Gettin’ Outta Debt pt 9- Paying off “The Death Pledge” aka The Mortgage or any Large Loan

“Death Pledge”.  No this is not a scene from “The God-Father” but that really is what the term “mortgage” means. However,  I like to apply that term to all debt.  Most people back in the day worked until they died and still may not have paid the loan off hence the name “Death Pledge”. With a name like that and from the looks of the guy in the pic above, a mortgage or any large debt is something I don’t want to have anymore. And if I had to get it, let it be as small as possible and more importantly get that *&$**  off my back ASAP!!!

In the final post of this series I will show you using my mortgage figures how beneficial it is to you to pay off “The Death Pledge” as soon as you can. This info can be applied to any large loan. Yeah I know,  the financial experts tell you to invest that money in the stock market or whatever is the hottest investment going around. And that the market historically returns X %. But what they don’t like to tell you is that paying off your debt is a guaranteed return on your money and the less debt you’re carrying like the guy in the pic above,  the better off you are in case of an unexpected change in your financial status like a job loss.

WARNING: This post has boring figures in it and is a tad long but it will save you big money in the future!!!

If you are in the position and desire to pay off the mortgage, make sure whatever extra you are sending is clearly marked “For Principal Only” in the memo section if you are paying by check. It’s even better if you write out a separate check from your regular payment. If you are paying online, look for the section marked “Additional Principal” or something like that and input the extra amount you are paying. Also check the balance with the bank after you’ve made each and every extra payment.

Why am I telling you this? If you don’t do this the bank is not going to automatically assume that you want to pay down your debt at a faster rate and will apply that extra towards future payments. Now you may think well that’s ok, it’s paying down the debt. In a way you are correct. However, the amount of interest especially on a mortgage or any loan for that matter, is on the front end of the loan. This is why you have been making payments for 20 years and still owe just as much as the original price of the house even though it’s 20 years later. What you’ve been paying all that time is mostly interest and very little towards the principal. This is magnified on a 30 or more year loan. Take a look at your amortization table and you’ll see what I mean. If you don’t have one there are calculators with amortization tables on the Internet. I believe at one time the mortgage company was required to give these out but in recent years if you wanted one you have to ask for it. I think too, since they don’t have to do it anymore, some mortgage holders charge for the table. Once you take a look at yours for your loan, you’ll see why they don’t want to provide you with one. The faster you pay down the principal the less money they make in interest.

On a mortgage, the interest is calculated on the remaining principal balance. The larger the balance, the larger the interest portion of the payment is. That’s less money going toward paying down the principal. Remember, principal is just a short cut word for the original amount borrowed or original sales price. Here’s an example from the amortization table on my retired mortgage.

  • On the $48,175 beginning balance on the loan the 1st payment due on August 1st, of $413.06. $250.91 of that payment is going towards interest, the remaining $162.15 goes toward paying down the principal. Principal balance now is $48,012.85.
  • The interest charged on the next payment is figured on the balance of $48,012.85. Now if you make extra payments and for the sake of ease, that total payment is $1,239.18 ($413.06 x 3) but you don’t specify the extra $826.12 is for “principal only”, what they are going to do is apply that amount to your next two payments after the current payment and tell you your due date is November 1st. What this means is you will have paid $499.29 ($250.07 & $249.22 respectively) in interest and only $326.83 ($162.99 & 163.84) pay down of principal. Principal balance $47,686.02. Notice how little the pay down of the principal decreased but you’ve made a $1,239.18 payment.
  • By specifying “for principal only” application of that $826.12 extra payment, the new principal balance that interest is calculated on is $47,185.73. That does not seem like a lot from $47,686.02, a difference of $500.29. But here’s the kicker. $988.27 is applied to principal pay down and only the $250.91 is paid in interest.
  • By not doing this the bank makes $661.44 off of you on this one transaction. Multiply that over the life of the loan and it becomes apparent how profitable it is for folks to remain in debt and not apply extra payments properly.

I had a 15 yr mortgage.  On a 30 year mortgage, the pay down of principal is at a slower rate thereby more interest is paid out. The interest paid will be higher the larger the loan.

The fantastic thing about this, on a fixed rate 30 yr mortgage, by paying $25-$50 extra each month, the payoff  can be reduced by as much as 5 years. One extra mortgage payment either as 1 payment or divided up throughout the year can reduce the payoff down to 18 years. This saves tremendous amounts of interest.

Please don’t pay for anyone to set you up on a “bi-weekly payment plan” or any of that other mess. There is almost always a fee involved, many times a setup fee plus a monthly fee and you are locked into those terms. Take that fee and apply it to your principal yourself. And if for some reason you don’t have the extra you are still in compliance with the terms of the loan by making your regular payment.

Think about the day when you don’t have to make that payment anymore.

I hope this helps.

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Gettin’ Outta Debt pt 8- My Turbocharged Debt Snowball

Hi everyone! I’m back  after a bit of a hiatus to re-post an old post from my “How I Got Out of Debt” series from 2009 and to celebrate (albeit 3 weeks late) 6 years of Debt Freedom. YAY!!!  I still sometimes can’t believe it.

Wipe our Debt

Wipe our Debt (Photo credit: Images_of_Money)

In the last post I showed how to get out of debt years faster with the money that you are already paying out. In this post I will show you how I was able to save even more money by turbocharging my payment plan. In a lot of ways I’m a very patient person but in this case my Aries impatience came out in full force.  I can’t show the actual payment amount since that varied as I mentioned before because my paycheck was not the same each time. So, what I will be showing is the balance, the payoff date, and the savings vs following the status quo payment plan. Then at the end, I’ll show the savings from my turbocharged debt snowball vs the debt snowball I showed in part 7. Remember, the start date was July 2001 and I was in the process of building the emergency fund while starting the debt snowball. My payoff order shown is how the debts are listed in part 7 and the numbers are going to be slightly off because of the payoff dates but not by much. I’m gonna warn you now that there will be lots of repeating of certain phrases and it’s a long post.  But that’s how we learn right…by repetition.  🙂

I started with Visa:

  • Balance-$2,371.53 @ 12% APR. Paid this debt off on 1/23/02, total amount paid: $2,461.29.  If you recall under the status quo payment plan the financial industry was hoping that I would follow because the monthly payment is so low, I would have paid a total of $3,250. By debt snowballing  I did not have to pay them $788.71. Now I consider myself a generous person but not that generous, especially to some banker who’s making more than what I’m making.  $789 dollars would have paid my homeowners insurance for this year (2012).

Next in line was Household Finance:

  • Balance-$1,000 @ 9.9% APR. Paid off this debt on 3/15/02, with the total amount paid of : $1,035.38. Under the status quo plan I would have paid: $1,333.  By debt snowballing I did not have to pay them $297.62.  That’s a bit more than what I paid for my Blackberry Playbook Tablet and a case for it which I’ll be doing a review on later.

The next debt I mowed down was the Car Loan:

  • Balance-$3,571.39 @ 7.9% APR.  Paid off this debt on 8/1/02, with the total amount paid of: $3,726.36.  Under the status quo financial industry plan I would have paid $3,920. By doing this I did not have to shell out an extra $193.64.  That’s almost all my utilities for a month.

Next and done with glee, Capital One and most definitely taken out of my wallet:

  • Balance-$984.43 @ 9.9% APR. Paid off this debt on 11/8/02, with the total amount paid of: $1,055.92. Under the status quo financial industry plan I would have paid $1,292. By debt snowballing I did not have to pay them $236.08.  That’s another month’s utilities,  groceries etc.

Next, with even more excitement, Bank of America:

  • Balance-$4,588 @ 9.52% APR.  Paid off this debt on 4/11/03, with the total amount paid of :$5,007.69.  Under the status quo financial industry plan I would have paid $5,253.  By debt snowballing I did not have to pay them $ 245. Don’t know about y’all but I can sure think of plenty of other things to do with $245 than to give it to some bank unless it’s a deposit into my savings account. 😉

Next on the chopping block, the Perkins Loan:

  • Balance-$2,027.15 @ 5% APR. Paid off this debt on 5/21/03 with the total amount paid of: $2,128.95. Under the status quo financial industry plan I would have paid $2,320. By debt snowballing I did not have to pay them $191.05.  Starting to add up isn’t it?

Next, Direct Student Loans and where it started to become fun:

  • Balance-$5,786.44 @ 4.22 % APR. Paid off this sucker on 8/29/03 with the total amount paid of: $6,064.23. Under the status quo financial industry plan I would have paid $7,352.80. By debt snowballing I did not have to pay them $1,288.57. That’s $1,288.57 that I did not have to earn to put in someone else’s pocket!

Last but not least the mortgage, where I was laughing like Renfro with each payment:

  • Balance-$48,175 @ 6.25% APR. Paid off this monstrosity on 6/2/06 with the total amount  paid of $54,436.34.  Under the loan shark, oops I mean status quo financial industry plan I would have paid $74,763.86.  By debt snowballing I did not have to pay them $20,327.52.   This is just a bit below what my yearly take home pay was during my journey to debt freedom.

My total savings or what I refer to as money I do not  have to come up with by following the loan shark’s (oops I did it again) status quo financial industry plan, $23,568.19!!  Now that ain’t chump change and if it is to you can drop me a line so I can send you my PayPal info for a gift in that amount. 🙂 Recall from part 7  by utilizing the debt snowball, the savings was $16,235 which is not chump change either.  However by focusing and redirecting a huge portion of any extra funds I had to turbocharge the debt snowball, I saved another $7,333. Nothing to sneeze at there either. Not to mention the fact that you have to earn way more that $7,333  for the privilege of paying that. 

I hope that you see just how costly it is to you and profitable for the finance industry to remain in debt. That’s why I kept repeating “By debt snowballing I did not have to pay…”  Sorry, but you can never remain above water by continually paying out interest. Where we tend to fail is that we are more concerned about what the payment per month is, instead of focusing on how much in total it is going to cost. And the fact that you are going to have to come up with that payment(S) each and every month for a very long time. And the hours you have to work to make the money to make the payments. I can say this because that was me before I got the message from that cosmic 2 by 4 went oops upside my head for the umteenth time.

Unless you are paying cash, the total price paid is always going to more than the original price using credit. That’s compound interest working against you as most loans are not simple interest loans anymore. What that basically means to you is that they are getting their interest money upfront. That’s why you’ve made hundreds and in the case of a mortgage (thousands) of dollars in payments but your payoff balance is damn near the same as when you first took out the loan. If you have to borrow, and only if you have to, the key is to pay that crap off as fast as you can. The faster you do it, the less it costs you and the more money you have for other things later. Better yet, you can decide on how your money is gonna work instead of your bills deciding what you are gonna do.

I was in already in debt when I bought my home in 2000 so it took me 6 long years with many life happens things happening that cost big dollars and set me back. You know, the 1 step forward, 5 steps back life happens kind of stuff. Finally on June 2, 2006, I was debt free. If your debts are larger and your income is not that big, it is naturally gonna take longer. Remember what I said at the beginning of the this series, that getting out of debt is a lot like locking your hair, going natural or even dieting. It take loads of hard work, patience, determination and thick skin. You gotta get to the point where you are sick and tired of being sick and tired of paying out all this money for stuff you don’t even remember what you spent it on and many times have nothing to show for it. However the result is so, so worth it. And it never goes out of style.

We all want nice stuff and to look good but when life happens in your household, those designers, car makers, fill in the blank aren’t going to give a rats behind about your situation. And please stop worrying about what BayBay & ’em are going to say or think. I’ve learned that folks are gonna talk about you no matter what you do. These same folks ain’t gonna have a dime to help you out when you really need it and they are still gonna talk about you. Most of the time they are worse off than you and want to keep you in that crab barrel along with them because you woke up to the fact that we’ve been played and have been for a very long time. On some level they realize it too hence the put down remarks.

So there you have it. The debt snowball, get the heck out of debt, don’t have to pay nobody any money to do and a real person who’s done it, and showed ya how to do it, plan. I know everyone’s circumstances are different but if you have the income, it can be done. It may take years as I’ve shown.

Stay tuned for part 9 of this series where I will talk about the death pledge aka “The Mortgage”.

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Gettin’ Outta Debt pt 7- Light At The End of The Tunnel

This is a repost of a series I did when this blog was on Blogger back in 2009.

Ready to see a debt snowball in action? Using my real debt numbers I’m going to show how a debt snowball works and how you can pay off your debt using the money that you are already paying to service your debt.  Using this method, you’ll get  out of debt months/years earlier than you’d ever thought you could.

Recapping my debt balances and the pay off if I were to follow the conventional plan:

DEBT, AMT, PAYMENT, APR, PAYOFF TIME, TOTAL AMT PD

Visa: $2,371.53, $50 per mo, 12%, 65 months, $3,250.00
H.F: $1,000.00, $19 per mo, 9.9%, 70 months, $1,333.00
Car: $3,571.69, $245 per mo, 7.9%, 16 months, $3,920.00
Capital One: $984.43, $19 per mo, 9.9%, 68 months, $1,292.00
BoA: $4,588.00, $51 per mo, 9.52%, 103 months, $5,253.00
Perkins: $2,027.15, $40 per mo, 5.00%, 58 months, $2,320.00
Direct SL: $5,786.44, $52.52 per mo, 4.22%, 140 months, $7,352.80
Mortgage: $48,175.00, $413.06 per mo, 6.25%, 181 months, $74,763.86

Remember we are using the same $889.58 I was already paying out.

Since the car loan has the shortest payoff term but the largest payment out of all the non mortgage debt, there won’t be any interest savings or reduction in payoff time. When the car was paid off in 16 months, the very next month as if I still had to make that payment, I took that $245 added it with the $50 I was sending to Visa until pay off, approx 7 months later.  Visa’s payoff  looked approximately like this:

  • $1972 approx balance. Paying $295 per month instead of just 50 @ 12% interest, the total payoff time was reduced to 23 months, with a total amount paid of : $2,455. Note above the “normal” way of paying it,  a payoff time of 65 months @ $3,250. That’s a $795 savings just by redirecting the car payment once it was paid off to this debt instead of using it to increase my lifestyle or incurring more debt.  Let’s move on.

Now that I’ve paid off the car loan & Visa, the very next month I set my target on either Household Finance or Capital One since they have the same interest rate and balances. I decided to knock out of my wallet, Capital One.  I took  the car loan payment @ $245, the Visa payment @ $50 and added that to the Capital One payment of $19 for a total payment of $314. The TKO of Capital One looked approx like this:

  • $733 approx balance. Paying $314 per mo@ 9.9 % interest, the total payoff time is reduced to 26 months from 68 months with the total amount paid: $1,142. That’s a savings of $150. Though that does not seem like much but that $150 will make a big difference going towards the larger debts. Let’s move on to the next one in line to be taken out, Household Finance.

OK, as it goes the very next month after I’ve sent the last payment to Capital One, I’ll take that $314 and add it to Household Finance’s payment of $19 for a total of $333. The numbers for Household Finance look like this:

  • $725 approx balance. Now paying $333 per mo, 9.9 %, the total payoff time is reduced to 28 months from 70 months and the total amount paid: $1,173. Savings $160.

Moving right along to the next target, Bank of America. After paying off Household Finance, we are now sending BoA, that $333 + BoA’s $51 for a total payment of $384. Here’s where is starts to get juicy:

  • $4175 approx balance, now paying $384 per mo, the total payoff time is reduced to 39 months from 103 months and the total amount paid: $5,668. Savings, $2441!  I don’t know about y’all but I can think of a whole lot more fun things to do with $2441 than giving it to the bank.

Next victim is the Perkins loan. I’m now sending them $384 + their $40 payment for a total payment of $424. The numbers:

  • $761 approx balance, now paying $424 per mo, the total payoff time is reduced to 41 months from 58 months and the total amount paid: $2,284. Savings, $36. Not much there but every penny counts as you will see with largest debt.

Next target, the Direct Student Loan. I’m sending them $424 + their payment of $52.52 for a total of $476.52. Let the whacking begin:

  • $4436 approx balance, now paying $476.52, the total payoff time is reduced to 50 months from 140 months and the total amount paid: $6,609.78. Savings, $743.

Last but certainly not least, is the “death pledge” otherwise know as the mortgage. At this point, a ways down the road, I’ve paid of all other debt and will start sending the mortgage company $476.52 + the mortgage payment of $413.06 for a total monthly payment of $889.58. I know that it was a while ago but that number sounds familiar right? Hang in here with me.

  • $38,836 approx balance, now paying $ 889.58, the total payoff time is reduced to 96 months from 181 months and the total amount paid: $62,854. Savings, $11,910.

Just by redirecting the money that’s already being paid out and not letting it be absorbed into your spending or worse incurring new debt, I can get out of debt in this case in 8 years instead of 15 years!! I’ve also saved or should be more aptly put, did not have to pay out $16,235!! That’s more than 1 years take home pay for my family at this point in time.

Being the type person that I am, I was compelled to see if I could reduce the time to less than 8 years. Also my 40th birthday was around the corner and I wanted debt free status as a birthday present. If I didn’t mention it before, I had turned 34 a couple of months before I bought my house.  Come back and I’ll show you those numbers next.

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Getting Outta Debt pt 6- Airing Dirty Laundry…Debt

This is a republishing of a post that’s part of a series on “How I Got Outta Debt” written back in 2009 when this blog was on Blogger. I know I keep saying it but this is just as relevant today as it was yesterday. If you are in the position to do so I hope that it inspires you to take control of your finances and your life.

 

Laundry is hung to dry above an Italian street.

Laundry is hung to dry above an Italian street. (Photo credit: Wikipedia)

I’m back with the calculations on all my debt listed in part 5 of this series. I’m going to show my debts, the amount of time it would have taken me to pay off the debt based on the payment amount and the total amount I would have paid doing it the way most folks do/the way the creditors want you to.

What was/is their plan? To pay the minimum payment for the maximum amount of time. This results in you paying the maximum amount of money on the money you borrowed. Translation…it’s more money that you have to work for to make these payments…forever. (it will feel like that) Here is the lowdown and remember APR is the interest rate:

 

         DEBT/ AMT/ PAYMENT/ APR/ PAYOFF TIME/ TOTAL AMT PD
  • Visa: $2371.53, $50 per mo, 12%, 65 months, $3250.00
  • H.F: $1000.00, $19 per mo, 9.9%, 70 months, $1330.00
  • Car: $3571.69, $245 per mo, 7.9%, 16 months, $3920.00
  • Capital One: $984.43, $19 per mo, 9.9%, 68 months, $1292.00
  • BoA: $4588.00, $51 per mo, 9.52%, 159 months, $8109.00
  • Perkins: $2027.15, $40 per mo, 5.00%, 58 months, $2320.00
  • Direct SL: $5786.44, $52.52 per mo, 4.22%, 140 months, $7352.80
  • Mortgage: $48175.00, $413.06 per mo, 6.25%, 181 months, $74,763.86

The total amount paid when everything is paid off according to the normal way of doing things…$102,339.86!!!

 

That $102,339.86 figure does not even include what I already paid when I had my head up my butt! Remember I mentioned that I quit playing around and got serious with this July of 2001? Well of course based on the payoff time, I would have paid almost all of these off by now (November 2009).  However, I’d still be paying on the Direct SL (Student Loan), Bank of America and the mortgage. That’s $518 on top of utilities, food, gas and whatever else for everyday living. That might not seem like much but when your income has been slashed by 50+ %,  which it had been at the time I first wrote this post, that’s a heck of a lot of extra money to have to come up with.

Also when I was writing this post, I had heard on YouTube,  a news clip from MSNBC that credit card companies are trying to jack up rates ahead of legislation going into effect to stop these practices. Well, credit card companies have always had this power and all they’ve had to do was give you a 15 day notice which is one of the reasons why I chose to get rid of them first.

In the next posts, you’ll see the RDRP- Rapid Debt Repayment plan, better known as the debt snowball plan in action.  I used that same $889.58 to not only pay off all debt except for the mortgage but to pay off all debt including the mortgage. Yes folks, it is possible to pay off all of your debt and not take the rest of your life doing so.  And you’ll see how you save not only money but your sanity as well.  But you’re gonna have to check back in to this series to see how I did it.

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Gettin’ Outta Debt pt 5-My Debt Numbers

This is  republish of a blog post that’s part of a series “How I Got Out of Debt” when this blog was on Blogger back in Oct 2009. It is still relevant, if not more so given today’s economic environment.

 
I’m back from part 4 of this series so here’s the post showing where I started on my get the hell out of debt as fast as I can plan. You may recall from a that post in between the debt elimination, I was also saving up for an emergency fund of 1 years worth of expenses. Once that level was achieved, everything extra went towards debt payoff.

Around July 2001 is when I got super duper serious and ready to do just about whatever it took to get the heck out of debt. Now my numbers are slightly off since credit minimum payments are not the same and back then, the minimums were really low percentage wise of the balance owed. Keep in mind the creditors are not trying do you any favors because their mission is to keep you perpetually in debt, thereby making lots of money off you in interest. Though they still do that but it’s my understanding that they have raised the minimum payments which allows you to pay off your debt a microbit quicker. You will see later just how costly it is to remain in debt using myself as an example. Here are the numbers:

Visa – $2371.53, APR 12% approx, $50 per mo.
Household Finance – $1000, APR 9.9%, $19 per mo.
Car Loan – $3571.69, APR 7.9%, $245 per mo.
Capital One – $984.43, APR 9.9%, $19 per mo.
Bank of America – $4588, APR 9.52%, $51 per mo.
Perkins Student Loan – $2027.15, APR 5%, $40 per mo.
Direct Student Loan – $5786.44, APR 4.22%, $52.52 mo.
Mortgage – $48,175, APR 6.25%, $413.06 per mo.

Adding up all the payments, I was paying $889.58 per month just for debt service. $889.58 before I have put any food in my cabinets so I can eat, gas in the car so I can get to work to make the money to pay these bills, insurance for the car I need to drive to get to work to make the money to pay these bills, utilities like water to drink so that I can live to drive to work to make money to pay these bills, etc!! It’s a vicious cycle! 😦

OK, I know y’all are probably wondering how I had such a small mortgage balance. I live in an area of town where the price range for housing goes from $10,000 to $150,000 at the time I bought this house in 2000, which was right about the time prices started really ticking upward. I’ve mentioned before that my home is small, a shoe box by today’s standards but I made a deliberate decision to purchase small and to live in an area of the country where housing prices were reasonable. Of course that means incomes are lower here as well. Also my Direct Student Loan rate started out at 8.25% APR. Later there was a rate reduction some time in 2002 I think, to the 4.22% I have listed.

Alrighty, the order that I have everything listed is the way I paid everything off pretty much after the Direct Student Loan rate reduction. Before, I had it listed right behind Bank of America. Now I bet you are also probably wondering why I have the car loan in front of Capital One which is no longer in my wallet.  My reasoning for putting the car loan in front of Capital One even though it has a lower interest rate was because at the time business at the job was going really well. I got paid a base salary and a commission for additional business sold whether that be new business or products. I handled all the paperwork etc for all these transactions whether I sold them or someone else did.
I figured even though the balance is much higher but if I could hurry up and pay it off, I would be applying $245, any extra monies, plus the $20 I was already paying Capital One instead of the other way around.

In addition, the mortgage did not start out at 6.25% APR or $48,175 for that matter. Noooo, I had been dumb and stupid in the years before buying my house. A lot was due to things that were on my credit record from my 1st marriage, but the period after that was all my fault. As a result my credit score was not to good so yeah, I was one of those “sub-prime” borrowers starting out with a 10% APR on a $32,500 1st/12.5% APR $10,000 2nd mortgage with a pre-payment penalty. After about 1 1/2 years of hard work and paying down some of the debt listed above, I was able to refinance in June 2002 to the rate you see above and it was to a 15 year mortgage with only a $6 increase in my payment amount. YAY! The payment was $407 to the previous mortgage holder with the increase in the mortgage balance due to that *#%@ prepayment penalty and outrageous fees. However with the interest rate basically cut in half, a whole lot more of my payment would be going towards principal. I looked at it as another “stupid tax” and hella motivation for me to continue bulldozing this albatross. Nothing motivates me more when I figure out the game. At first I get mad, then get I figure out a way to even.

Next, I’m gonna show you using the numbers presented above and a debt calculator I found online, how much in total I would be paying/paid not using any kind of accelerated plan. Meaning once something was paid off that money was not redirected to debt payoff. This is gonna blow your mind so stay tuned for part 6 of this series.

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Gettin’ Outta Debt pt 4-The Contingency aka Emergency Fund

This is a repost that is part of a series that I did back on August 19, 2009 when this blog was on Blogger.

Expenses

Expenses (Photo credit: Phillie Casablanca)

In continuation from part 3, of this series on “How I Got Out of Debt” and use of the book “Debt Proof Living” by Mary Hunt, today’s topic will be on the ever so glamorous tool called “the Contingency Fund”, aka emergency fund aka old-fashioned savings. This is in addition to the “Freedom Accounts” mentioned in part 2. It’s primary function is for large erratically occurring things like the furnace going out in the middle of winter, or even more prevalent in today’s environment, a job loss.

Now I went ahead and talked about the debt elimination methods before I talked about savings. That was assuming that your income producing situation is pretty stable, however IMHO, everyone should have some form savings that can sustain you for a while regardless. It keeps you from having to use the credit cards and paying interest because you did not have the money the pay bills before the due date. In my state it takes at least 3 weeks for unemployment to kick in. I know that the interest being paid on savings accounts is really sad to the point of being criminal, but unless you’ve been hiding under a rock for the last few years, the environment for the average person that loses a job due to no fault of their own, is less than ideal in terms of being supportive. If you are like me, moving back home is not an option, so basically you are on your own.

This fund if being used to sustain in the event of a job loss, is for expenses like rent/mortgage, food, utilities and other basic needs. The lower your expenses are, the longer your fund can sustain you if it has to be used as such. That’s why it’s great to be either debt-free or close to it.

OK, I did a hybrid of what many of the financial gurus including Mary Hunt, the author of this book we are currently discussing was recommending at the time. My reasons for doing that were 1) I was single  and as I mentioned earlier, moving back home was not an option if my job suddenly disappeared and 2) I had a rude awakening when my father passed away in October 1998.  I took off a week from work to help my mother. The job I was working at the time was the type where if you are not there, you don’t get paid and I had only been there 7 months so there was no vacation time that could be tapped into. Now I totally understand that so I’m not complaining, just giving background as to where I’m coming from. I had no savings at the time and was not offered any assistance from my mother. If it was not for a dear friend who had only known me for 7 months prior to this and my boyfriend of 9 months prior, now husband, who gave, not loaned, but gave me some money to at least pay the rent…I don’t know what I would have done. That y’all was a very low point for me, but at the same time a blessing from the universe that still makes me emotional to think about to this day, 11 years later. I vowed not to abuse that blessing by being stupid, continuing to live paycheck to paycheck when I knew better. Lesson learned.

So instead of the recommended at that time (2001) of 1-3 months of savings or pay off non-mortgage debt first before putting money in a lowly savings account, I got a bit of savings up equal to 1 months expenses, hurried up and paid off a couple of credit cards so I’d have that money and at the same time cut my everyday expenses back so I’d have a bit more to build up my savings to 3 months worth of expenses. Back then the job was pretty secure as I moved up. Then I eliminated all non-mortgage debt while at the same time putting at least 10% of my earnings into the Contingency Fund. That got me to about 6 months worth of expenses. Once I eliminated the non-mortgage debt, those payments went toward saving up 18 months worth of expenses. During this time I had a few major house repairs, like fixing a leaky utility room roof leak, replacing the 20-year-old central heat/AC unit, the A/C compressor, and a few other things that took that extra 6 month cushion. I stopped there letting any additions to the account be in the form of the earned interest. Once I paid off the mortgage I continued to build this fund as I could even though I’m no longer working as of December ’06 and my husband out of job since November ’08. This is not a plug for sympathy, just telling it like it is. If I had listened to what most people were telling me including my family, a few friends and DH, that I was crazy for putting all that money towards debt and savings, we’d be up the creek without a paddle in a boat with gaping holes at the bottom right now.

For you astrology students like myself, Saturn is transiting my 1st house right now, just as was 29 years ago. Of course, I was 13 back then but the basic context of my current situation was going on back then as well, just different characters being my parents. This is when my Dad had his fatal/near fatal heart attack. What I mean by that is he was dead for approx 2 minutes b4 he was revived, so this was a massive heart attack. As a result, Dad was not able to work at all for about 18 months and did not have a full-time job for 4-5 years after that, mainly due to employers being afraid to hire him because of this prior health issue. Along with that, Mom did not get a job until a few years after I left home at 19 years of age. Though it was not discussed with me at that time, I now know that this was only possible due to Mom’s material security consciousness and Dad’s good financial sense. I’ve mentioned it in previous posts… Mom’s a Leo, he was a Taurus. Now they were not debt-free but there were decisions made years earlier that looked at the long-term consequences of one choice over another. Many of those choices Dad made, even though Mom was angry about it at the time, made a whole lotta sense in the immediate days/years following the heart attack. Hmm, I hope that I’m learning the lesson Saturn is presenting right now.

I’m not a financial adviser or anything like that, just offering my personal story and opinion for you to learn from. Having said that, my advice would be to of course look at your situation because everyone’s is different. However “job security” is an illusion so if you have $0 in savings, pay the minimum payments on your debts right now, cut back on your lifestyle and get at least 1 month’s expenses aside. Then work your way up to whatever level of savings is comfortable for you. Once you get there, start getting rid of that debt like a mad person while continuing to build your savings.

One more note, this is not to be considered an investment account. It is money that is to be liquid and that you can get to in a reasonable amount of time. So it should be in a safe bank, credit union or something like that. I was teasing at the beginning when I called it glamorous but in my reality, it really is just that and I’m exceedingly grateful for it.

Stay tuned for part 5.

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Gettin’ Outta Debt pt3- The Debt Snowball

This is a repost that’s part of a series I did back in August 2009 when this blog was on Blogger.  I feel the info is just as relevant today as it was back then.

20 Dollars art3

via Wikipedia

OK, I’m back from pt 2 of this series to continue my talk on the way I used “Debt Proof Living” by Mary Hunt.  Another one of her “tools” that I liked and used is what she calls the “RDRP-Rapid Debt Repayment Plan”. Other financial gurus call this “snowballing debt” or “debt snowball”. Debt snowballing is not anything new. Now, financial software such as Quicken and MS Money have this as part of their mid-range and/or deluxe offerings of the software. If you are trying to get out of debt this is well worth the extra $15-20 over the basic version if you are going to use this type of software for your finances. I think you can do this on spreadsheet programs too. This is a plan for you to get out of debt with the money that you are currently paying all your creditors but in a much faster way than following the traditional method of paying down debt. And best of all, you can DIY.  No, it’s not “voodoo economics” to borrow the term coined by George Bush Sr, nor is it “creative financing” or magic, but a plan that actually works. However, there is a catch. I’ll go into that later because it’s key to this plan working.

Basically you start off by listing all of your debts by name, APR (aka the interest rate, which is the additional money that you pay for the “privilege” of using their card/loan, or whatever for any one who does not know what that means), your payment amount and the balance owed. There are a 2 ways to do this plan. One gets you out of debt a little faster because you are paying less interest. The other is a tad slower but may provide you with an kick start to get your behind in gear because you’re seeing some immediate results. If that sounds confusing, hang in there with me and you’ll see what I mean.

Method 1) List all debts starting with the highest interest rate( APR), the next highest, all the way down to the lowest interest rate debt.

Method 2) List all debts starting with the debt that has the lowest payoff/balance, next lowest and on up to the highest balance.

You can find the APR listed in the printed material that is on your credit card bill or on the loan paperwork that you signed. Now there are debt calculators all over the internet if you don’t have financial software. I highly suggest you look these up and plug your numbers in. I’ll warn you though, when you see how much you’ll end up paying back if you pay back the way your creditors want you too… you may want to fix a really stiff cocktail.

Anyway, the higher the interest rate and the longer you take to pay it off, the more you’re gonna end up paying. That’s why Method #1 results in a faster payoff because you are paying off the highest interest rate loans first.

Method #2 is good if you need a little bit of encouragement, like that 1st 5 pounds that you lose when you’re on a diet. You’re so excited that you begin to think twice about that nice looking piece of chocolate cake. Alright, let me stop talkin’ about food before I have to go and find somethin’ to snack on, that I know I should not be eatin’. lol A lot of the time the smallest debt you have is one of the lower interest rate debts, though not always. Remember I said earlier, on the higher the interest rate loan, the longer you take to pay it off the more you end up paying.  It still results in years earlier payoff and big interest savings in that you will not have to pay it, just not as much as if you follow Method #1. Now I followed Method #1, including my mortgage at the bottom of the list as the last debt to be paid because I was determined not to pay the bankers one extra dime.

OK, now for the catch I mentioned earlier. You’ve got to follow these 3 rules very strict and to the letter unless it’s a dire emergency and I mean dire emergency. These are from the book and paraphrased leaving out one step as it’s already been done. That’s the listing of your debts.

1)NO NEW DEBT!!! Yes, I’m shouting but I want to make sure you hear me. You can’t get out of the hole you’ve dug for yourself if you keep making the hole deeper and at the same time you are shoveling more dirt on top.

2)Pay the same monthly payment regardless if the loan/credit card issuer says your minimum payment is less than it was the month before. Don’t fall for those “payment holidays” either. You know, right around Black Friday shopping day where they say “oh don’t worry about making that payment. Go Christmas, Easter( insert holiday of the month) shopping with that and you can start back paying next month”. Ignore them by saying thanks but no thanks. Keep making that payment. You can always pay over the amount but not less.

And last, but just as important as #1, & 2.

3) As each debt is paid in full, take that money and apply it to the next debt in line.

Example: Lets say you had JC Penny as your 1st debt @ $50 per month, Macy’s as your 2nd debt @$100 per month, Home Depot next @$150 per month and GMAC (your car note) last at $300. Doesn’t matter which method you are using in case you’re wondering. Make all the minimum required payments each month as listed. When you’ve paid off JC Penny’s debt you take that payment (the $50) and add it to the Macy’s payment of $100. So now instead of sending Macy’s $100 like you were before, you are now sending them $150 every month until it’s paid off. Then when you’ve paid off Macy’s (which you will have done at a much faster rate than you were before because you were sending $150 instead off $100), you add that $150 payment to the Home Depot payment. You are now sending Home Depot $300 per month. Before you know it you’ve paid off Home Depot.  Next, you take that $300 payment and add it to your car note so now you are sending GMAC $600. Before you know it, you’ve paid off your last debt. Just by diligently following those steps you’ll pay off your debts way ahead of schedule saving you lots of interest. If you get REAL SERIOUS by cutting your lifestyle to find extra $ in your current budget, you can make this happen even faster thereby saving you money that you would otherwise be paying out in interest. You can’t get ahead while filling out a check with somebody’s name on that line. That’s what you are doing by paying out interest.

Stay tuned for part 4...

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How I Got Outta Debt: Resources I Used To Become Debt Free pt 2

This is part 2 of a series that I wrote August 10, 2009 when this blog was on Blogspot.com. I feel that it is as more relevant now as it was when I wrote it then. It is my hope that it is of inspiration and motivation that yes, an ordinary person can do this.OK, I’m back to continue talking about the resources I used to become debt-free. I mentioned 3 books in the last post and I’m going to talk about what I liked about each and what I used from each on my journey. Now this is not going to go along in a linear fashion as my brain does not work in that way.

I used “Debt Proof Living” by Mary Hunt and “Your Money, Your Life” by Joe Dominguez and Vicky Robins together, but I’m gonna start with “Debt Proof Living” first. “Debt Proof Living” is a really good basic how to on the way money works and how to get your money to behave as Dave Ramsey would say.NASHVILLE, TN - MARCH 06:  (EXCLUSIVE COVERAGE...

One of the things I really like and will talk about today is what Mary Hunt refers to as “Freedom Accounts”. Back in the day this was the good ole “envelope system“. My Mom & Moma (my mother’s mother) used the envelope system religiously and taught me the value of it. I had been using a version of the Freedom Accounts when I would take a certain amount out each month and set it aside for my renters insurance for the apartment I was in before I bought the house because that’s the only way the insurance company offered it. It was either a 6 month or 1 year policy…no monthly payment option. These “accounts” are also great for those “unexpected expenses” like car repairs, car tags, licenses fees etc. Anything that is not actually paid on a monthly basis.

I place “unexpected expenses ” in quotations for a reason. Whether we want to see it or not, these things are part of your monthly living expenses and if not recognized as such, can wreak havoc when they come due sending you running to the credit cards. Nothing wrong with credit cards if you use them in the right way by paying off the entire bill before it’s due but terrible if you don’t.

This is where many people trip themselves up because they do not have an accurate number on what it takes to maintain their lifestyle each month. When I say accurate, I mean including all known liabilities. If you drive a car in most states, if not all, you must have at least liability insurance, license plates/stickers which must be renewed yearly where I live, driver’s licenses every 4 years, tires that wear out, oil changes needed, and the list goes on and on. Y’all  know what I’m talking about! 🙂 By getting all of this down on paper, you’ll begin to see that it really takes $2500 per month for you to live on.  But you’re only accounting for $2000, thinking you have $500 to “play with”. Then you go and blow it on whatever has caught your attention.  End of the month Day 30 rolls around with your car tag or homeowners insurance due. Now you wonder where in the heck am I going to get the money to pay this? Add in the refrigerator breaking down along with the car.  See how this can get one in trouble?

Doing this also allows me to have overdraft protection on my account without having to pay the bank for the privilege, saving me money as well. What I did was to look at the due date for the “fixed” cost items like the license plate tag for instance, estimate a little bit higher than what I paid last year and divide that up into 26 payments because I got paid on a bi-weekly basis. I would deduct that amount from my checkbook balance as if was going to write check for the bill and mail it off. When the time came to pay it, I would add the total of the deductions back into my balance and write a check for whatever that amount was and start the process over at the next pay period. This is mucho easier if you use financial software such as Quicken. I did this the old-fashioned way before I got a computer, let alone financial software. For things like car repairs which don’t have a “due date”,  I started out with an amount like $50 a month and put it in the “account” religiously. Time and time again, whenever something came up and y’all know with cars, SOMETHING is going to need fixing/replacing etc at some point in your ownership of the car, more often than not I usually ended up with enough money in the account to take care of the problem. You can use a separate savings account but I only did it for the large things like car repairs, homeowners insurance and property taxes which in my case while I was still paying a mortgage, were not escrow-ed for the first 2 years.

Before getting serious about taking charge of my money instead of it taking charge of me, I was one of those folks I talked about earlier. Many a car repair, you name it, ended up on a credit card which in the long run cost me more money because I was not able to pay off the balance charged when it was due. Yep, “stupid tax” borrowing from Dave Ramsey again…I done paid a plenty.

Stay tuned for part 3.

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How I Got Outta Debt-Resources I Used On The Road to Being Debt Free pt.1

dump the debt

dump the debt (Photo credit: Friends of the Earth International)

This is a series I wrote back in 2009 when this blog was on Blogspot.com. I think it is as relevant as it was back then, if not more so now given the times we are living in.

I’m gonna start off by saying that getting out debt is not easy and not for the faint of heart. It can be compared to eating healthier, dreadlocking your hair or even wearing your hair out in its natural state. Though it may be a bit more accepted now, it’s still a long hard journey that takes loads of patience and thick skin. Why is that you ask? All go against the grain and many times the biggest opponents to your success will be your family and friends. I mention this because how well you can ignore their ignorance while keeping your eye on the prize is crucial to getting where you want to go. In addition to that, it’s a permanent lifestyle change, otherwise you’ll be right back where you started.

#1. IMHO, stop believing that stupid saying that’s been going around for decades that there is good debt and bad debt.  I don’t think “bad debt” needs explanation however “good debt”, is paid off debt.  End of story.

One of the keys to getting out of debt and staying out is to become conscious of what you are spending your money on starting TODAY!! Yes I’m shouting a bit but I’m trying to make the point that it is extremely important aside from point #1. Examine everything because if you are in credit card debt, more than likely there has been some unconscious spending going on! Many people have absolutely no idea how much they are living on vs what they actually bring home to pay the bills. Also a crystal clear distinction between needs and wants must be made. You may need a purse but you come home with a Coach or (whatever the designer names are) bag. No problem if you are financially OK, but big problem when you’ve got mountains of debt, doing these kinds of things for a long time, zero savings and the boss tells you that you’ll be out of a job in 2 weeks. Can’t quite live in or eat that Coach bag…can you?

Here are some everyday examples. Do you really need a cell phone and a land-line phone? Do you really need 25 calling features and voice mail on your land-line phone? I know it sounds like I’m fussing but I think I can do that because that was me at the time. lol Unless you are using every one of the features and making a lot of long distance calls, many times these so-called bundles are not saving you any money.  In reality, they’re costing you more. Even if you are using ALL of the features and making a gazillion phone calls, there’s probably a cheaper way. As for voice mail, get an answering machine. That feature alone is approx $7 a month as part of that “package” so in a year you’ve paid $84. Keep the service for 5 years and you’ve paid $420. Now I know you can get an answering machine for way less that $84 and even on the rare chance you had to by a new one every year, you’ll still come out way cheaper and have $50+ dollars to put on that 20% interest credit card debt. Heck for that matter, in the case of long distance, use email more or **gasp** snail mail. It’s the drips like this when looked at individually, don’t look like much but when applied across the board begin to become cracks in the dam in terms of the money being used here and not being available for debt repayment. The only folks getting rich off interest are the bankers.

Another way I’ve let money slide through the cracks was not paying attention to the price per unit of whatever it is I was buying. Not to mention the health aspect but that’s another post. For example, I was eating  ice cream at that time so I would get the

It's the picture of Italian ice-cream in a sho...

Image via Wikipedia

half-gallon of vanilla for $2.50. Looking elsewhere, I found a 5 quart container for $4.00. Now what most people do is look at the price of $4.00 vs $2.50 and immediately choose the half-gallon for $2.50. This can be applied for anything you are consuming on a regular basis. Before I got hip to pricing,  I purchased more ice cream next week getting another half-gallon for $2.50. OK, so after 2 purchases, I’ve spent $5.00 for one gallon of ice cream. Now I’m sure y’all remember that 4 quarts is 1 gallon right? Go up just a bit in this paragraph and see how much ice cream I  got for $4.00. 5 quarts. Without doing any more calculations you can see that I jipped myself out of a quart of ice cream. Not only that, I paid more for less ice cream! Now these were 2002 prices that I’m noting here so you know as I know, it’s gone up a whole lot more since. I bring this up to point out a practice that’s been going on for quite a while.  But you gotta admit, the ice cream in the photo looks really good! 🙂 OK…back on topic.

I’m referring to how corporations are raising their prices and/or leaving the price the same but making not so readily noticeable changes in the amount of product. It boils down to what is still a price increase. They are counting on is you not paying attention. Think I’m kidding…here’s another one for ya.  A pack of cookies, (it should be obvious by now that I love sweets lol) used to have 4 big cookies in it and cost $1.00. So that works out to be $.25 per cookie. Now, the company decides to change the packaging, tell you it’s space saving, bigger cookies or whatever jive talk that are spittin’ out and only put 2 cookies in there but leave the price the same at $1.00. Now each cookie costs $.50 each. That’s a 50% price increase!! In many cases using this same example, they’ve not only reduced the amount to 2 cookies, they’ve raised the price to $1.10. That’s an even bigger price increase. Many times it’s not quite as glaringly obvious as the last example but it’s there nonetheless.

So folks, ya gotta start becoming conscious and paying attention to where ya money is going. I’ve focused on this first because it’s the fastest and most efficient way to get more money freed up to have to accelerate debt elimination. What I came to find out was that I got more motivated to look for more ways to slash my budget so I did not have to go out and get a second job.

A few books that I used as road-maps on this journey were:

1)”Debt Proof Living” by Mary Hunt. She has a website of the same name as the book that is a paid subscription site which is quite reasonable at the time I had one. The non-subscription part of the site was nice.

Cover of

Cover via Amazon

2)”Your Money Or Your Life” by Joe Dominguez & Vicki Robin

See if your local library has them first. Then if you like them, you can look for used copies or again, examine the details and see if buying them new will come out cheaper. With Amazon.com, if your purchase price is $25 or more you can get shipping free. I’ll talk more about these books and others later.

Are you ready for more? I hope so! Then on to part 2.

Disclaimer: All of the products mentioned in this post have been purchased by me or borrowed from the public library. I have no affiliation with the producer/manufacturer or distributor of the product nor am I being paid to review the product mentioned. The opinions set forth in this post are solely my personal opinion.

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