Money Matters
anssett
member
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Our tech team has launched updates to The Nest today. As a result of these updates, members of the Nest Community will need to change their password in order to continue participating in the community. In addition, The Nest community member's avatars will be replaced with generic default avatars. If you wish to revert to your original avatar, you will need to re-upload it via The Nest.
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Thank you.
Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
Are you debt free? Did it feel a lot different?
I've been fantasizing about 'someday' being debt free and how...freeing and safe it will feel. I spent most of my life quite poor and always in debt so this will be the first time in my life I've been this financially safe. We're on track for sometime next year which now feels really soon. However, I'm worried I've built it up too much and it won't feel that different or that much safer. Anyone been on both sides of this and have some experience to share?
Re: Are you debt free? Did it feel a lot different?
Love: March 2010 Marriage: July 2013 Debt Free: October 2014 TTC: May 2015
Except for my house and cars I owe nothing. I don't consider the house or cars debt since they are budgeted for and are afforded.
It took me a few years of really looking at what I need vs what I want. I made VERY hard decisions. In the end I ended up with a credit score of over 800.
Keep up with what you are doing. The other thing is up your minimum payments. Pay at least $10 extra a month. Credit company's look to see HOW much you pay. JUST paying the minimum could be a little hurtful to your credit score.
The only debt we have is a mortgage. We use credit cards, but all balances are paid in full each month. It felt awesome to pay off the cars and DH's SL ahead of time though.
It'll be even better once the girls are out of daycare- that payment is more than our mortgage and utilities so it's really keeping us from looking at larger homes, thinking about fun family vacations, or buying new(er) cars. I'm sure the next few years will fly by though!
We are in the middle of our debt snowball (1 car and 1 SL left, both to be paid off around May). And it's already a huge relief/weight off our shoulders. It's awesome to have a cushion when money gets tight.
I had furloughs this summer and all we had to do to make up for it was go back to paying minimums. When my pay when back to normal, then we restarted the snowball. A year ago that would have been devastating and our savings would have been depleted.
Now, H's work will be slowing down, but we have some wiggle room. We might have to cut down a little on the snowball, but we'll make up for it when it picks back up in March. With each debt being paid off, and see the snowball expand I get excited.
At one time, I was in serious debt, but I busted my ass to get out of it, and here I am - a nice cushion in the emergency fund, a home owner, I can actually sleep at night knowing that my future looks much brighter than it did 5-6 years ago. When I paid everything off, it felt like a huge weight was lifted from my shoulders.
Our only debt is our mortgage, which we pay extra on each year toward principal. We started with a 30 year term, but with paying extra and upping that amount each year, we will be paid off in 15 or less.
We do use CCs, but as the PPs mentioned, we too pay them off in full each month. A big reason we do them is for the "free money" via the cash back rewards.
We haven't had any debts beside home loans. But, I do understand the "burden" they create. DH had to have about $6k in orthodontic work (not cosmetic) and that was after our dental insurance kicked in. So, we had that "burden," although it was a 0% thing. Once it was paid and we didn't owe - it felt good.
Hi...welcome to MM, BTW.
:P
We pay our mortgage biweekly. So, in a year's time we make 26 payments, which does come out to a 13th payment per year. In addition to this, we have extra money each payment going toward the principal only on the loan. Right now, that is an extra $100 per month (on principal). This year we will probably up it to an extra $200 per month.
You raise a good question. I am curious why your FIL advises against this practice.
Generally, it is advised to pay extra toward principal and to make an extra payment each year - the financial gurus you see on the TV shows all typically support this financial strategy.
Perhaps though, a caveat to this "rule" would be if you have higher interest debt...you may want to put more money there first.
There are mortgage calculators online in which you can type in your balance owed, your rate and your payment with extra to principal. They will tell you how much faster you can pay it down.
So aside from my FIL thinking that he knows everything, I forget the exact reasoning he gave. But it was something along the lines of why pay extra into the house when this isn't our 'forever home' - we could take that extra money and invest it elsewhere and make more money. Mind you, my H and I intend to stay in this house for a long long time - unless something drastically changes, we see no reason to ever sell because we got an incredible deal on the house and absolutely love it. I should mention that because my FIL is a retired banker, he really thinks he knows everything when it comes to money and pretty much everything else. Some things, yes, he knows, but even he's been wrong about stuff before. Case in point, the almost $500 mistake I caught when he did my taxes a few years ago. He means well, but you get the idea.
Anyway, I suppose it's a matter of preference with paying a mortgage off early, but me personally, I'd like to do it. I think my H and I will revisit the topic in the new year and see what we will do. Thanks for the advice.
Many people (us included) choose to not put an extra dime towards the mortgage, my interest rate is around 3% and my money can do way better elsewhere.
In the short term, I do agree with you on the bolded. For example, if you have high interest debt, it would be make sense to pay that off first. Or, if you are behind on retirement, that would make sense to make it your priority before a mortgage pay-down. However, the interest on the mortgage compounds, so the more you can pay down to principal, the more of your hard-earned money you will save even in the next 5-10 years.
We have a 3.875% rate on a 30 year fixed, which was opened in June of 2012 for $254k. On the original amortization schedule, for 30 years we would pay $429,985 with that interest if we made no extra payments. On the new amortization schedule, by paying a 13th payment each year, we are cutting about 5 years and saving about $42k. That's just with a 13th payment, we are doing more than that, but I don't have a new amortization schedule for it yet.
BTW, if anybody wants this amortization schedule, just contact your mortgage holder and they will mail you one for your loan.
The 13th payment doesn't amount to that much extra when it's spread out over a year. Could I put the money elsewhere? Sure. But it's like $137 per month. What can I get for that? I could put it into retirement and see it grow (or not).
The fact is, for most people the home we own and/or are working on buying is the largest asset many will ever have. So it makes sense to want to own it outright and not have to pay for it every month...make it a free place to live as quickly as possible.
Yes, this was another reason he gave us. Honestly though, how much extra would you possibly get by deducting the interest on your taxes? We did last year and I didn't really notice a big difference in our return.
My FIL just likes bossing people around, making assumptions, and butting in when he's not wanted. Plus, considering I caught his $500 mistake on my taxes, I'm taking anything he says with a grain of salt. That's a whole other separate issue though
Agree it often comes down to comfort level. We prepaid our student loans and paid them off in 4 years, even though the math says we should not have prepaid and put the money in investments. However our income will likely change in the next few years, so we wanted that monthly payment gone.
With the mortgage, I'm totally comfortable carrying that for the life of the loan (ours is only a 15 year). But if for whatever reason you're not, go ahead and pay more, but just be aware of all your options and what your money could do otherwise.
Well, actually, I remember the first thing he said was about the interest deduction.
Either way, I never really said he was 100% wrong - but more like opinionated when he has absolutely no clue what my H & I are intending to do as far as our future plans. He insists that we are not going to stay in our house, when in fact, we plan on staying since we would rather stay there, and then put money into vacation property somewhere else down the road. I didn't even say that to him because 1 - it's not his business and 2 - that would have opened up a whole other can of worms of him beating his fist like a child and insisting we do what he tells us to do when it's our money, not his.
I don't really mind so much carrying the debt of the mortgage, since we have such a low rate and paid almost nothing for the house, but if I have an opportunity to pay it down quicker to do other things in the future with that money, for me, I think that would be better. I see what you all are saying though and believe me, it makes sense.
Oh, and I'll admit that I know absolutely nothing about investing money too, although I'm willing to learn
So at that point, if you do all this work to your house, do you think you would consider staying rather than getting a different house? Totally unrelated but just curious.
For the record, I'm almost 40, so I'm even more inclined to stay in my house because I've moved around so much in life already, it feels good to finally be more settled