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Paying Down Principal

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Can I admit something that may make me sound like a real dummy? (It’s okay, I’m secure enough with my own intelligence in other domains that I’m okay with admitting when I’m totally out of my depth in something.) Plus, it’s something that I’m hoping many of the readers here will be able to educate me on and help me with. Here goes…..

You know how I’ve been making larger-than-minimum payments on my car for several months now (since last August to be precise)? Well, I logged in to check on the status of my balance for my last debt update and realized that it said my next due date isn’t until January of 2016!!!

In other words, instead of applying any additional money toward the principal balance, they were simply pre-paying future payments. I had thought (and was wrong), that they only pre-paid for up to 3 payments, and then extra money went straight to principal. So after discovering this error I called customer service and explained the situation, asking for my extra payments to go toward the principal instead of future payments.

I was assured this would be done, but it would take a few days (so my online account hasn’t been updated yet), and I was told that it wouldn’t actually change my balance at all.

I started thinking about it after we hung up and have thoroughly confused myself.

Aren’t most loans (cars, mortgage, etc.) arranged so you pay mostly interest up front? Toward the end of the loan terms you end up paying more principal, but initially almost the entire payment goes to interest, right? So basically I’d just be pre-paying mostly interest. Sooo, if that money gets reallocated toward the principal, then there’s a lower balance for the interest to be compounded on (or capitalized on? I’m so confused!). Right? Soooo, shouldn’t my balance go down then??? No?? Why not? I don’t understand!

Also, I was thinking about it more and trying to figure out what the actual benefit is of paying more toward principal versus simply pre-paying payments (particularly if there’s no difference in the balance). I’ve always heard that if I make extra payments (for car loan or student loans) that I should request for the extra to go toward the principal. But why? I was so off-put by the fact that I don’t know the answer to this that I started googling…..without much luck. When I googled “why should I put extra money toward principal instead of prepaying a loan?” I received a ton of results related to mortgages and student loans. I’m specifically interested in my car loan, but figured the numbers would be the same so I read some of the articles. From what I could gather, it seems like if you pay the principal first, it basically just shortens your loan term (so if you had a 60 month term, like my car, it may end up getting shortened down to a 48 month term). But wouldn’t this also inherently decrease the amount interest being paid? I mean, you’re paying it off sooner, so you have a lower balance for the interest to be compounded/capitalized on (again – no idea the difference between capitalized vs. compound interest), and then eventually you pay it off and it all just goes away. Right? And it’d be the same thing with pre-paying a loan too, right? You pay it off sooner, meaning less interest gets paid in the end because there are fewer months for which to have interest accumulate. Am I totally off on this?

I almost shudder, knowing that so many of you are probably bonking your heads against the computer screen, shouting at my ignorance.

But, yeah. I really don’t know. And I don’t get it, either.

Please enlighten me! I really want and need to understand this difference, particularly with my huge amount of debt!!

And, relatedly, I’m going to start paying extra on my student loans. My plan is still to focus on other debts first, but I need to at least pay the interest on my student loans so the balances don’t keep growing (remember, my minimum payments are so low that they don’t even cover the interest). In reference to this….when I make an extra payment, my intention is really just for it to cover the interest. So I can just make the payment online and leave it alone, right? Or do I need to call and ask that the extra payment be applied to principal? This whole issue with prinicipal balance, interest payment, and loan pre-payment has really thrown me for a loop! Help me sort it out!!!

Seriously, sorry for my ignorance on this matter! Clearly I do not have a background in finance! But to really take charge of my debt I feel like I need to get my mind wrapped around this better. Do you suggest any good personal finance books? Or any good websites or other resources that have been informative for you?


Weekly Debt Update #2- Back Online

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After 3 nights and many cable swaps later, I’ve finally got my computer working. The cost? $17.99 for a new video cable. Thankfully, it could have been worse.

Firstly, I want to thank everybody for their kind words and for sharing their stories on my previous post. There were some questions as to why me and my girlfriend split the costs like we do (so if you haven’t read why, go to the comments section on this post) and after a lengthy discussion between me and her, we decided to stay the course (paying bills based on a ratio of our pay) as she looks for a full time/higher paying job. Thanks again, it was extremely helpful to us.

After the past week, I have a lot to go over, so I just want to dive into it.

Here’s my new debt numbers (as of Tuesday):

Loan NameInterest RateOriginal Balance- May '09Current BalanceTotal Paid Off
Sallie Mae 015.25$27,837.24$24,462.48$3,374.76
Sallie Mae 024.75$22,197.02$19,189.15$3,007.87
Sallie Mae 037.75$20,692.10$655.99$20,036.11
Sallie Mae 045.75$10,350.18$7,723.61$2,226.57
Sallie Mae 055.25$6,096.03$5,356.99$739.04
Sallie Mae 06 & 074.75$6,415.09$0.00$6,415.09
Sallie Mae- DOE 015.25$5,000.00$0.00$5,000.00
Sallie Mae- DOE 025.25$3,000.00$0.00$3,000.00
AES6.8$9,000.00$0.00$9,000.00
TOTALS$110,587.66$57,338.22$53,249.44

I made some pretty good progress on the pay down. I made my normal payment (on the 21st) then put some extra on to the lowest one. I’m currently tracking having this one paid off by March.

Here’s what my January ’15 budget looks like (as of Wednesday)

January '15 Budget

Even though I made progress with my debt payoff, I also did a couple of things that are out of character of me since I started my debt free push- I made a couple of big ticket purchases that I otherwise wouldn’t have. First- I got sucked in the juicing craze after watching Fat, Sick and Nearly Dead (1 & 2) on Netflix during the weekend. Although the juicer makes some delicious juice, I definitely wasn’t worth the +$200 price tag. Not only that, but in order to juice, we need fresh veggies, and since I don’t do the grocery shopping, I (understandably) got a run down of why she (my GF) doesn’t have that in her own budget. I mean, you really need ALOT of veggies to make even a small cup of juice. Certainly not the wisest decision I ever made.

Secondly, I bought a plane ticket to Florida. My little sis, who lives in Orlando, just gave birth to my nephew (the first in our family). For the past 9 months, my feelings were I was going to wait to see my sis and her son once they came up to see us, whenever that happened to be. Well…we got the news Saturday night, first pictures starting rolling in and my feelings changed pretty quickly. The plane ticket ending up costing $262 and I leave this coming Wednesday. I’m going to be staying at their place, so I’ve budgeted $200 for the trip just in case.

Since I didn’t budget for either of these 2 items, I took the money out of my slush fund (I’m not calling it an emergency fund anymore since I hardly use it for emergencies). In order to hold myself accountable I’m going to my slush fund total every week along with Weekly Debt Update. After these 2 costs, I’m currently at:

Slush Fund= $2,570.55

Other than these costs, everything else has been normal. My parents did stay with us on Friday as planned, but they ended leaving early Saturday morning when they found out my sister was in labor. So, all in all, a pretty crazy week.

 


Interest Payments

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It’s that time of year again….TAX time!!!

Maybe some think of it as a “fun” time of year, particularly if you are expecting a refund (in which case…why are you doing that?? You’re essentially loaning the government money interest-free for a period of time! Change your withholdings so you end up with a smaller return. That means you’ll get more money in each paycheck!)

For our little family of entrepreneurs (him) and contract workers (me), this time of year isn’t so fun.

We pay estimated quarterly taxes, but last year we had underestimated our taxes and ended up owing a bit when April rolled around. This year, I fear the same thing may have happened. We haven’t finished taxes yet so I don’t know for sure, but I’m a little nervous of the bill we may find ourselves facing. We’ll see. *fingers crossed*

Relatedly, because I’ve started gathering the relevant documents, I’ve seen how much INTEREST we’ve paid this year and it is sickening!

Between student loans, the car loan, and the credit cards (note:  we no longer have credit card debt at this point, but before they were paid in full we did accumulate some interest from them at the beginning of 2014), we ended up paying a total of $5988.95 in interest.

Can you believe it? That’s sooooo much money to be simply giving someone in exchange for them lending us money. It sickens me as I think of all the things we could do with $6,000!

Perhaps not surprisingly, the majority of the interest came from the student loans (just over $3,000), the rest came from the car loan (a little less than $2500) and credit card debt (remaining).

I know you can deduct interest payments for tax purposes*, so that’s what we’re planning to do. Still, I’d much rather pay taxes on that $6,000 of income and get to keep the money in my pocket rather than paying it out as interest. Booo!!!!

Have you started figuring out tax stuff yet? Do you get a refund? How much did you pay in interest last year?

*I should mention that I know next to NOTHING about tax preparation, as I never do my own. Sooooo, don’t take anything I say about taxes as a 100% fact without double-checking for yourself : )


Ashley’s January Debt Update

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I pre-wrote and scheduled a couple of posts for today because I’ll be doing my campus interview all day (my itinerary is from 9am-7pm)!!! I probably won’t have a chance to respond to any comments until tonight or tomorrow so I just wanted to give you a heads up on that. Please send me some good vibes, positive thoughts/energy, prayers, good juju, whatever works for you! I am trying to come off as confident (but not cocky), enthusiastic and likable (but not desperate), professional, and articulate. Remember – I’ve kinda got all my eggs in one basket on this one, so it feels like a BIG day for me! Wish me luck!!!

The numbers are in and here’s how my debt has been shaping up this month…

PlaceCurrent BalanceAPRLast Payment MadeLast Payment Date (original debt, March 2014)
Capital One CC-17.9%-Paid off in March ($413)
Mattress Firm-0%-Paid off in May ($1381)
Wells Fargo CC-13.65%-Paid off in May ($7697)
BoA CC-7.24%-Paid off in June ($2220)
License Fees$22082.5%250January ($5808)
PenFed Car Loan$159782.49%1000January ($24040)
Navient - Federal Student Loans$44448.25%16January ($4687)
Navient - Dept of Ed$722318.25-6.55%260January ($69191)
ACS Student Loans$210407.24%77December ($21035)
Medical Bills$64110%75January ($9000)
Totals$122,312 (Last month = 123,667)Total: $1,678Starting Debt = $145,472

Maybe it’s just because we’ve reached the 10-month mark so some of the newness and excitement has started to rub off a bit, but I’m just not as enthusiastic about my progress as I was early on in the debt-repayment process.

On one hand, we put over $1,600 toward debt this month! That’s great, right?!

On the other hand, my student loan balances went up. Again. (my minimum payments don’t cover the interest, so the balance keeps slooooowly growing).

And my total debt ($122,000+) is still so out-of-control. I cannot WAIT for the day that I break the $100,000 barrier and dip into the $99,999s.

Hubs ended up making an extra debt payment toward his license fees at the end of last month. So if you were to compare the balance this month to the one from last month, that’s why there’s a discrepancy (the table says $250 was applied this month, which is true, but hubs had made a payment of just over $250 at the end of last month, too, so it’s gone down by $500 compared to last month’s beginning balance).

Can I make a little confession that will become pretty apparent anyway real soon (when we talk about how the budget went this month)???

I ended up going a bit over on a couple categories this month. I think some of the holiday-spending spilled over into January and I was just a little too loosey-goosey on my spending. Nothing crazy or extravagant. Mostly just up to my old tricks again….spending too much on groceries and crap that we don’t really need because its oh-so-easy for me to justify grocery purchases as a necessity, even if they aren’t.

Anyway, my plan at the beginning of the month was to pay extra toward my student loans (above the minimums) so I could pay the interest in full and not have a growing balance. *Sigh* Having gone over on my grocery budget (by a lot, I should add), I re-allocated those funds to cover my frivolous food expenses and, alas, the student loan balances continue to grow. Very discouraging.

I will do better next month!

Another confession, since we’re on that train now…

Hubs and I have fallen off the wagon with our monthly finance talks, too.

For long time readers, you’ll know that hubs and I have a unique financial relationship (I talked about it here when I first started blogging). Some of it is changing (e.g., we’re adding each other to all of our accounts this month), but one of the big things is that I’ve always been the one to sit down and actually pay the bills. When I first started blogging we started loosely following a Dave Ramsey-esque type program where hubs and I would have a monthly budget discussion to decide exactly how to allocate that months’ funds.

Over the holidays we’ve sort of slipped back into our old patterns where hubs has simply given me money and I’ve put it where I think it should go. To be clear, I really am doing what I believe to be best with the money (in terms of debt allocations, etc.), but I do think it’s important for hubs to actually be in on these decisions rather than simply letting me handle the funds how I see fit. Things seemed to be moving faster and progress seemed to be better when we were working together. So that’s coming back at the end of this month as we discuss our plans for February.

Hopefully in the coming months we’ll see some stronger progress!

How’ve you been doing with your debt payments? How do you and your significant other handle finances/bills/etc?


Weekly Debt Update #1

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Hey everybody!

I’ve been doing some thinking and since I update my personal debt numbers on a weekly basis and tally my budget numbers, I’dd the same here. I give the run down of my week of week from what I paid on debt to what I spent.

So on Wednesday I got paid $924 (my normal $847.50 plus milage reimbursement for driving). I pay my electric bill on the 2nd week of each month which was $99.70. After I paid myself $70 for whatever gas and groceries (I tend to buy dog food and chicken to help out my girlfriend). This week I was able to make a payment of $752.93 on my Sallie Mae loans.

Rant alert- I really hate how Sallie Mae allocates how you can pay off loans. I’m in the automatic withdrawal program to get .25% off my interest rate on each of my loans. The automatic withdrawal gets made the 21st of every month. My due amount on the 21st is currently $467.91, which they lower as I pay off the loans (my initial payment after college was somewhere around $900!). At the beginning of the month, if I want to make a payment, they don’t allow me to choose which loan the payment goes towards until I’ve paid the full $467.91, even though I make this same payment on the 21st. I guess it’s not terrible in the sense that I’m paying off each of my loans with 2 payments a month plus what ever extra, but I could pay off the lowest ones so much quicker!

So here’s my debt numbers for the 2nd week of January:

Loan NameInterest RateOriginal Balance- May '09Current BalanceTotal Paid Off
Sallie Mae 015.25$27,837.24$24,462.48$3,374.76
Sallie Mae 024.75$22,197.02$19,189.15$3,007.87
Sallie Mae 037.75$20,692.10$655.99$20,036.11
Sallie Mae 045.75$10,350.18$7,723.61$2,226.57
Sallie Mae 055.25$6,096.03$5,356.99$739.04
Sallie Mae 06 & 074.75$6,415.09$0.00$6,415.09
Sallie Mae- DOE 015.25$5,000.00$0.00$5,000.00
Sallie Mae- DOE 025.25$3,000.00$0.00$3,000.00
AES6.8$9,000.00$0.00$9,000.00
TOTALS$110,587.66$57,338.22$53,249.44

And here’s how my budget stands:

Matt's Blogging Stuff

My sister is currently 8-1/2 months pregnant. I bought her a bunch of gifts and had them sent out of state to where she lives. That’s the $116.53 showing up in the misc. category. My $70 didn’t last too long this paycheck. I ended up spending it on a couple of restaurant dinners (totaling $20, but could have been avoided) that I could have avoided, $20 on gas and the remaining cash on groceries. As I type this on Monday night, I’m penniless until Wednesday.

For the coming week, I don’t see too many expenses. I owe my student loans on Wednesday and my folks are coming to visit, which I should be able to use my normal $70 to pay for any expenses with this, but normally we just hang out around the house. Barring anything that comes up between now and tomorrow, I should be able to make a nice loan payment.


Matt’s Debt Update

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Hey everybody! Happy Weekend! I want to share with everybody where I currently stand in my debt payoff and show everybody how far I’ve come:

Loan NameInterest RateOriginal Balance- May '09Balance- August '13Balance- March '14Balance- September '14Balance- CurrentTotal Paid Off to Date
Sallie Mae- Private Loans
Composite (See below)$93,587.66$86,649.97$84,941.71$65,191.89$60,693.68$32,893.98
Sallie Mae- DOE LoansComposite (See below)$8,000.00$5,083.38$1,856.20$0$0$8,000.00
AES Student LoansComposite (See below)$9,000.00$1,100.11$0
$0$0$9,000.00

Citizens Bank Car Loan4.71$16,240.61$11,748.07$10,188.50 $0
$0$16,240.61
Debt Totals$126,828.27$104,581.53$96,986.41$65,191.89$60,693.68

I populated this chart with some important milestones in my debt journey. I want to show everyone my original debt totals as of my college graduation (May ’09), when I sat down and decided to pay off my debt for good (August ’13), my original BAD interview post (March ’14), my update to Ashley (September ’14) and my current debt totals (1/7/15). There’s one caveat to this- I didn’t acquire my Citizens Bank car loan until March ’12, but I wanted somehow to show everyone it’s original balance, so I stuck in with my May ’09 totals.

What I didn’t include here is my mortgage. I it track just like I do with my other loans, but my main concern here is ridding myself of my student loans. If people would like to see it, I have no problem including it, as well.

And now here’s the breakdown of my student loans:

Loan NameInterest RateOriginal Balance- May '09Balance- August '13Balance- March '14Balance- September '14Current BalanceTotal Paid Off
Sallie Mae 015.25$27,837.24$26,493.12$26,210.03$25,443.30$24,841.55$2,995.69
Sallie Mae 024.75$22,197.02$20,794.59$20,558.16$19,949.39$19,480.87$2,716.15
Sallie Mae 037.75$20,692.10$18,473.10$18,039.17$3,424.33$2,965.20$17,726.90
Sallie Mae 045.75$10,350.18$9,172.55$8,923.87$8,370.22$7,966.07$2,384.11
Sallie Mae 055.25$6,096.03$5,801.57$5,739.61$5,571.75$5,439.99$656.04
Sallie Mae 064.75$4,484.9$3,935.73$3,824.74$2,262.38$0.00$4,484.9
Sallie Mae 074.75$1,930.19$1,693.88$1,646.13$0.00$0.00$1,930.19
Sallie Mae- DOE 015.25$5,000.00$3,603.87$1,856.20$0.00$0.00$5,000.00
Sallie Mae- DOE 025.25$3,000.00$1,416.22$0.00$0.00$0.00$3,000.00
AES6.8$9,000.00$1,100.11$0.00$0.00$0.00$9,000.00

I’m hoping this adds some clarity as to where I am, since I’ll be referencing these charts in the future. Please let me know if I have to make any tweaks to this!

Edit: Thanks to Sue for commenting that I should add the interest rates to charts. These have been added above.

-Matt


Matt Here

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Hello everyone! For those who may not know, I initially interviewed to be part of this blog last year with this post (Matt’s Intro). Unfortunately, I was not selected by the community to be one of the original 4 posters (tbh, I was a little heart broken). Despite this, I was not deterred from getting rid of my debt. Now that only 2 of the original bloggers remain, I was asked by Jeffrey (with some help from the other bloggers) to start blogging here on a weekly basis; I will be taking over the Tuesday spot. I could not be happier to share my journey with you.

A couple of months ago, I actually posted an update of where I stood in my debt journey in the comments section of one of Ashley’s posts. I’ll just copy and paste it in it’s entirety:

Well…. I hadn’t heard back from Jeffrey so I figured I’d give you an update…so here goes… From my introductory post, my debts were student loans @ $86,797.91, a car loan @ $10,188.50 and a mortgage @ $71,444.55. My current debt stands at $65,191.89 of student loans, no car loan (paid off last month) and $70,661.61 of the mortgage remaining. A quick calculation shows I’ve paid off $32,577.46 worth of debt in 6 months. I currently make $60,000 a year or $847.50 a week after all my with withholdings are taken out.

My original timeline, when I wrote my introductory piece, was to be debt free in 42 months. My current timeline is to be debt free in 23 months.

Here’s what I did to pay off so much so quickly in only 6 months:

  • I got rid of Directv, firstly. This saved me 89.37 per month. Unfortunately, I was locked into one of those 2 year contracts but you can get out if you pay them $20 per month remaining on the contract. I paid $260 to get out, but I recouped that money in only 3 months. I was only watching ESPN at the time and we have Netflix, which made cutting the cord easy.
  • I had almost $5,000 in an emergency fund which I decreased to $1,000 and used the $4,000 to pay down my car.
  • I had $1,000 in an investment fund which I cleared out to pay down my car.
  • We have a really good system in our house where I pay the mortgage and all the house bills (gas, electric, water, sewer, garbage and internet) and my GF buys all the food. This said, I have a weekly, $0 based budget, where I determine my weekly expenses and “pay myself” $70 cash from an ATM on payday for any misc. food and gas for my car. I then put the rest of the money towards debt. I get paid on Wednesday and by Thursday I normally have $0 in my checking account. The $70 I pay myself was a trial and error of which amount of money allows me to go the whole week with some cash, without having any left over on the next payday.
  • I do a lot of driving for work (which is usually where my $70 cash goes), which they reimburse at $.56/mile. I get paid for this and reimbursement for my cell phone at the beginning of each month. I use this extra to pay down debt, which can be anywhere from an extra $300-$600 per month.
  • I’ve sold a lot of things during the summer to make some extra money to put on debt,
  • By far the biggest thing I did to pay down the debt was withdraw from an old retirement fund I had with the government. When I fully withdrew the account it had roughly $24,000 of pre-tax dollars. After taxes and the penalty I was left with $15,000 or so. HIGHLY controversial (especially if you read over at Man vs. Debt) but I had help making the decision. I sought out a Dave Ramsey ELP (which is a fantastic program) who figured that for my age (27), my discipline and dedication, the amount of money was relatively low, I could pay it back quickly and it was ALL going towards paying down debt then the financial 10% penalty was worth the emotional benefit of having less debt. I don’t regret this decision for one bit.

As you can see, things are a lot different when you’re unmarried and without kids. I can sacrifice in many ways that you could never (and for good reason) do with your husband and two daughters. Although great for paying off debt, my lifestyle is certainly not without its cons either- I’ve lost touch with most of my college friends and even though my family is only 1.5 hr drive from me, I haven’t visited much in the past year. But in my opinion, it’s all temporary, and once the burden is gone, I can budget for night’s out and travel and vacations and all the other fun stuff I’ve forgotten about.

Thanks for listening and sorry for the length, just a lot to go over, lol. There’s light at the end of the tunnel!!

So that’s where I stood as of September 30th and not much has changed. I continued to pay down my debt into October, but given the holidays and needing a little distraction from debt pay down, I took “off” November and then used December to build my emergency fund back up. All said, I’m ready to hit it hard again and cannot wait to get some pushing and prodding from the BAD community!

I’ll be posting my as of 1/7/14 debt numbers at the end of the week.

-Matt