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Making the Most of Additional Loan Payments

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Thank you for all your input on our move. The real estate agent thinks we could ask at least $475,000, and that could give us about $200,000 of profit from the sale. Now to weigh our options, consider your thoughtful input, and decide what the heck to do!

How to Make Additional Loan Payments

Meanwhile, we’re still trying to gather extra payments each month for our student loans. Like I’ve said before, we refinanced our student loans with Earnest in September and then set up auto-pay to get the rate down to 4.3%. That payment goes through on the 22nd of each month.

Last fall I finally learned the trick to making additional payments on top of your required payment: when you’re able to put extra towards your loan, schedule it the same day or the day after your normal payment. That way the extra payment will go towards lowering your principal, instead of paying off a bunch of interest but not chipping away at the beast itself. You’ll owe less interest because your principal is lower. So I always shoot to pay extra on the 22nd or 23rd. I’m sure this is obvious to some people, but I was clueless and I really wish I’d understood that sooner.

(I should note that Earnest’s policy is that all additional payments go to interest first, then principal; they’re not considered early payments. It sounds like with some other lenders you need to contact them each time to make sure an extra payment goes towards principal, and not just the next month’s payment.)

Making the Most of Additional Loan Payments

Bonus Refund This Week

So speaking of additional payments, we had an unexpected/weird-but-welcome tax refund come in this week that we’ll be able to put towards our loans.

First a little backstory: a few months ago, we were audited by our state. BOO. It was so unnerving. They audited 2017, our first full year with the business. Our accountant was surprised, and guessed they were trying to teach new business owners a lesson or to warn us to be vigilant or something. Lucky us.

When all was said and done, we did fine but they disagreed with how our accountant filed one thing. But that mistake meant we owed $3,000! Feeling a bit panicked, my husband sold some sports memorabilia he’d been saving to get us the money. Thanks to that, the payment stung but it didn’t kill us.

We vowed to learn from the audit and to keep doing our best to play nice with the IRS.

Fast forward to this past weekend: we got a letter from our state’s tax department saying that THEY owed US $6,000 for 2017. Say what?? We talked to our accountant on Monday, and he said that whatever they found in the audit must have triggered this.

We’re anxiously waiting on that $6,000 check (which still seems too good to be true), and feeling overwhelmed and grateful for it. I’m trying to see it as a blessing and an asset, but I’m also pretty guarded. I worry the IRS could come back at any time and say, “Psych! We paid you $6,000, but now you owe us $12,000!” Wouldn’t that be fun?

But if that money really does come in, I’ll gladly make an extra loan payment right after our auto-pay. Take THAT, principal.

Anything else I should know about making the most of additional loan payments?

Good News All Around

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Earnings update

I had a different post drafted explaining how I still don’t know what I’m earning at work this year. I said I’d revisit that topic in February… but my boss finally called last night! Along with a very nice letter commending my contributions in 2019, I found out I will be earning a little over $95k this year, retro to January 1. That’s an increase of almost 16%! I’m really happy with this number. He also advised that my bonus for 2019, while not yet approved, would be a bit above my contractual maximum of 10% of my salary (which was $82k in 2019).

My boss called at 8:30PM last night and I haven’t had a chance to really work with these numbers yet. However, the biggest takeaway for me is that I want to save my new additional salary in an RRSP. Registered Retirement Savings Plans are the Canadian equivalent of a 401k. A person can borrow from them tax-free for a downpayment on a first home. The person then has 15 years to pay it back, and this is generally considered a sound financial plan.

So, I won’t be taking home any additional money with this raise. In fact, I plan to live on even less than I did in 2019, seeing as I’m still pretty frivolous about spending.

Plan for my bonus

I am assuming my bonus will be around 9k (it could be more – to be announced “soon”). My deductions are usually around 30% of my paycheck (between income tax, Employment Insurance, Canada Pension Plan, life insurance, and my RRSP contributions). I’ll apply that 30% number here as a (really, really) rough guess. Let’s say I’m taking home $6,200.

My student loan balance is $3,662 (and by the time bonuses are paid out, it will be around $3,400). I’d like to pay this off first, as the rate of interest can fluctuate. It has even gone as high as 7% in the past (it’s currently at 4.65%). Being done with this debt will leave me with an additional $200 to put towards my line of credit each month!

I’ve decided to put $2,000 of this money aside for a proper vacation to see family this year. Seeing my family is the most important thing I can do with money other than save for a house. I’m certain many will have differing opinions. Hope is getting some flack in a recent post about travel. I can see both sides of the equation, but we each have our own priorities. I stated at the beginning that I was going to eliminate debt in a balanced, moderate way. I’m hoping to demonstrate that a person can enjoy nice things while lowering their debt each month and adding to savings.

Everything else will go to my line of credit, which will have a balance of around $8,000 at that time. That account has an interest rate of 4.99% until November. I’ll then spend the remainder of 2020 killing the line of credit debt before my interest rate goes back up.

The last couple of days of vacation

News about work couldn’t have come at a more relaxed time. It must be being around my mum – guys, I’ve slept over 7.5 hours a night each night I’ve been here. On top of that, my Apple Watch is showing my sleep is deep and uninterrupted! I feel like a new person. We’ve been hiking, birdwatching, and going to the beach, all of which must help with the sleep quality.

Nova Scotia Beach

 

Yesterday, we went swimming at an incredible municipal wellness facility (that has a lazy river and waterslide!). Running around with my nephew is certainly keeping me busy.

Family

 

That’s it from me for now. I’m glad to finally have the numbers from work and now I need to finalize the budget. I realize this is going to take true commitment and time. I’m returning to Ontario refreshed and motivated to have my best financial year yet!