How did you get out of big debt

[bke]

Fidgiegirl do you need help figuring out the monthly interest on a loan?

[fidgiegirl]

Well, I'm not sure, I guess . . . where I get hung up is if I just watch the balance, they are new loans so we are, of course, making payment of say, $100 and the balance only goes down $20. So I am not sure what to track in order to keep our motivation up. Adding to it is that we only get quarterly statements and I need to set up online banking to see the balances whenever we need.

So it sounds like Catherine, you track principal balance and interest as two separate things? You don't even look at the interest you're paying in the whole scheme of the debt reduction? I guess that's where your method of graphing makes a lot more sense than mine - if you plot the balance and can see it go down, and I used to plot HOW MUCH I WAS SENDING IN, then I can definitely see the advantage in your way with a mortgage. Actually, it wasn't foolproof with my student loans, either, but I was trying to remind myself to send in even that $25 or $50 extra and it worked at the time. But if I chart it that way for a mortgage it's going to feel like we might as well just be putting the $25 or $50 into a fire and we'd get the same result. Or even hundreds! Ack!

[bke]

This is where my ledger system is easy. I can see at any given moment how much I owe on mortgage, how much interest I'm paying, how much I've reduced the interest etc.Imake one payment a month when its due including and extra amounts at that time.

You figure it as follows:

The amount of the loan times the interest rate=x. X divided by 12 =the amout of interest paid for the month.

The amount of the monthly payment (including any extra) minus the monthly interest equals the amount going to the principal.

In othe words

10,000x.05 divided by 12=41.67 in interest for the month.

If your payment is $80 and you add another 20 that equals $100 payment. $100-41.67=58.33 towards the principal

10,000-58.33=9941.67 owed after your payment

Next month its 9941.67X.05 divided by 12=41.42 in interest. You reduced your interst by 25 cents over last month!

It adds up! When I paid that extra $21,000 off my mortgage, I dropped the monthly interest by over $140 a month. Or based on the amount of the monthly payment that goes to the principal I eliminated roughly 11 months worth of payments.

The math is pretty simple once you get used to it and its only one transaction a month so I find doing it by hand on paper to be easy and rewarding.

[kitten]

Thanks for the details, flowers! Artist, that's very inspiring to me

Kestra, we do tend to use cash - DH likes it, it's a kind of security thing. Opening his wallet and seeing some cash in there makes him feel like he's not broke I think But you're right, it's harder to track.

I do some recreational online spending that I haven't been up-front about to my DH. I know this has to stop, for all kinds of reasons. But it's nothing like $1,000 worth...

Yes fidgiegirl, if I could figure this stuff out, I might be able to quit my job. What I'd really like to do, though, would be what flowerseverywhere did - keep working and bank that entire paycheck. That would be meaningful to me, even if the job doesn't get any better. At least I could look at that number and see it growing!

I appreciate the info on tracking, charting and using a ledger - these are emerging as a vital piece in the debt paydown process!

[fidgiegirl]

bke, thank you! So simple! That will be a big help. Not only do I want to see how the principal is being reduced, but how much less and less we are owing in interest every month. Plus, as much as I love technology, there is something valuable about putting pen to paper. DH would be able to easily access it, too. The way I had been tracking was beyond him. Not that he couldn't have learned it, just that I made it so complicated that he didn't want to or rather, feel welcome to. It was only "my thing." But he is interested in paying down the mortgages too, so I want him to be able to utilize the tracking tools as well - independently and without barriers (erected by me )

[pcooley]

fidgiegirl -- It has been instrumental to me to use the computer to track my interest and how much it goes down with extra payments to the principal. I don't think I'd be motivated to pay more if I couldn't do that.

The best software that I have used that calculates loans for you is Moneydance. I know Quicken used to do it too, but I use a Mac, and Quicken has been terrible on the Mac.

Moneydance has free extensions you can add to the program, and one of them is called "Payoff!" which basically calculates a debt snowball for you.

Right now, all we have left is our mortgage, and I'm snowballing an extra $684.40 into the principal. The interest portion of the payment this month was $163.22, and it is dropping by about $5 each month. We're scheduled to have it paid off in July of 2015, which is about half the time it would take compared to paying what we're required to pay.

If I couldn't stay focussed on those things, I'd be spending a lot more money on other stuff and a lot less on the principal of our mortgage.

(I would add that I use YNAB for budgeting. I'm basically running two financial programs for our home, but I am motivated by each in a different way).

[fidgiegirl]

Oh, pcooley, I am regretting having deleted all our mortgage accounts out of Moneydance now. I guess I could put them back. It never seemed to calculate correctly. We'll just have to see, though . . . I like Moneydance a lot.

[Spartana]

I was always debt-free my entire life except when dh and I bought a house together. We bought a fixer that was well below what we could afford with a large down payment and plans to pay it off in under 5 years - easy for 2 DINKS (dual income no kids). However, when we divorced about a year after buying the place, I had to not only begin making the entire mortgage payments alone, but had to buy him out of his share too. It was tough but I got a couple of roommates, worked as much O.T. as possible, got a second job, etc... and put every spare penny I had into paying both the ex-dh and the mortgage off. I was able to do both in a about 2 - 3 years by really living just a bare-bones existence. After the house and dh were payed off, I spend a little more time saving as much money as possible then once I had "enough" I kicked out the roommates, quit the second job - then quit the first job awhile later. Eventually sold that house and bought another for cash for about 1/4 the price of the old place and used the extra money to fund a long sabbatical to pursue other goals. That sabbatical turned into full time retirement (at the ripe old age of 42) - and I haven't had any debt or worked in over 12 years since!

One thing I learned while living very bare-bones whi;le paying off the debt was that I LIKED living like that. I loved that kind of simple life much better then a spendy one. So finding that I loved living that way better than anything else money could buy allowed me to continue to live like that without feeling like I was denying myself anything. I'm not since I am doing exactly what I want to do. It was the biggest eye-opener for me and the main thing that has lead to my being able to retire so young. I certainly have a nice life style though, even if it is somewhat spartan by many people's estimation. Wouldn't change it for the world even if I were rich.

[awakenedsoul]

Spartana,
I found the same thing. Once I paid off my SBA loans and credit cards, I continued to live on very very little. (I had read some of your posts on this forum and was amazed at your budget.) When I was in debt I was so stressed and "not myself." I still have my "luxuries": my garden, organic food that I grow, my dogs, the yarn I buy to knit and crochet, and homemade cafe au laits on my porch. I just stopped spending extra money. I realized I prefer to use my bicycle over my car. I like grocery shopping once a month better than going weekly. I have the time to do yoga, pilates, and dance exercise in my living room. A clean house makes me happy, and I do that myself. I don't miss television, and I'm not into technolotgy. I spend $10,000. less per year than I used to...that's a huge chunk for me! I also retired pretty young. (47) I expected to work until age 90, but once I got on the road of living simply, my priorities changed. I really value the extra time and energy.

[ctg492]

We years ago, before the housing boom, before the creative financing era, we made a choice not to ever go back into debt and to pay cash or only charge knowing it would be paid in full when bill came. It worked for us. Knowing fully if we had entered into our 20s ten years later, we could have very easily fallen into the credit trap that was happening out there.
I never stand on a soap box and judge others for past choices, I just wonder why many don't stop by here and get great ideas to start a change.