because you can use your rainy day fund for the emergency versus your loan payments.

A few years into my car loan I was laid off. Not once but twice. Despite that, I didn’t have to skip any payments because I had a rainy day fund that had enough money to cover 3-6 months of living expenses.

How I paid off my car loan a year early |

6. Make extra payments

Another way to pay down your car loan quicker is to make extra payments. I started off making an extra payment of $10 every month and then every few months would make an extra payment of $100.

When making extra payments it's important that they be applied to the principle and not the interest. I repeat not to the interest My bank, like pretty much every other bank, would automatically apply the extra payments to the interest unless I directed them to apply it to the principle.

By making some extra payments towards the principle of the loan you’re paying the loan down faster. You’re also decreasing the amount of interest you have to pay because the amount of the loan is decreasing. 

Because car loans tend to accrue interest daily I found it was better to pay my regular payment and then follow up with one or two additional principal only payments soon after. That way less interest was accruing and the next monthly payment was more principal and less interest.

7. Find extra money

Sometimes there is extra money laying around that you didn’t even know about:
  • Tax refund - you can use all or some of this for an extra payment.
  • Change insurance providers - I’ve found it’s always good to shop around for car and home/renters insurance every year or two to see if you can get a better deal. You may find that you can and that extra savings can go towards your car loan.
  • Consolidate insurance - At some point, I ended up consolidating my car and renters insurance with one provider which saved me money each money.
  • Work bonus - if you happen to get a bonus at work, put it towards a car loan payment.
  • Rebates - a lot of times we get rebates for certain purchases. While it may only be $10 or $20 it can still be used to help you lower your loan amount.

What tips do you have for paying off debt quickly?


  1. Wow that's impressive you were able to pay your car off a year early despite the layoffs. These are some great tips, thanks for sharing!

  2. You are very discliplined hwich is awesome. May I ask if your career is in the accounting field?

    1. I'm not an accountant, but funny you should ask. My mom is an accountant. I did take some accounting courses in college and did so well I was asked to change my major. I learned the discipline from my parents. They paid off their house early setting an example for me and my siblings.


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