Gettin Outta Debt pt 9- Talking about "The Death Pledge" aka "The Mortgage"

For those that are in the position and desire to pay of 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" 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 are paying down your debt at a faster rate and will apply that extra towards future payments. Now you may think well that's ok, it's paying down the debt. In a way you are correct. However, the amount of interest especially on a mortgage is on the front end of the loan. This is why you have been making house 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 30yr loan. Take a look at your amortization table and you'll see what I mean. If you don't have one there are calculators with amortization tables on the internet. I believe at one time the mortgage company was required to give these out but in recent years if you wanted one you have to ask for it. I think too, since they don't have to do it anymore some mortgage holders charge for the table. Once you take a look at yours for your loan, you'll see why they don't want to provide you with one. The faster you pay down the principal the less money they make in interest.

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

• On the $48,175 beginning balance on the loan the 1st payment due on August 1st, of $413.06. $250.91 of that payment is going towards interest, the remaining $162.15 goes toward paying down the principal. Principal balance now is $48,012.85.
• The interest charged on the next payment is figured on the balance of $48,012.85. Now if you make extra payments and for the sake of ease, that total payment is $1239.18 ($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 increased but you've made a $1239.18 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 people to be in debt and not apply payments properly.

This was a 15 yr mortgage. A 30 year mortgage the pay down of principal is at a slower rate thereby more interest is paid out. The interest numbers are higher the larger the loan.

The fantastic thing about this is especially if you have a $100,000 or more, fixed rate 30 yr mortgage, by paying $25-$50 extra each month, the payoff is reduced by as much as 5-7 years. This saves tremendous amounts of interest.

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.

Gettin outta debt pt 8- The turbocharged debt snowball finale

Hi everyone! I hope that you all had a wonderful Thanksgiving holiday for those of you that celebrate it and if you don't I still hope that you had a great day.

In continuation of the "Get Outta Debt" series we left of with the "debt snowball" in action. There you saw how to get out of debt years faster with the money that you are already paying out. I will show you my savings since I accelerated the payment plan even further. I can't show the actual payment amount since that varied as I mentioned before, my paycheck was not the same each time so what I will be showing is the balance, the payoff date, and the savings as opposed to following the original payment plan. Then at the end I'll show the savings from my accelerated debt snowball from the debt snowball I showed in pt 7. Remember the start date was July 2001, I was in the process of building the emergency fund while starting the debt snowball so my payoff order is how the debts are first listed in pt 7 and the numbers are going to be slightly off because of the payoff dates but not by much.

I started with Visa:

• Balance-$2,371.53 @ 12%, Pd off 1/23/02, amt pd $2,461.29. If you recall under the payment plan the financial industry were hoping that I would follow because the monthly payment is so low, I would have paid a total of $3,250. I've saved $788.71.

Next in line was Household Finance:

• Balance-$1,000 @ 9.9%, Pd off 3/15/02, amt pd $1,035.38. Finance industry plan, $1,333. Savings $297.62

The next debt mowed down, the Car Loan:

• Balance-$3,571.39 @ 7.9%, Pd off 8/1/02, amt pd $3,726.36. Finance industry plan, $3,920. Savings $193.64

Next and done with glee, Capital One:

• Balance-$984.43 @ 9.9%, pd off 11/8/02, amt pd $1,055.92. Finance industry plan, $1,292. Savings $236.08

Next, with even more excitement, Bank of America:

• Balance-$4,588 @ 9.52%, pd off 4/11/03, amt pd $5,007.69. Finance industry plan, $5,253. Savings $245

Next on the chopping block, the Perkins Loan:

• Balance-$2,027.15 @ 5%, pd off 5/21/03 amt pd $2,128.95. Finance industry plan, $2,320. Savings $191.05

Next, Direct Student Loans where it started to get fun:

• Balance-$5,786.44 @ 4.22 %, pd off 8/29/03, amt pd $6,064.23. Finance industry plan, $7,352.80. Savings $1,288.57

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

• Balance-$48,175 @ 6.25%, pd of 6/2/06, amt pd $54,436.34. Finance industry plan, $74,763.86. Savings $20,327.52

The total savings by not following the finance industry plan, $23,568.19!! Now that ain't no chump change. Recall from the last post the savings by utilizing the debt snowball the savings was $16,235. But by focusing and redirecting a huge portion of any extra funds I had to turbocharge the debt snowball, I saved another $7,333. Nothing to sneeze at there either.

I hope that you see how costly to you and profitable for the finance industry it is for you to remain in debt. Sorry, but you can never remain above water by continually paying out interest. Where we tend to fail is that we are more concerned about what the payment per month is, instead of focusing on how much in total it is going to cost. And the fact that you are going to have to come up with that payment(S) each and every month for a long time. Unless you are paying cash, the total price paid is always going to more than the original price. That's compound interest working against you as most loans are not simple interest loans anymore. What that basically means to you is that they are getting their interest money upfront. That's why you could have made hundreds 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 less money the banking industry makes.

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, showed ya how to do it, plan. I know everyone's circumstances are different but if you have the income, it can be done. It may take years as I've shown. 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 1 step forward, 2 steps back. 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 or going natural. It take loads of hard work, patience, determination and thick skin. Ya 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 ya. So, lets focus on getting & keeping ourselves in the black.

Another comparison pic

I decided to do another comparison pic to see if I could see any difference from the one year mark till now. It looks like the front locs in the current pic are much more defined than they were at 1 year. They've also condensed more, so the right side and top is a bit shorter. However the ones on the front left side which started locking very early on in the process are showing more length. It's hard to see the changes like this when you are looking at your own head everyday. What y'all think?

1-5 It's All The Way Live- The Locs @ 15months

Just a quick entry showing the locs at 15 months yesterday. The pic on the bottom is from last year at this time when the locs were 3 months old. This is when they had shrunk like crazy from it's starting length. When I look at this I can really see the growth.

Now for all my old school crew; lets jam!

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.

Gettin' outta debt pt 7- Faint light at the end of the tunnel

Alright, are ya ready to see how to use that same money that you are already paying toward debt service to get out of debt months and years faster than their plan? Lets see.

Recaping the balances and the pay off according to their 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 is currently being paid 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 is paid off in 16 months, the very next month as if we still had to make that payment we'll take that $245 along with the $50 we send to Visa until it's paid off, approx 7 months later. So now Visa's payoff will look approximately like this:

• $1972 approx balance, now paying $295 per mo, 12%, the total payoff time is reduced to 23 months, and the total amount paid: $2,455. Instead of the line listed above with the total pay off 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 increasing the lifestyle or incurring more debt. Let's move on.

Now that we've paid off the car loan & Visa, the very next month we set our target on either Household Finance or Capital One since they have the same interest rate and balances. Let's knock out of your wallet, Capital One. So we are taking the car loan payment @ $245, the Visa payment @ $50 and adding that to the Capital One payment of $19 for a total payment of $314. The TKO of Capital One looks approx like this:

• $733 approx balance, now paying $314 per mo, 9.9 %, the total payoff time is reduced to 26 months from 68 months and 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 we've sent the last payment to Capital One, we take that $314 and add it to Household Finance's payment of $19 for a total of $333. The numbers for Household Finance:

• $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 fun:

• $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! Are we catching on?

Next victim the Perkins loan. We are 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. We are now 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, the "death pledge" otherwise know as the mortgage. At this point, a ways down the road, we have 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 with me because we are heading for the finish line:

• $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, we can get out of debt in this case in 8 years instead of 15 years!! We've also saved or should be more aptly put did not have to pay out $16,235!! That's a years take home pay for some people.

Now me being the type person that I am, 8 years was not good enough so as I mentioned before I threw whatever extra came my way to see if I could get out of debt sooner. I'll show you those numbers next.

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

Getting outta debt pt 6- The down and dirty of debt

I'm back with the calculations on all the debt listed in part 5 of this series using the calculator on the right side of my blog page. I'm going to show the debts, the amount of time it would have taken me to pay off the debt based on the payment amount list in pt 5 and the total amount paid to satisfy the debt under those terms. Here is the lowdown:

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

Total amount pd when everything is paid off and the money that was going toward each debt is not applied toward the remaining debt as it is paid off: $102,339.86


That $102,339.86 figure does not even include what I already paid when I had my head up my butt going along with the way things are. 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. Right now would be 113 months from the start date. 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 and whatever else. That might not seem like much but when your inflow has been slashed by 50+ %, that's a hell of a lot of money to have to come up with.

Also I heard on YouTube a news clip from MSNBC that credit card companies are trying to jack up rates ahead of legislation going into affect to stop these practices. 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.

Next you'll see the RDRP- Rapid Debt Repayment plan, better known as the debt snowball or in keeping it real of get the heck out of debt as fast as you can plan in action, using that same $889.58 to reduce the death pledge. That's what the term "mortgage" means but I also apply that to all debt. Then I'll show you the additional savings based on when I paid each loan off and what I paid in total.

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