Coming Up Roses
Posted by michelle on Sep 3, 2012 in Eliminating Debt, Saving Money | 51 comments
A couple of weeks ago, Jeff and I were discussing our finances (something I recommend all couples do occasionally!) and we wondered what our credit score was up to…or down to. A long time ago, I had heard that paying off credit card debt could actually lower your credit rating, which didn’t make any sense to me. Still, it made me want to check. Upon checking it out online, we were truly shocked at what we found. Rest assured; paying off credit card debt does NOT lower your credit rating. Ours went up. Way up. It’s now higher than it ever has been, in the decade-plus that we’ve been married.
Our wheels started turning. We wondered if we could benefit somehow from this finding. Jeff had to work the next day, but said he would call our bank and see if we might be eligible for lower interest rates on our mortgage. Since we had just refinanced last year, I didn’t hold my breath. In fact, when Jeff called me on his way home from work that day, I didn’t even remember discussing the possibility of refinancing….again.
When Jeff got home, we sat down and looked at the numbers together. There they were. It’s funny…I always think my best dreams are in color, but here they were in plain black and white. We would be saving over $50,000 in interest over the life of the loan, and that’s only if we paid the minimum. The reality is that losing nearly two interest points off our APR and shifting from a 20 year to a 15 dramatically shifts the nature of the payment. With the previous amortization structure, our payments were only 37% principle, with the rest going to interest. The first payment in the new loan will be 61% principle, with the percentage only increasing from there.
Because of this, the savings really start to escalate very quickly. The savings will eclipse the closing costs in the middle of next year. By the end of 2015, we will have saved an astounding $10,000 in interest payments. By 2020, we will have seen $22,000 in savings. Finally, as a result of the different payment structure and shorter term, we will have saved $50,000 by the end of the loan.
All of the stats above are assuming that we are only making the minimum payments, but once we finish off our consumer debt, we plan to start attacking that mortgage payment with the same verve and gazelle-like intensity that we’ve been using so far. In reality, we hope to realize savings above and beyond the numbers above.
While looking over the mortgage loan details, we started crunching the numbers and looking ahead to the next couple months and even years. We still have one car loan, and if we continue to make the minimum payment for that, it should be gone by the end of 2013. Of course, if we pay off all our credit card debt by March, we should have almost a thousand extra dollars a month to put toward the car loan. Then, once we pay down the car loan in full, we will have an extra $1400/mo….and guess what? That is before we even calculate any income from side hustles we make on top of Jefferson’s salary, which lately we have been kicking butt at as well. If you’re just starting out on this exciting journey of debt reduction, this is what we call the snowball effect.
Yep, I think I smell a rose or two popping up! Roses in the midst of snowballs, how lovely! By the way, if you arrived here by googling “How To Make $50,000 Fast,” hello and welcome! Sorry to say…no shortcuts can be found here. Jefferson and I have been hard at work for several months on this debt. Don’t worry. It will all be worth it if you start today, too. I know the road is long and dark, and seems too difficult at times, but you can do this. You’re a warrior, dammit.
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Wow, that’s an incredible story. Congrats on saving $50,000+! It’s crazy how a little proactivity on your part will save you that much money. Really impressive.
DC @ Young Adult Money recently posted..Labor Day Weekend & Fantasy Football
Thanks, DC! I’m so happy about the future of our finances. (GEEK!)
Wow, that’s a lot of money you’ll be saving!
Yeah for snowballing!
Mackenzie recently posted..Goals For September
Snowballs! YEAH BUDDY!
Yes, this Chase is not the one to be doling out financial advice!
Ha, Chase! You can give me financial advice anytime you like! (I might not take it…but I’ll totally smile and nod!) :p
It really is amazing how much interest you can save on your mortgage with a few simple changes. For our mortgage, we decided to refinance last year from 3% to 2.15% – yeah we had to pay closing costs but like you guys, it was recouped within a year. I wasn’t able to afford the 15 year mortgage, but it sounds like it should work out great for you guys.
CF recently posted..So you want to get a job in computers?
WOW 2.15?! I don’t even remember them being that low last year! That sounds like a great deal, CF!
Congrats on saving all of that money! I personally believe interest rates will go up enough in the future to keep a 30 year loan but you have to do what is write for you. You’re guaranteed to save that money as long as you pay your loan on time
Lance @ Money Life and More recently posted..Carnival of Personal Finance #367 – Welcome to Disney World!
Lance, I’m not following you at all. We have a fixed rate locked in for 15 yrs! (If that’s what you were referring to?) You lost me! Thank you though!!!!
Congrats – that’s about how it went for us! We went from a 5.375% 30-year mortgage down to a 3.25% 15-year mortgage, which will cut about $50K over the life of the loan. On a yearly basis, it costs us exactly the same since we were on the biweekly payments (so 13 payments/year instead of 12) – so the extra payment is just distributed over the year. I couldn’t stop smiling the day we got our rate lock.
Good luck finishing the refi – ours was a nightmare, but it did end up getting done in the end.
Mrs. Pop @ Planting Our Pennies recently posted..PoP Balance Sheet – August 2012
Sweet deal, Mrs. Pop! I haven’t looked into the bi-weekly vs. monthly. We might still have time to ask about that since ours isn’t completely set in stone yet. We did get the appraisal right where we needed it, but haven’t yet signed the papers. Maybe we can discuss that then. Thanks for the tip…I’d never thought of doing that!
That’s AWESOME! We had a smaller-scale realization with our credit scores. Since my husband never had a credit card or any kind of debt he didn’t have a great credit score and we had to pay the maximum security deposit ($1,400!) to lease our apartment. If we had them check my credit score (I had never checked it and didn’t know what it was) we could have avoided the deposit altogether! It’s no $50,000 but it would be nice to have in our own hands!
Jessica @ Budget for Health recently posted..Low fat ground beef: use this simple trick
That’s amazing that he’s never had a credit card before! I got my first card when I was 17….yikes. I know what you’re saying about the $1400, but hey–maybe you’ll get it back? You’ll probably get at least some of it back, I would assume.
That’s amazing, congrats!!!
Budget and the Beach recently posted..September Goals
Thanks girl!
Congrats on the improved credit score after paying off debt. Although I almost never even think about my credit score, few people take pleasure in it going down, as you can end up paying more more for things. Happy Labor day!
Roshawn @ Watson Inc recently posted..Why Do We Worry About Money?
Thanks, Roshawn! I’ve never been interested in it before unless about to make a large purchase, but wanted to check because of all our debt reduction. I was just curious because of the huge change in our finances as of late. Hope you had a great Labor Day yourself!
WOW!! That is awesome! Thanks for taking the time to explain the details on the switch to the 15 year mortgage, I love little details like that and it sounds like a great deal for you guys too. My credit score has gone up by about 10 points in the last few months thanks to paying down debt. I’m so happy you are going to save money on your mortgage, your biggest expense!
American Debt Project recently posted..S&P 500: So Long Sears…Where Do You Do Your Shopping?
Sweet, ADP! I’m always happy to share the details with my finance geek friends! =D See you in a few days!!
That’s wonderful! Kudos to you for checking your credit score and applying your newfound credit rating to a $50K savings!!
Christa recently posted..Teaching Kids About Debt
I think we definitely made a good decision! Well, unless the rates go even lower (I don’t see that happening again for a while, though.)
Congrats! I’ve been missing all the good refi-rates because my house has been in shambles from all the remodeling. It’s been a difficult pill to swallow.
Paying off credit cards definitely doesn’t hurt your score. It should help it. What you want is a healthy credit line (a few cards), but balances that are less than half.
Oh that stinks, JP! Maybe they’ll still be low, or be low again, when you’re done remodeling.
That’s awesome! We refinanced our house for the same reason. And now your house will be paid off sooner. It’s a win-win!
Holly@ClubThrifty recently posted..Student Loan Debt Forgiveness: A Rant
Totally, Holly! We probably need to reassess at a later date for what kind of goal is feasible for paying off our mortgage. Right now, that just seems ridiculously far away still.
Getting on a 15-year mortgage is a HUGE deal. While it will cost you an extra $50/month you’ll probably knock off $100-200/month in additional principle! During the time I did the Dave Ramsey coaching stuff I’d show my clients the difference between a 30-yr mortgage and a 15-year mortgage. It was truly amazing and in most cases they would have saved more than just the $50k!
Congrats on getting it done! Hopefully the closing goes smoothly!
WorkSaveLive recently posted..Tragedy Strikes Close to Home: Why You Need to Have Life Insurance
I believe it, Jason! If we had a more expensive home, obviously it would be worth a lot more to us! Crazy…
Love it. I’d shop the rate around a bit, just in case you could do even better but it sounds like fantastic savings! Very, very cool.
Nick recently posted..When is the last time you bought something new?
We did shop it and talk to some in the business. We got a good deal, I’m confident.
Wow, that is amazing that you cut 50,000 off of the mortgage. Way to go, and now that you’re paying over 50% principal it will seem like you’re actually making progress.
MoneyAfterGrad recently posted..August 2012 Spending Recap
Exactly…we’ll actually be paying down our mortgage, not just interest! That will be nice for a change.
Congrats on the credit score, and being wise enough to make good use of it. I bet how you guys feel inside is indescribable in words. Love hearing people save money!!
Eddie recently posted..Don’t Let Fear Sucker You Into Payment Protection
I can describe the feeling! It’s kind of like that scene in Flash Dance…where the chick doesn’t fit in the sweater and it’s all falling off her shoulders, and she’s jumping around the room in her leotard…It feels exactly like that but with less treble, if that makes sense.
Sweet! I especially liked your gazelle phrase, hehehe.
We tried to get our original mortgage with a 15 year amortization, because of the huge difference in where the payments went (principle/interest). We couldn’t quite do that, but with some extra payments we are down well below the 15 year mark. It’s nuts to think of how much longer it would take to pay another $50K and how many other ways you’d like to spend it, eh?
Anne @ Unique Gifter recently posted..Creative Cash Gift: Photo Jigsaw Puzzle
I’m trying not to mentally spend it!
Congrats getting below the 15-year mark.
Thats so awesome! Good for you!!
Thanks! I’m pretty excited about it.
That is so awesome that you will be saving that much. We just did ours back in June and we ended up saving about $90k if we make just the minimum payments (which we won’t). Good luck on your refi!
DebtsnTaxes recently posted..August Budget & Net Worth Update
Paying the minimum is for sissies!
Great job…90k woot!
WOW. AWESOME! Funny what handling your money right and getting a great credit score can do for you.
Great job and thumbs up to your husband for calling the bank to figure stuff out — most people are too lazy, but here, your husband not being lazy will save you guys $50K!!
TB at BlueCollarWorkman recently posted..Blue Collar Roundup — Didn’t Make the Cut Edition
I know right? Who knew following the rules and being kinda boring for a few months would be worth anything?!
What a great concrete example of smart uses of finances to motivate others to do the same. $50,000 saved over the life of the loan? Thats awesome! How long had it been since you checked your credit score? Even a credit score that goes up a couple of points can be a great help, but the fact that yours raised to the highest its been since you two got together is awesome. Congrats on the discovery of saving so much!
Kelly@Financial-Lessons recently posted..iPhone and Droid Apps for Your Small Business
That’s awesome — imagine if every time you and Jeff talked finances you found $50K — you’d never talk about anything else!
Kathleen @ Frugal Portland recently posted..State of my Debts: September Check in
Hmmm….I wonder if it does and I just don’t know it! I’m going to have to have another talk with Jefferson tonight!
You are an amazing writer, Michelle! It’s known fact that you can save a great deal of money on the interest with 15 years vs 30 years fix rate. But, your style of making this an entertaining yet engaging article makes it all the more interesting read. Great job!
Shilpan recently posted..Trade Your Way to Financial Freedom
You’re so sweet, Shilpan! I’m glad you enjoy my rambling.
Congratulations on this, and I hope it all goes through! We refinanced earlier this year and saved thousands of dollars! A little bit of ambition on these types of things can add up to quite a lot down the road!
My Money Design recently posted..Social Security Benefits – The Kid Picked Last for Dodgeball
MMD, you’re right. Everyone talks about what a pain the process of refinancing is, but we had no hiccups. Little bit of research, a spotless house ready for inspection, and then about 500 papers to sign and voila….lots of saved money!
That’s a great story! I have one question – when you say your credit score, is that a joint score? I’m not familiar with that existing but it sounds like some kind of merged credit score. Or is it just that both of your scores were individually good?
Frugal City Girl recently posted..Elul for Gentiles: What the Days of Awe can mean for you
Hi FCG! Great question. Sorry I didn’t explain that better. Since Jefferson and I have shared accounts since we’ve been married–and we were very young when we got hitched!–our credit scores are within a few points of each other. Mine is actually the higher one…lol, but it’s only because Jeff has one more card than me, and it’s one that he has to have for work emergencies.