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
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