I called my auto insurance company yesterday (USAA) and updated my info. Both cars are paid off, which means we can remove our “gap insurance” (the insurance that covers the depreciaion on the cars in the event that one is totaled). Also, I upated my milage. Now that I’m working from home, my mileage is cut almost in half per yer. Total savings, $4.00 per month. Snowflake!
Just my $.02 for yesterday.
I met with someone today who mentioned in passing that he was refinancing into a lower-rate 30 year fixed mortgage. But he really wants to be debt-free in twelve years. He just needed to think of how.
I suggested, why not attack his mortgage from both ends? Rob and I have been doing this as we’ve been able. Now that we’re a few years into our mortgage, it’s a little harder to do, but we’ve definetly seen a substantial difference and saved a lot of money. I suggest that if you’ve got a little extra cash, your house is a good place to store up some equity and bust that debt a little sooner.
Here’s how you do it:
Picture a taper candle laying on its side. The wax is your debt. Now, light both ends and watch it burn. In year 15, you’ll be mortgage-debt free.
Each month you get a mortgage statement and it’s usually broken out between principal and interest, and escrow and sometimes Private Mortgage Insurance (PMI).
All you have to do is double the amount of principal paid. You usually have to write this specifically, or even a 2nd check if this isn’t the option (with the memo: apply to principal), otherwise they’ll allocate it to escrow.
As an example, our first year in our house the mortgage payment was about $1,150 per month, with just $150 going towards principal, another $150 going to PMI. PMI doesn’t benefit us–it just protects our lender–but we still had to pay it until we prooved credit-worthy and built up some equity in our home, either with cash or real estate appreciation.
Every month we paid our mortgage payment and an additional $150 or so on the principal balance. This essentially erased the current payment, and the last payment in 30 years. The next month it shortened the term of our loan also by two months. Add up that $150 multiplied by 30 years of compound interest at 4.5% and you’ll see we’ve made some substantial savings with a very small investment!
Because you’re erasing interest, your principal amounts will go up each month and your interest will go down. The earlier you are in your loan, the easier this system will be.
One or two years into following this system (or three years after you start your loan) you should call your lender and see if they’ll let you drop your PMI. We paid $300 for an appraisal and were allowed to drop our PMI at 2 years. If after dropping PMI, you also put the PMI also towards your principal (3 principal payments per month), you’ll be “in the money” in no time at all!
Side note: if you count on mortgage interest as being a great big tax-deduction for you, this may not help you–remember, it reduces the amount of interest. I personally would rather have cash than a tax deduction anyday, but talk to a financial professional if this may drastically affect your personal finances.
Just my $.02 for today. I hope it helps you out. It’s sure saved us a bundle.
I’ve been trying to make the best of the permanent layoff that came my way in early December. I started a business, I’m also writing and blogging. Without commute time I find myself with a lot of free time. I’m definitely enjoying the flexible lifestyle.
One of the things I’ve decided to tackle is households’ financial situation. This was especially critical now in the face of my less-than-reliable income and a new business startup. As an “under-30” family of four, we have some debt. A couple of college educations, a mortgage, two adoptions that zapped our finances but filled our hearts. We were not in financial peril, but we sure could have been uncomfortable if we had not been paying attention when the layoff hit.
The surprise in this project was how we were able to cut our household expenditures by one-third without really trying (or even noticing, for that matter).
Armed with this new information (and cash as a result!), we rushed forth and started getting out of debt. Using only free resources from the Web and strict budgeting, we’ve paid off two of three credit cards, one adoption loan and all of the college loan. Woot! Not bad for three months, huh?
Recognizing that not everyone was so lucky as I to be laid off, I thought I’d share some time-saving and free tips to financial freedom. No scams, no catches, no hidden spam-engine. And you don’t have to download my free e-book. I don’t even have one.
Have fun, save money, spend less, retire early, and get out of debt. It’s working for us. Unless you email me, you’ll never even hear from me again. (Unless we’re friends or family of course). For the sake of easy reading, I’m breaking this into several posts. Follow the hyperlinks for a free and easy journey to financial freedom.
But please do me one favor. If you like this list, please pass it on.
Now, my family’s first five free steps to financial freedom.
1. Expense tracking
2. Budgeting/Cost cutting
3. Saving
4. Alternative Investements
5. Paying down debt (fast!)
Don’t move to this step until you’ve completed step one. I mean it. Scroll back and download your transactions you lazy Mary! Just put your grown-up panties on and face it! Now, use Mint.com’s cool features to compare what you’re’ spending to others in your area (bottom half of the trends page). This is how I learned where my family was out of line.
I pulled out our bills for the past month and put the fixed ones in there. And I started from there. I also set up text message alerts for each time we went over budget. Yikes! Talk about accountability. My cell phone started blowing up–harassing me for a stop at Starbucks. But I saved more than $100 a month this way (I don’t want to confess to exactly *how* much more).
Some specific places to cut costs:
A. Stick to one grocery trip per week, for real. And re-evaluate your favorite grocery store. It turns out that Winco is about $80/week for our family of four. Safeway or Kroger is closer to $100-$130. Oh, and cook healthier food. It’s cheaper than prepared freezer-box meals and eating out! (Tonight, leftover roast and lentils in the crock pot for dinner. The kids’ favorite—really–and just $3.00).
B. Call every credit card (or any creditor for that matter) and ask for a lower rate, or to move your balance to an introductory rate. Worked wonders for us (learn more here)
C. Our power bill went up 30% since adding our newly-adopted toddler. Why? I think too many lights left on. In the most frequently forgotten rooms (kids’ bathroom and bedroom) I’m unscrewing a light bulb.
D. Cable was $130 a month. We called Comcast and asked for a smaller package. Instead they “rebundled” our same package into another promo package and we have the same internet/phone/cable package now for $100 a month. (Read more here).
E. Coffee: brew it at home. Nuff said? If you want to further slash costs ($16-$30/mo at our house—heavy coffee drinkers) try roasting your own coffee. We buy green coffee beans at the local African grocery for $2.50 a pound. I roast them at home on the stove, and the quality is excellent. If you want directions, email me
F. Shop around for everything. I went out last week for a bike trailer to take my toddler cycling with the family. Looked at four stores. Ended up saving $250.
The bottom line? These changes alone are saving us more than $500 a month, or close to a week of work in my 9-5 job. This is how I can run my own business and still have enough time to blog. Turns out it’s cheaper when you’re paying attention to what’s going on.
I put the cards through the shredder. Every one of them. I’m hanging onto the chips for an art project. Mobile, mosaic, jewelry, I’m not sure yet, but the inspiration will come. Just do it. If you have to have one for emergencies, put it in a Ziploc bag full of water in the freezer. You won’t be able to thaw it quickly or the card will be damaged. Get out all of your statements and use a debt calculator to figure out how to get out. We were paying highest interest accounts first for a long time, but not seeing a big difference. Recently we switched to the snowball effect and WOW is that satisfying. We outright paid off some smaller loans in full (with cash, not credit) and that feels good. Now we have that extra $100 or $200 a month to payoff some bigger balances. We’re also getting aggressive about using any idle money we can, right down to change buckets, and checking the sofa cushions. Found $33 this way last month! Is your mortgage interest rate high? You might want to shop around—rates are way down. Take a look at Smarthippo.com. I’m thinking about doing this but haven’t taken the plunge yet as we think we may sell our condo for something bigger.
The bottom line: to creditors any paying is good paying right now. Try to get them to drop your interest rates, and pay as much as you can every single month. I sit down to write the check every month and challenge myself to pay 10% more than I had planned. Every rebate check or babysitting dollar you get, throw it at those debts. I’ll bet the credit card companies hate me. Every time I deposit anything “extra” to my bank account, I write a check back to the credit card company for the same amount. They get a half dozen checks in the mail every month.
You’ll be surprised at how fast it goes down, especially if you have your net worth on Mint. If you check your Mint.com page every day, your fingers are on the pulse of your finances and you feel compelled to tackle those debts. I sure have and it’s working great for us. We’ve turned around our finances so much that we’ve moved our expected debt free date up by more than 18 months.
Good luck—and please, let me know how it works for you!
The average American household has about $9,200 in credit card debt. I hope you’re in the bottom end of average. I’ve busted more than this already in 2009 (and it’s only February) and I have just slightly more than this left to go before my debt-free goal of July 2009. It’s going to be close but I have faith that we can beat it. What then? I think we’ll go to Disney Land (but not until we’ve saved for it).
CNN Money’s Get Out of Debt calculator:
Enter your debts (they’re optimistic as there’s only five lines but an option to add more). Choose from the following options:
1. Fixed Payments (how long ‘til I’m debt-free?)
2. Minimum payments (how long will it be and how much will I pay?)
3. Debt-free deadline (what do I have to do to be debt free by my desired date?)
This calculator is anonymous and produced by a reliable source (CNN). It is very, very easy to use. Unfortunately, one thing it fails to mention is that this payoff plan will only work if you put those cards through the shredder!
Living on a Dime:
You don’t have to get out all your statements, but you should know what you owe in total and the average interest rate. Plug those in the boxes and you can click “show me the light” which will say how long it will take and what it will cost to be rid of your debt. Another cathartic, though not very useful button is “take it all away” which simply clears the boxes. I realize this is likely so you can re-enter different information and try it again. I put in the same info and “took it all away” several times in lieu of paying a therapist today. I feel better already.
Bankrate.com’s Debt Calculator:
Bankrate.com is a Web site for those shopping for credit cards. If you feel like you’ll be compelled to try… don’t bother, use one of the earlier links. This is a pretty good calculator though. It also shows the interest rates of some other cards. I hope your rates are better than theirs. I know mine are.
What all of these fine organizations fail to do is to remind you to sit down and chop up that card. I’m saving my chopped up card chips for a craft project. Maybe a mobile, or a mosaic or a Christmas Tree ornament. I’m waiting for the inspiration to come to me. (I have strategically tossed some chips from each card in hopes of preventing my relapse into using the cards, but it feels so good to be this close to debt-free that I’ve never felt compelled to use the cards or order replacements.
Another thing that these sites fail to mention is that if you haven’t called in the past three months for a lower rate, you need to do it. Will your card company do a 0% balance transfer from another card? Will they reduce your interest rate for even a short time? I called back in December and got my rates lowered on almost all of my cards. One even told me to call back each month for a lower rate, and would you know, it’s working? My credit card interest rate is now between 5%-8% and it is 0% on one card until August.
Take a look at my post earlier about my results with this technique.
Not having any luck with credit card companies lowering their rates? Many people are using Lending Club to consolidate their credit cards into a single lower-rate loan. I’m an investor (yep, I invest in these kinds of consolidation loans!) with Lending Club, and I’m really happy with the company.
Also, if you’re looking to consolidate, be sure to get rid of those cards so you don’t just start over!
Called Wells Fargo today and paid off my $2,000 balance on my student loan. One credit card, a HELOC and a mortgage left to go.
So close!! I had planned to be out of debt (except the mortgage) by March, but it may be longer than that due to my business being rather slow. Still may be there by July though.
Wondering what I can snowball next….
We got our tax refund last week. Now, we’re pretty savvy and don’t “donate” more to the IRS than we need to. We do take advantage of the adoption tax credit, and deductions for higher-than-average charitable giving. Our tax return was over $10,000, and there’s rollover credit left that we’ll claim next year. Talk about a “snowball.”
With this we paid off two credit cards, made a substantial payment on another and have a little left over for savings.
When I heard this week that many families who adopted from our agency are being turned down for their interest-free revolving loan program due to lack of funds (apparently many families have stopped paying due to hardship) I was sad.
I wrote a check for our balance $2,500 and drove it to the office the same day. Our loan had been $4,500 and we’d been paying back at $150 per month steadily.
This means I’ll be able to snowball the $150 per month in the future towards our remaining credit card debt, and that other families can benefit from the money we had outstanding on the loan. This is how real credit should work in my opinion.
I know I paid off an interest-free loan before an interest-laden credit card, which is rather foolish, but to me on this matter, it’s about principle, not principal.
Just my $.02 for today… or $2,500 as the case may be.
PS! it feels so good to be free of a debt like this that I’m actually thinking of paying off my student loan early too. Just $2,000 left to go on that one.
I truly hate the “a little here, a little there” approach to paying off debt. Sure, I know it works, but I hate doing it, it’s a pain. I’ll do it anyway now becuase I know it’s the right thing to do.
Also, this week is midwinter break for our oldest daughter, and I thought this would be a good opportunity to instill some financial virtues in her. This morning we put on some loud music and sorted out the “penny bucket” which had about four pounds of coins of various nations. We sorted all the US money into coin rolls and such, and then dropped it off at the bank, $33. Not too shabby.
I’ll “snowflake” this to the last credit card. I’m ambitious now. I’ve seriously caught myself looking around the house to decide what I could sell to unload that one LAST debt and be free of my plastic chains.
Last week our oldest daughter came home and sat down on the sofa by where I was writing and said “Mom–today I learned about interest. Did you know there are good kinds of interest and bad kinds of interest?”
Wow. Those kinds of teaching opportunities don’t come along every day do they? It was the same time that the tax refund came and I was just about to pay off two credit cards entirely.
I sat her down and opened our Mint.com dashboard. I showed her our “good” interest, such as my Lending Club investments, which are earning about 11%). I also showed her our “bad” interest, and how we were going to pay off two of our three credit cards and put them through the shredder.
I encouraged her to save for her future. Tomorrow we’re opening “Smarty Pig” savings accounts together. Come back soon to see how that went.
I saw an article in the Feb 2009 issue of MONEY magazine about if it’s time to refinance or not. I’ve been wondering this myself, as in my other business (I own a mobile notary service) I’ve seen a lot of refinancing going on.
Here’s a paraphrazed version of Money’s three part test as to if you should refinance or not:
1. Don’t bother if you need a jumbo mortgage–the rates in this realm aren’t really coming down.
2. If you have a fixed rate of 6.1% or higher, it might be worth it. Remember, a refi may cost you a few thousand dollars. They suggest that if you come down one percentage point in APR it will save you money over time.
3. If you have 20% equity. Per MONEY, you’ll need this plus a FICO Score of 740 plus to get the lowest rate plus no points.
Based on this test, I’m not going to refi at this time, I think we’re likely as low as we’re going to get (fixed at 5.25%, and the lowest rates are going on 30 year fixed is 5.1%) On a loan as small as ours, it isn’t worth the hassle, especially as we have plans to sell within a year.
Side note: One thing I LOVE about being a full-time freelance writer now–all of my newsstand magazines are tax-deductible.
Just my $.02 for today.