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

“Death Pledge”.

Sounds scary right? Well have no fear, 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 did not and do not 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, just 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. You know that old saying “A bird in hand is better than 2 in the bush.”? Yeah, it’s just like that.

Another great thing about getting rid of debt is, 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 or any other reason that comes between you and your paycheck.

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 have the 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. But only slightly correct. Why is that?  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 will be. That means 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 refinanced to a 15 yr mortgage from a 30 year 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 longer the term is on 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 and you can resume your pay off plan when circumstances allow.

When you get down and feel like quitting, just think about the day when you don’t have to make that payment anymore. I can tell ya, it sure feels good.

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, without having to get a second job but using the  same 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 debt repayment plan.

In a lot of ways I’m a very patient person, but in this case the Aries archetypal (which I have a fair amount of in my chart) impatience came out in full force.  Now 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 a lot of repeating of certain phrases and it’s a long post.  But that’s how we learn right? By repetition.  🙂

Let’s begin.

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 from the previous post, under the status quo payment plan the financial industry was hoping that I would follow because the monthly payment is soooo low, I would have paid a total of $3,250. By turbo-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 turbo charging my debt snowball, 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 at this time.

Next and done with glee, Capital One and 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 turbo-debt snowballing I did not have to pay them $236.08.  That’s another month’s utilities or groceries etc.

Next, with the excitement level increasing, 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 turbo-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 turbo-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 turbo-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 really turbo-debt snowballing this one, 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 like to refer to as money I did 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, you can drop me a line so I can send you my PayPal info for a gift in that amount. I promise you I’ll put it to good use. 🙂

Recall from part 7  by utilizing just the normal 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 juice up 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. 

Well by now, I hope that I have clearly laid out the case for you see just how costly it is to you and how insanely 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.  Another crucial point we forget is the fact that you are going to have to come up with that payment(S) each and every month for a very long time. Also the hours you have to work to make the money to just make the payments. I can say this because that was me before I got the message from that cosmic 2 by 4  upside my head for the umpteenth time.

Unless you are paying cash or the bill off in full at the end of the statement period, the total price paid is always going to more than the original price using credit. That’s compound interest working against you as loans today 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 will make hundreds and in the case of a mortgage or large student loans (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 work you have to 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, who’s showed ya how to do it, plan. I know everyone’s circumstances are different but if you have the income, it can be done and 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 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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Frugality Should Never Go Out of Style

Thanks to one of my YouTube subscribers for alerting me to this, so I thought I’d share. The video is of an interview done with Amy Dacyczyn known as the “Frugal Zealot” in the 80’s I think. She is the author of the “The Tightwad Gazette”. This is another book that I used as inspiration on my way to becoming debt-free. Some of her methods are a bit extreme but I feel that it is a springboard to be used to stimulate ideas of your own. Many times we just give up, thinking it does not make a difference when looking at the whole situation. But a journey is made manifest by taking one step at a time. That leads to the next step and another one comes after that and on and on. I totally agree with her when she says in this interview that frugality should not just be practiced when in recession but when times are good as well. It may not prevent the recession from occurring but I believe things would not be a hard as they are right now if this had been done.

Rapid Refund- Say No, No, No

Rapid refund services are just another hand that reaches deep into your pocketbook. Your money or refund is being given to you and I use the term “given” very loosely, as a Refund Anticipation Loan. This service to get your money quicker, is not offered out of the kindness or benevolence . What that means is you pay a hefty fee plus interest for this convenience. I’ve mentioned here in an earlier post of how to get your money in your check each month if you are one who consistently get large refunds back every year. Now I would venture to say that 70% of employers don’t issue W-2s until Jan 31st. So you’ve already had to wait 13 months and unless it’s an emergency and I do mean an emergency, save yourself some money and say no, no, no to rapid refund.

One way to get more money in your check


OK guys it’s that time of the year where some of you have received or will be receiving your W-2s in a couple of weeks. If you are one of those that get back $1-$3,000 thousand dollar plus tax refunds this post is for you.

Many people think that by having the most amount withheld to get the largest refund possible is a good idea. This is not good because what you are doing is giving out a loan at 0% interest. Now unless you are paying on a loan from a gracious family member, you are paying way more than 0% interest. On a $1,000 refund means you are having $80 more or less too much a month that is being withheld out of your check. That’s money you could be funding your emergency fund with while making compound interest work FOR YOU or pay down high interest debt. With the rates still being as pitiful as they are, it’s still $2+ dollars more than what you had. There are tools on the Internet that will help you figure out what your withholding number should be. Also MS Money Deluxe, Quicken Deluxe or whatever the mid to higher level program selection has this as part of the program for those that use financial software. While the goal is to break even it is a bit hard to achieve so you want to keep that number as low as possible.

Though it’s too late to do anything about tax year 2009 you can do this for 2010 and beyond.

A Wise Young Woman

I had to feature this young lady’s vlog on here since part of my blog content is about personal finance. I commented on this video and what she replied back really impressed me in terms of where she is on a maturity level. She is only 24 but in regards to her finances she has more sense than some of us almost 3 times her age. When I run across young people with this kind of level headedness and plain ole common sense I have to give them their props because what she is talking about in this video has been going on for quite some time. My comment to her was this is the main reason why we do not have any real wealth and nothing to pass down to future generations. Michelle Singletary has a great quote that I love. It is, “If it’s on your ass it is NOT an asset.