rheavon's Personal Debt Cutters Thread

[rheavon]

Debt Cutters

How much debt do you need to reduce?

120,965.22 (April 2012) - Down 2.45% from $124,000

How did you get in debt?

I purchased a home in 2010 and have a mortgage as my only current revolving debt.

You've accrued debt. What are the main factors that keep you from reducing it now?

The main factors for me are that the principal balance I pay is so low per month. I also do not have the funds to pay it off outright.

Have you created a budget?

Yes, but it is a challenge to stay within that budget when it comes to non-essentials.

List your top 5 budget busters?

1. Entertainment Expenses (Cable, Activities Outside the House, etc)
2. Eating Out
3. Gas
4. Utilities
5. Waiting to be reimbursed from non-profit work; escrow; taxes; etc

What is your plan to get out of debt?

Continue to make payments on time. Do not carry balances on credit card bills. Apply daily savings towards principal loan balance on mortgage while still putting some money in my savings account.

List your debt with balance, monthly payment, and interest rates.

Mortgage - $1,058.16 per month (includes escrow)- 4.5% - 30 yr fixed

How much will you try to reduce your debt by this year?

$3000 ($2000 would be about normal for 2012 with on time payments)

What kind of support do you need from fellow Debt Cutters to help keep you on track?

Definitely cost cutting ideas for the little things I might come across in this journey. Advice on sticking to that budget to prevent potential pitfalls.

Total Equity*:

40.85% as of Apr 2012
Current Goal is 50% in Dec. 2016

*Since we do not intend to sell/refi in the next few years, this will be calculated based on the 2010 purchase price.

[Spanelli8706]

Congrats on the house and good luck on your debt reduction. :)

[rheavon]

Sending in Dec's payment amount. Not sending additional principal this month because of the holidays- so the principal is dropping by $170.79.

Next month, I'd like to increase principal by the amount it takes to reach $200- or a little less than $30 extra. It isn't much, but it is an affordable boost. According to an early mortgage payoff calculator, increasing my principal even by $30, I'd pay off the house 2 years and 6 months earlier saving an estimated $9,613.26 in interest during the life of the loan.

[rheavon]

Ok still recovering from the holidays so only the minimal $172.07 towards principal was added. Payment was posted over the weekend.

Good news is I'm getting a 3% salary increase with the mid-month paycheck and a bonus at the end of the month. Escrow analysis is also happening this month (and I'll be getting some back). So this will definitely help to go partly towards savings and partly towards the house.

Just glad the holiday season is over! We actually probably spent last than last year in gifts, but spent over our gas budget from driving around and around and going to different places all in a few days time.

[rheavon]

Adding $172.71 - which is the normally scheduled payment.

Unfortunately, my escrow payment is going up by a ridiculous amount- about $60 a month, or $720 a year. It'll be that way starting with the next payment I make for the March statement.

The good news is, I did get a 3% raise, a bonus, and my escrow check back. The escrow check alone was about $3K, so the escrow increase will come out of that amount in the bank over the course of the year- so the increase isn't going to affect us TOO much.

I'm thinking of changing gears here and would like to decide before April if I want to go ahead with this or not. A coworker of mine decided to save up in her own account over the course of 6 years, while still making on-time regular payments, and is now at the point where she can pay off her mortgage in one lump sum. I thought that was SO cool.

So I'm weighing pros and cons here:

LUMP SUM
Pros:

• You earn the interest on the money in your account, instead of the bank over time.
• You can accumulate an additional safety net in case of super emergency.*
• If your home is sold before the mortgage is up, you have additional capital to apply to new home and/or moving expenses (we have a 30 year, but probably won't stay 30 years and will move out of town).

Cons:

• *You could deplete the account in case of a super emergency where your normal rainy day/emergency fund has already been utilized.
• You may be paying on the loan a little longer than you would if you you applied what you could each month- in other words, more interest for the lender.
• Need to remain consistent with paying into this account some amount each month instead of letting it fall by the wayside.

OVER-TIME
Pros:

• You add in what you can each month and see your principal balance drop each month.
• You have more control over the time/length of your loan depending on how much or how little you pay in over time.
• Drops worries about whimsical spending of extra cash, instead sending it to where you can't spend it at all.

Cons:

• The mortgage lender earns more interest quicker on your paid-down balance instead of you earning interest on that money.
• You are at the mercy of hoping your mortgage servicer will acknowledge your additional principal payments and apply them to your mortgage (I don't have much faith in mine).
• If you have a Mortgage Credit Certificate (a program where you get $2K back a year in mortgage interest)- you may see less years of getting that money back once you start paying below $2K in interest a year.

So there we go. I gotta go throw on my thinking cap now, but here's some food for thought I've weighed out.

[kbullsexy07]

You are doing awesome!!! Any extra helps!

[joshmamabear]

You earn the interest on the money in your account, instead of the bank over time

check interest rates in your area since most banks are giving zero interest rates right now. Thanks to Ben B. and this will go on for another 2 years so you might want to re-consider your strategy.