Here’s an update from last week’s ask the grumpies!
I’m appreciating reading folks’ comments!
I’ve done all the paperwork for a home equity loan and am hoping it will be finalized by the end of next week. Our credit score was better than I’d anticipated (our bank takes the middle of the three scores, and ours was a 767, which felt good). We therefore got an interest rate of 5.38% on a loan of $50,000, which was more than we needed, but borrowing the extra amount lowered the interest rate further, and I will simply take the extra and pay it immediately back to the loan against the principle. It’s a ten-year loan, but the loan officer (whom I liked and had a very frank and informative conversation with) calculated that putting the extra money directly back into the loan and then paying just the standard payment would have us paying off the loan in 8 years. And of course paying extra would make that go even faster. And I made sure that there were no closing costs and no prepayment penalty on the home equity loan and that it was for a fixed rate. So prepaying on a regular basis is definitely part of the plan.
I’ve got the budgeting app Honeydue set up and am working on a household budget, and my partner called and got our cable bill reduced by $50/month. It will take a couple of months for us to get a workable budget, I think — figuring out what we currently spend on what and where we want to make changes — but we’ve started on the process. And I’m reading Elizabeth Warren’s All Your Worth.
Also, re: side gigs: I’m starting a 3-week summer gig on Monday, and I just responded to a call for SAT proctors for the coming year. The latter doesn’t pay much, but it’s easy (other than getting up early on a Saturday), and I can send the $$ directly to the equity loan. I’m actually feeling pretty excited about these side gigs, since it’s a way I can directly get more income to pay down the loan. I like the suggestions people made for gamifying this process, and I’m going to play around and find one that works for us.
I hadn’t actually thought about taking that “found” $50 from the cable and automatically adding that to the monthly loan repayment; I was just thinking about its being a good thing in general principle. So perhaps this is where I need to change my thinking around budgeting and paying things off! But I definitely was thinking about continuing to pay the $791 we’re already paying so that we’re making more progress (because the monthly payment the loan will require is in the $500’s). Also, I’ll get a small pay raise that kicks in in September, so that’s some more $$ — not much more, but every little bit counts if I concentrate on making it count.
That all sounds great!
Isn’t it crazy how the cable company was just like, sure, here’s $50/mo? We try to call around about once every two or three years just to ask for discounts. (If you’re not using Ting or a similar discount service, the cell company is usually pretty eager to give big discounts as well.)
Note that All Your Worth has really great advice for long-term planning and getting your fixed and variable expenses about right. Her savings number is a lower bound and her spending number is an upper bound. When you’re in a temporary savings blitz, it’s ok to be way out of whack with increased savings vs. decreased spending. The key word there is “temporary”– I do think she’s right that you shouldn’t have to feel deprived long-term if you have the income not to be, but for a short-term blitz so that you can get those fixed expenses down (which is what debt repayment does), a little pain earlier makes for more freedom later. Dave Ramsey’s “Live like no one else so you can live like no one else” hits that idea hard.
Bankrate has a LOC repayment calculator. If I did everything right (and assuming it matches the type of loan you have), it looks like you might be able to knock the HELOC out in under 6 years just keeping your current monthly payment of $791/month. A single pre-payment of $50 in the first month knocks off more than a month of payments. Applying all of your cable savings each month in addition to the $791 you were originally paying gets you to a payoff date of 63 months, or 5.25 years. You can play around and see what kinds of benefits your side-gigs add. Wouldn’t it be amazing if in 2 or 3 years you could call that $841/month plus any raises you get your own income to spend and save as you please? Even 6 years isn’t so bad compared to the dread you were initially feeling. This is totally doable!
Have any of you just called to get a discount? How did it feel when you paid off a major debt?