When 2020 began I had a 0% interest car loan with a $6100 balance and a monthly payment going out of $275 (monthly payment plus some extra). In December I made the decision to get rid of that car loan and free up that cash each month. On April 15th I paid it off. I used my income tax refund, my annual company bonus and some hard earned cash and I paid that loan off in two big payments.
I immediately began to focus on some medical debt we had incurred in 2018 and 2019 while adding cash to our emergency fund which had only $1,300 left in it. I prefer to keep it at $3,000 and decided back in December that I would feel more comfortable if it was at $5,000. Every payday since then I added a set amount to our emergency fund and when my stimulus check arrived at the end of April I was able to top it off and meet my new goal of $5,000.
In order to free up more of my cash each month I started watching the home mortgage interest rates and checked in on them weekly beginning in January. When COVID-19 shut down our economy I expected to see a drop in those interest rates and in mid April I contacted the mortgage officer at my credit union to let him know what my plans were for refinancing what was left of my current mortgage. In the meantime I whittled away my medical debt and added more to my savings account each payday. I had been selling stuff on eBay to purchase items we needed in order to free up more of my paychecks. I also used some of that eBay money to pay bills. It was working out very well.
In mid April I got a call from my mortgage officer that we should get the ball rolling on a refinance. After crunching the numbers and taking into consideration all of the fees I'd incur I still came out well ahead and it made a lot of sense for me to go ahead and do this. My current interest rate was 6.5% and my new rate would be 3%. That alone was going to save me thousands. It didn't make sense for me not to do this.
In mid May I got my house appraised and it came in at exactly what I expected it to. To the penny. Yay! I also decided to take out a tiny bit of my equity to use to pay off the bulk of our remaining medical debt and while I was on my staycation I sat in the parking lot of the title company and closed on my new mortgage. Not how it typically works but you do what you have to do right now.
With no house payment going out from mid April to mid June I put all extra money into savings and I used the equity cash to make a good sized payment on my last big debt. Right now I have $1,400 left to pay off as far as that debt goes and plans to knock that out completely in the next two months. Once that is paid off I will only have my house payment, utilities and groceries to budget for each month. Health insurance and HSA deposits as well as my 401(k) contributions are automatically deducted from my paycheck each time I get paid and I have a set amount I plan to contribute to savings and other retirement funds as well.
I am extremely pleased with my current situation and feel like I've made some really smart changes. Regardless of what the future may hold I'm much more comfortable knowing that I will be able to keep a roof over my head and will be much better prepared for emergencies and whatever else life throws my way. I think even Warren Buffet might agree.
You are doing a fabulous job at debt reduction. You bring up the giddiness I felt when we were on the same path. I am so excited for you achieving all these financial dreams!
ReplyDeleteOne suggestion that worked for us? Make biweekly mortgage payments. Every 14 days (pay day?), make a 1/2 payment. You'll make 13 full payments every year and not feel it all and hack years of interest off of it.
Then again, with a 3% rate, you'll do better to dump that "13th payment" into pre-tax retirement funds if you're not at the federal max allowable.
I'm happy you're sharing so much detail about finance, frugality, doing repairs and thrift shopping. We have so much debt in our country and people keep buying.
Thank you for educating!
Great suggestions. Thank you Elle. :)
DeleteI wouldn't have been able to retire at sixty if I have debt and no savings. I feel like, as a nation, we have become use to being in debt. Our country is in debt and we have leaders that tell us it's okay because we can pay the interest. What kind of message does that send to the American people?
ReplyDeleteYou are doing a great job attacking your debt. Stay on course. BTW, I retired three years ago because of medical issues. But since I was in good financial shape, I was able to leave. I am still eighteen months from getting my pension and thirty six months from social security. But I will be okay.
I love how you keep it real and you really are helping people.
Oh thank you Connie. I'm teaching my girls and doing my best to set a good example. Sometimes debt happens as was my case, but doing everything I can to get out from under it was super important. I'm thrilled to be where I'm at right now and know in a few months it will all be over. :o)
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