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Last month I was able to pay off my auto loan, about a year and a half early. In addition to the positive effect it has on my credit score, and that I don’t like my hard earned cash going to someone else if I can prevent it, I wanted to pay off my auto loan before my maternity leave started in February.
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Related Post: Pay Off Auto Loan Or Roof Repair
I was able to pay it off by following five strategies for paying off debt fast.
Setting up automatic payments means that I won’t forget to write the check and mail it. My hubby once forgot to pay a credit card that he charged a couple of Little Caesar’s Pizza to, and the $15 in pizzas blossomed to $100 once late charges and interest were added in.
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I had my auto loan set up for automatic biweekly payments, which means half the minimum payment is paid every two weeks. Besides that it lowers the interest portion of each payment than if I paid monthly, I actually make an extra payment on the loan, 13 monthly payments rather than 12 monthly payments.
Payments Larger Than Minimum Payments
While the minimum monthly payment was around $220, I actually made biweekly payments of $140, which means I paid $280 a month (plus the 13th payment of $280). Making the bare minimum payments drags out the loan, which is like pulling the band-aid off slowly.
Putting Extra Cash Towards Debt
Anytime I had extra cash, like a bonus or a tax refund, I applied a portion of it towards the auto loan. Anytime I noticed my cash balance was creeping higher, I also put a portion of that increase towards the auto loan.
Large final payment
Once I reach a point in the loan where the remaining balance can be paid off without causing a big disturbance in my cash balance, I make a large final payment. In January, I had $1800 left on my auto loan, so I bit the bullet and made an $1800 payment rather than the usual (automatic) $140 payment. And now, my car is paid off and I won’t have to make payments during my maternity leave. Yey!
These five strategies can actually be applied to any kind of debt, whether it be a credit card, auto loan, student loan, mortgage, etc. I tend to pay my credit card weekly, and I already paid off my student loan using these five strategies. I haven’t been using these strategies on my mortgage because I’m concentrating on eliminating the smaller debts first, and for some reason, the credit union won’t allow me to set up biweekly payments, or automatic payments larger than the minimum amount. I also have a personal loan for repairs on my roof, which I automatically pay biweekly an amount $50 more than the monthly minimum. I’ll start making extra payments once I return to work. That is, if daycare expenses don’t suck my cash flow dry.
Related Post: Daycare Is Expensive. And Totally Worth It.
Now let’s see how fast I can pay off my personal loan.
There are three major habits that I practice to keep my credit score high, in the high 700’s to low 800’s, depending on which credit agency you check.
Check Credit History Regularly
The first habit is to regularly check my credit history to make sure nothing weird or incorrect is showing up, like a loan or a credit card that I don’t recognize. To check my credit score, I have a free account at Credit Karma, which I log into at least once a quarter. I recently took out a personal loan to cover the cost of a roof repair, so I checked my credit score when I applied for the loan to make sure the loan officer wouldn’t have a reason to decline my loan application.
Related post: Pay Off Auto Loan Or Roof Repair
Frequent Credit Card Payments
My second habit is to make frequent payments on my credit card, usually every week or so. I time it around my weekly payday so that I know I have incoming cash. Paying frequently makes it easier on my cash flow, keeps the credit card balance from getting too high, and allows me to regularly monitor my expenses and determine if I’m spending too much money.
Related Post: 9 Reasons Why I Pay My Credit Card Every Week
Pay Off Debt Early
My third, and probably most effective, habit is to pay off loans early, which I do by using three specific methods.
Firstly, I set up biweekly loan payments whenever possible so that I pay less in interest and pay an extra months payment.
Over time, that extra payment every year adds up. There are two loans, the mortgage and my hubby’s student loan, that for some reason does not allow automatic biweekly payments. But my other loans, my personal loan for a roof repair and my auto loan that I just recently paid off had no problem with biweekly payments.
Payments Larger Than The Minimum Payment
Secondly, most of my loan payments are larger than the minimum payment. It’s easy to do when you make automatic biweekly payments. Just pick an amount higher than half the minimum payment that the bank should deduct out of your bank account every two weeks, and voila, you’re paying more than the minimum payment.
Large Final Payment
Lastly, I pay off the entire remaining loan balance when I reach a point in the loan where doing so won’t cause much disturbance in my cash flow. Most recently, I paid off the remaining $1800 on my auto loan a few weeks ago so that I wouldn’t have any payments during my upcoming maternity leave.
In addition to these three main habits, I’ve noticed that when I carry a credit card balance that is larger than normal for more than a month, my credit score tends to dip a little. It’s probably because my credit card utilization increases during that time, which can affect your credit score.
In analyzing my February credit card activity, I was able to incorporate both my hubby’s credit card and my own, allowing me to look at most of the household expenses, as opposed to just my credit card.
Related Post: Where Did My Money Go in January?
Our cellphone expense was $59.40, which is a little low, considering my normal monthly expense is $45 and his is $25. Since it should be around $70 a month, I expect March’s cell phone expense to be higher than normal.
We spent only $125.45 on food, mostly because I was not home for dinner three to four nights of the week during tax season. My employer provided dinner every Wednesday night, which usually provided lunch the next day as well. I also started relying on those $2.99 frozen meals a few meals of the week when I would forget to pack lunch or dinner.
After a year of a constant puddle of water on our basement floor, my hubby finally went to Home Depot and purchased a sump pump battery and sulfuric acid for $129.58 to repair the sump pump so that it would pump the water out.
Medical expenses were $270.00, which is two monthly payments of $135 on my hospital bill. My January medical expenses were lower than usual because I paid the January payment late, in early February.
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Our meals and entertainment expenses were fairly high at $357.13, mostly because I would either forget or be too tired to prepare my lunches and dinners for the week, and was working 6 days a week. So we would eat out for dinner, thus making our food expenses lower.
There’s a miscellaneous charge of $120 for the deposit on our daughter’s birthday party, which is an irregular charge and will not happen again, other than the remaining balance for the party.
Lastly, the finance charges came to $25.41, bringing the total February credit card charges for our household to $1,474.86. Hopefully March’s credit card activity wasn’t too bad, since I was busy working 28 of the 31 days that month.
To become more consciousness of where my money is going, I created a MS Excel spreadsheet of my December 2016 credit card charges. While it’s not perfectly accurate, it gives me a pretty good idea of where my money went. This includes only the expenses I put on my credit card, and not the entire household. As this becomes a regular habit, I will eventually include the entire household.
I immediately noticed that my fuel was less than $50, which is for my car for the entire month, but not my husband’s. That makes me love my 2016 Honda Civic even more. The $45.00 covers my cell phone for the month as well.
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The $43.07 was at Home Depot for the wall trim to continue my living room renovation and the salt pellets for the water softener.
The $91.28 spent on food is only a portion of our food expense, as my husband normally pays for the food since he usually goes to the grocery store after work when he picks up our daughter from daycare. Since I tend to buy supplies in bulk, the $254.98 includes lots of toilet paper, dog food, and other household items. It should last us a while. And speaking of pets, my old lady cat has been treating the basement like her own personal litter box, so I took her to the vet to assess her health, resulting in a $138.88 bill. I also got the dogs some Christmas presents at the pet store, bringing the total one time pets cost to $152.35. As suspected, the cat is suffering from age related arthritis, and needs to lose some weight, all contributing to her treating the basement floor like her toilet.
Being the holidays, my clothing and meal and entertainment expenses were higher than normal. The $243.70 in meals and entertainment includes treats for my husband and myself, including his Christmas gifts at GameStop, eating out, and leaving work at noon the day before Christmas Eve to see Rogue One. It also includes registering for the Binghamton Bridge Half Marathon in May. I also went to my local Kmart that was in its final days, and bought some clothing and home furnishings, including two rugs, thus increasing my clothing expenses to $233.42.
My medical expenses was the highest expenditure on my credit card, at $410.00. It’s actually a little higher than normal, because I made one of November’s monthly medical payments late, in December, on top of December’s payments.
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And the final charge on my credit card is the credit card interest of $33.04, for a total of $1,554.69 on my credit card. Hopefully January’s charges will be considerably lower, with the holidays over and my hours picking up at work for tax season.
Back in September 2015, I created a financial bucket list for my 30s, which includes items that I had recently obtained, like my house that I have been slowly renovating, and life insurance. It also included items that I was working on, like getting disability insurance, and paying off my car and student loans. I have disability insurance now, and I was able to pay off my car, but I ended up getting a new car, so I still have an auto loan, albeit, with smaller payments.
My student loan has also decreased from the $14,000 balance it was around the time of that bucket list (mid September) to $6,700 today.
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Since I changed employers in February 2016, I was not eligible to contribute to a 401(K) like I had originally planned until August, at which I point I started contributing the minimum amount of 5% to meet the company match. After a few weeks, I increased my contribution to 10%.As for my IRA, I transferred it from LPL Financial to Fidelity because I found it much easier to make contributions with Fidelity than with LPL Financial. I picked an investment fund with a fancy name. My 401(K) is also with Fidelity.
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My new employer also provides health insurance, which I just recently renewed for next year. But since the deductible is a whopping $12,900.00, my financial bucket list now includes getting a health savings account to cover the deductible. That brings me to my 2017 financial bucket list.
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The first item on my list is to pay off my credit card.
I could just pay it all off now, but that would leave a few hundred dollars in my bank account, which I am not comfortable doing. Hopefully, I can pay off my credit card before my tax season ramps up, in the middle of February.
As soon as my credit card is paid off, I plan on increasing my 401(K) contribution to 20%.
I have been increasing my 401(K) contribution by intervals of 5%, and I am currently at 10%, so I only need to increase it 2 more times to reach the 20%. My deadline for my 401(K) contribution is March 1, assuming my credit card is paid off by then.
At the same time, I should probably get a will, now that I have a dependent and a house. Getting a will probably won’t take that long, since I’m not the one drafting the will, but I need to make some unpleasant decisions in order to get the will. I might purchase one of those temporary wills from Staples or Legal Zoom to get by my upcoming tax season, and then see a lawyer in the spring for a more comprehensive will.
I can also work on paying off the remaining balance of my student loan by the end of 2017, or early 2018, as soon as my credit card is paid off. Once I start channeling the funds that are currently going towards my credit card to my student loan, I could have it paid off in a matter of months.
If I can just stop distracting myself with the countless projects I am working on, I could quickly roll over my 401(K) from my previous employer into my IRA. That would be an extra $911.74 into my IRA.
When tax season ends, I would love to finish all the DIY projects I have planned for my house, which includes finishing my kitchen, painting the guest room, master bedroom, and hallway, updating the bathroom, and transforming the basement into a useable room, perhaps an extra bedroom, or a small gym.
And finally, once my student loan is paid off, I can start contributing to a health savings plan, and a college savings plan for my daughter. Perhaps I’ll even increase my 401(K) contribution to 30%, or make extra auto payments on my husband’s car. But that’s more like a 2018 financial bucket item. Let’s just work on paying off my credit card first.