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Debt Consolidation Programs Made Simple

April 30, 2011 By Leave a Comment

debt consolidation

(This is a guest post by Fay who runs a debt consolidation website at PayingPaul.com)

If you want to get out of debt, there are several options you have. Debt consolidation programs are very popular.
There are many different programs, but all serve the same basic purpose. The goal is to consolidate credit card debt so that you can pay it off as quickly as possible while saving money on interest.
Here is a look at the four main types of debt consolidation.

Credit Counseling

With credit counseling, you sign up for a debt management plan.
A credit counselor evaluates your income and debt and determines one monthly payment that you can afford. You send that payment to the credit counseling company.
Then, they distribute it to your creditors. The creditors agree to the program, often eliminating some fees. These are long term programs that usually involve paying the full amount of debt.
Credit counseling services also provide you with credit education.

Debt Settlement

Debt settlement involves negotiating with creditors to reach a sum that everyone agrees will settle the account.
Credit card companies are usually happy to settle because it guarantees them some money without having to worry about legal matters. Debt settlement is also beneficial to consumers because they are able to save money on their debt. However, debt settlement can have a severe impact on your credit rating.

Unsecured Loans

Another option is to take an unsecured personal loan to pay off your debt.
This is popular because the interest rates for the unsecured loan are always better than the interest you are paying on your credit card debt. You also aren’t risking any collateral, such as your home or car.
However, unsecured loans usually have stringent credit requirements.

Secured Loans

Secured loans are great options for homeowners. With a secured loan, you are using collateral to obtain a loan to consolidate your debt.
The most common form is your house. This can be done through taking a home equity loan. Essentially, this is a second mortgage. You can also refinance your mortgage, giving you a lump sum of cash that you can put toward your debt.
Because you are using collateral, credit requirements aren’t as tough and you will get good interest rates. On the downside, you are putting your home at risk.

Filed Under: Debt

Calculating the Value of Airline Credit Card Bonuses

April 29, 2011 By Leave a Comment

airline credit card

 

(The following is post is by guest blogger Michael, founder of Credit Card Forum)

During the recession, those uber-generous bonus offers for airline cards basically disappeared. However over the past year or so, they have come back in full swing. But determining their value isn’t as easy as it used to be, because many airlines have re-worked their reward programs over the past 2 or 3 years to accommodate higher fuel prices. Here’s a look at three of the most popular offers from 2011 and what they’re really worth…

Capital One Venture Card – Match My Miles Challenge
You probably saw the commercials a few weeks ago with Alec Baldwin peddling this. In a nutshell, Capital One was offering to match your current mileage account balance – up to 100,000 miles – if you submitted proof and then spent $1,000 during your first 3 months with a new Venture card.

But how much is this bonus worth? Well the Venture “miles” are not like regular frequent flyer miles. Rather, they can basically be thought of as cash; each mile is worth exactly $0.01 towards a travel purchase. So assuming you actually had 100,000 miles on your current mileage account (whomever that may be with) then the value of this Venture card offer is $1,000… which is truly mind blowing!

The bad news is that they ended this promotion earlier this month. But if it comes back and you have a frequent flyer account with a boatload of miles, then you will probably want to take advantage of it (even if you signup and cancel afterward, like Jon advocated with the Citi ThankYou credit cards, ha!)

British Airways Credit Card – 100,000 Bonus BA Miles
This offer was just launched a couple weeks ago and like the Venture card, it has generated quite a bit of buzz. What they are offering is 50,000 bonus miles after the first purchase and another 50,000 for spending $2,500+ during the first 90 days. This offer was supposed to be ending but just today, Chase announced that they would extend it until May 6th.

So what will these 100,000 miles buy you? Well it ends up being enough for two round-trip transatlantic flights. The fine print goes into further details; from USA to “Europe Zone 1” which includes the UK, Germany, France, Belgium, Ireland, Switzerland, and Luxembourg. However keep in mind the cardholder is still responsible for paying fees, taxes, and airline surcharges out-of-pocket, which can really add up on international flights!

In terms of the cash value of this promotion, I suppose it would vary based on your destinations and flight dates (which would affect the cash price you would normally pay for the same tickets). Regardless, I think it’s safe to say this appears to be at least a $1,000 value. I actually have never been to Europe myself, but am strongly considering this offer to change that! Plus, since I advertise the card on my site, I would get a few extra bucks for signing up anyway. Here’s is my full review of the British Airways credit card promotion.

Southwest Airlines Credit Card – 20,000
If you’re a member of the Southwest Airlines “Rapid Rewards” frequent flyer program, than you are well aware that for 2011 they totally changed the way you earn free flights. Here’s a comparison of the new and old Southwest programs. There are pros and cons for both versions but to sum it up, the old program was better in the sense that you got more value per point. However I personally like the new program better, because it does away with blackout dates, rewards expiration (before they expired after 24 months), and you can use points for any seat (you don’t have to worry about “award seats” being available).

The promotion that Chase and Southwest are currently running is 20,000 bonus points. But what’s the value of that in the new program? Well if you are redeeming your points for “Wanna Get Away” fares, then you get $100 airfare credit per 6,000 points. That means your bonus is worth $333.33. That being said, point conversion isn’t the same for their other airfare tiers. I recently wrote a review of the Southwest Airlines credit card which goes over the current program.

Although $333.33 is a nice bonus, the value is comparable to what the Gold Delta SkyMiles, Continental Airlines OnePass Plus, and a couple other airline cards are currently offering. That means unless you regularly fly Southwest, there is no reason to jump at this specific offer.

Conclusion?
For 2011, by far the biggest standouts for bonuses in the airline credit card category are the Capital One Venture and Chase British Airways. It will be interesting to see what the offers will look like throughout the rest of the year. Unfortunately with oil hovering around $105 to $110 per barrel and possibly heading higher, I wonder if they will be forced to scale back the promotions?

Filed Under: CC Reviews

20 Personal Finance Blogs That Will Make You Rich

April 27, 2011 By 20 Comments

Before I started blogging on the topic of personal finance, I was a regular reader of multiple personal finance blogs. Personal finance has always been a passion of mine, so I never just read one blog. Because each blog has its own writing style and ranges of topics, I found myself reading numerous blogs. There are hundreds of personal finance blogs out there but few that have made an impact on my life within the area of personal finance. There are a lot of bloggers out there who simply regurgitate information that is already out there on the web. Here are 20 of my favorite personal finance blogs, I’m sure you’ll enjoy them as much as I do!

Christian Personal Finance-

 

 

 

 

 

 

 

 

PT Money-

 

 

 

 

 

 

 

 

Bible Money Matters-

 

 

 

 

 

 

 

 

Budgets Are Sexy-

 

 

 

 

 

 

 

 

Consumerism Commentary-

 

 

 

 

 

 

 

 

Money Ning-

 

 

 

 

 

 

 

 

Cash Money Life-

 

 

 

 

 

 

 

 

20 Something Finance-

 

 

 

 

 

 

 

 

Free From Broke-


 

 

 

 

 

 

 

Moolanomy-

 

 

 

 

 

 

 

 

Bargaineering-

 

 

 

 

 

 

 

 

Punch Debt in the Face-


 

 

 

 

 

 

 

Get Rich Slowly-

 

 

 

 

 

 

 

 

Man vs. Debt

 

 

 

 

 

 

 

 

Five Cent Nickel-

 

 

 

 

 

 

 

 

The Digerati Life-

 

 

 

 

 

 

 

 

My Money Blog-

 

 

 

 

 

 

 

 

Money Smart Life-

 

 

 

 

 

 

 

 

My Dollar Plan-

 

 

 

 

 

 

 

 

Money Crashers-


Filed Under: General Finance

The United States Debt Gone Wild Round 2

April 25, 2011 By 1 Comment

One might ask, “Why is it a problem that the Fed keeps interest rates low to devalue our debt interest payments?” Having a simple understanding of economics assists you in answering this question.
To simplify things, imagine three dominoes. The first domino we will call “The Fed”, the second domino we will call “Inflation” and the third domino will be named “Interest Rates”.

These dominoes are lined up one after the other, with the “Fed” as the first domino and “interest rates” as the last. As with regular dominoes, when you knock over the first, a force is exerted on the second, causing it to fall and exert a force on the third. This is the order of operations by which the Fed controls interest, and thereby controls our debt payments.

The Fed’s main policy tool is called open market operations. This is the buying and selling of debt, in the form of US government securities such as Treasury bills, notes, bonds and TIPS. When the Fed, through open market operations buys bonds, the Fed receives the bond and debt-holders (such as the US public and foreign nations) receive cash for their bonds. Therefore, when the Fed buys bonds, it injects liquidity into the economy by increasing the amount of dollars available to the public. The reverse is true of the Fed selling bonds; in this instance the Fed gets cash and US corporations, citizens and foreign counties get US government debt.

Over the past ten years on net, with the exception of the last three years (which we’ll get to), the Fed has been keeping liquidity in the economy to a minimum by selling US government securities. This regulation of cash in the economy has created a situation where inflation cannot rise rapidly. This is a simple example of supply and demand, whereby the fewer dollars that are in the ‘system’ creates a situation of scarcity causing each dollar to be more valuable. Conversely, if there are more dollars in the economy, price levels tend to rise because each dollar is worth less and there are more nominal dollars.

The definition of inflation is ‘a general rise in the level of prices, causing purchasing power per dollar to decline’. Because dollars have been predominantly scarce (comparatively), price levels did not have the opportunity to rise and inflation was kept to a nominal 1-3%.

Interest rates, our third domino, are usually based on inflation. Why do I say ‘usually’? Well, as inflation rises, even marginally, it only makes sense that interest rates would have to rise higher to provide a positive return on investments for those lending money. Over the past ten years, our real interest rates have been a negative percentage (or zero) because inflation, as low as it has been, has actually outpaced lending rates. This has allowed the US government to pay off its debt in ‘cheapened’ dollars, as inflation has slowly eroded away the value of the dollars that we are paying back, while the interest rate has been stuck below the value of inflation.

All fine and dandy right? We are paying back our debt in cheaper dollars…sounds great! … Wrong! In the background, while the Fed and government are utilizing monetary and fiscal policy in attempting to save themselves from going broke with interest payments they cannot afford, our debt continues to increase beyond what we are paying back.

The real amount that we owe is ever climbing, and the moral hazard presented by allowing interest payments to be negative means the government will continue to borrow and ride the Fed’s “good graces” until we have spent ourselves into oblivion. Eventually, the real interest rate will have to be constantly zero so the government doesn’t become insolvent, leading to would-be creditors not wanting to lend money and receive negative return on investment, leading to zero economic growth, leading to layoffs, depression, government dissolution, etcetera…but we’ll save that for the “Future” article. Aren’t you excited to learn about your future?

Filed Under: General Finance

Energy Saving Tips That Work

April 23, 2011 By Leave a Comment

This guest post brought to you by uSwitch. Enjoy!

As environmental issues become ever more important and household budgets become tighter, cutting back on home energy consumption ticks both boxes. Electricity prices continue to rise yet the wages bill drops, so the only option is to use less and spend less on energy.

The first step to slashing the bills is to complete an energy comparison to ascertain whether you are using the most competitive source available. Energy comparison websites search all the different energy prices available to you to compare gas and electricity prices. Only if you compare electricity prices will you know whether you have the best deal going, yet many people still have a misguided sense of loyalty and stay with the same company for years, instead of using a website or broker to compare energy prices on their behalf. This simple trick of energy comparison could save hundreds of pounds per year.

While you put your computer to work to compare energy prices there are other tips to follow. Lights are a big drain on your energy use, so do not turn them on unnecessarily if it is a bright day, or if you are not completing a task that needs good illumination, such as watching TV. Always turn them off when leaving a room and use low energy bulbs everywhere. Designs have moved on since they were first introduced and are now available in different shapes.

After you have completed your search to compare electricity prices, turn the computer off. Leaving it on idle or standby uses unnecessary energy, so always ensure at night all equipment is properly switched off and turned off at the plug, including the television. And always unplug any chargers when not being used as they will continue to drain electricity. At night get into the habit of switching all sockets off and pulling out the plugs.

Try turning the heat thermostat down by one notch and use a timer to ensure the heating only comes on when there are people in the house. Try using two quilts instead of having the heating on all night and wear thicker clothes. If everyone only uses one room in the evenings, keep the doors closed to prevent loss of heat.

Check that your house is adequately insulated. Grants may be available so ask your council. If eligible you will be offered free or subsidised loft cavity and wall insulation. And if your house is not double glazed the investment could save a lot on your heating bills.

Look into alternative fuel source. If you compare gas and electricity prices and are left horrified, it may be time to ditch the gas fire and open up the wood fire behind, particularly if you have access to a supply of cheap or free wood. Placing a back boiler at the back will also provide you with hot water. Investigate grants for solar panels or wind turbines and in some instances it is possible to sell any non consumed power back to the national grid.

As energy costs continue to rise, putting a little effort into making some savings can add up over the course of several years to a significant amount. It may just be the difference between booking that summer holiday or not.

Filed Under: Investing

What to do with a Salary Raise?

April 22, 2011 By 1 Comment

salary raise

It’s tax season as well as salary raise season for many companies out there. If you are working for a company that is thriving in this recession, congratulations! I’m thankful to be working for one of those companies. Well, I’ll just cut to the chase. I got my first salary raise! I won’t go into details about the numbers, but let me tell you, it feels great to have gotten my first pay raise woo hoo!

If you’re like me, this is your first pay raise out of college. Don’t let the excitement get to your head! The average American will go out and buy the latest toy and squander their pay raise. Or worse, you might even know someone who decided to upgrade their car and respective car loan! Don’t buy into the commercialism people, you really don’t need temporary satisfaction! Remember, the key is to keep your eyes on the prize, and that’s retiring years earlier that your friends.

So, you just got your pay raise, now what should you do with it?! I’ll make it simple for you!

1- Pay down your debt. Do you have looming credit card debt over your head? Or maybe you have a little bit left on your car loan you could pay off? Or it might be that pesky mortgage. Whatever your debt is, pay it off with your salary increase!

2- If you haven’t already, boost your emergency fund to cover 6 months worth of expenses. I’ve always been a fan of the 6 months mark mainly because it usually only takes a couple months to find a new job if you get laid off…

3- Up your 401k contributions! The best part about this step is that it’s automated. I know for me, all I had to do was click on my computer mouse a couple times and voila, my 401k contribution has permanently increased. I’ve been watching this account grow pretty rapidly lately. The more money you can get into pre-tax 401k plans, the better.

4- Don’t forget about your Roth-Ira. If you’re not maxing out your yearly Roth-Ira account, you NEED to be. Anyone who is planning on retiring early needs to fully fund this account. I recommend Vanguard for individual Roth-Ira account :)

See how this works? This goes against the grain of common American culture. But let me ask you this. Do you want to be the neighbor who wonders why they are poor their whole life, or do you want to be the millionaire next door?

Seems like a pretty straight forward answer to me! The key here is to keep your standard of living, not decrease or increase it. You need to fight the urge to spend your salary increase of frivolous toys. It’s a sacrifice now, but wouldn’t you like to retire in your 50′s? I know I do.

Filed Under: Investing

12 Pillars of Boglehead Wisdom

April 20, 2011 By 1 Comment

boglehead

I’m a Boglehead. What’s a Boglehead you ask? I’m glad you asked! I could get pretty detailed but it’s simply an investment philosophy. A Boglehead is against market timing, performance chasing, expensive mutual funds, and putting one’s eggs in a single basket. At the core of this philosophy is the term “long term.” I invest for my future, not for short term profits. The ultimate goal of a Boglehead is to mitigate risk, invest wisely, make a solid return and eventually retire early. It’s as simple as that.

Being a Boglehead is something that I’m proud about and something that I feel more people need to be educated on. At the core, a Boglehead lives by 12 main principles. These principles are known within the investment world as the 12 pillars of Wisdom. These pillars were created by John Bogle, a visionary and founder of the Vanguard group. There are people out there that slam this type of investment philosophy. I let the numbers speak for themselves. If you follow these 12 pillars of Boglehead wisdom, you WILL make above average returns and beat 75% of mutual funds.

Here are the 12 pillars and my take on each of them:

1- INVESTING IS NOT NEARLY AS DIFFICULT AS IT LOOKS

No one, I repeat, no one should hire a professional investor. Markets are extremely efficient and they will try their hardest to convince you that they know things that you don’t. It’s really not that complicated. Focus on the basics and you will make good returns, if not better than the pros.

2- WHEN ALL ELSE FAILS, FALL BACK ON SIMPLICITY

Do not readjust your holding constantly. Hold just a few funds and call it a day. Let me tell you something. It’s amazing to only have to check my account once a month and see it grow. Now that’s freedom.

3- TIME MARCHES ON

Whip out your calculator and you will see that time is always on your side if you start investing now. The sooner you start, the bigger that nest-egg will be at retirement.

4-NOTHING VENTURED, NOTHING GAINED

Sometimes it’s worth it to rebalance and take responsible risks for a percentage or two higher. Long term, this could mean the difference between $10k and $100k.

5- DIVERSIFY, DIVERSIFY, DIVERSIFY

Spread your assets across as many industries as possible. This way, if an industry is down one year, it will barely make a dent in your portfolio.

6- THE ETERNAL TRIANGLE

This triangle is comprised of risk, return and cost. Unless you have justification for high expense mutual funds, keep costs low and choose low-cost index funds. It’s the Boglehead way.

7- THE POWERFUL MAGNETISM OF THE MEAN

Sooner or later, the highs and lows arrive at the mean. The market might have large swings in either direction in your lifetime, but if you shoot for the market average, you’re set for retirement.

8- DO NOT OVERESTIMATE YOUR ABILITY TO PICK SUPERIOR EQUITY MUTUAL FUNDS, NOR UNDERESTIMATE YOUR ABILITY TO PICK SUPERIOR BOND AND MONEY MARKET FUNDS

I don’t care about a mutual fund’s past performance. Past history is no sign of the future for financial markets. However, when it comes to picking bond or money market funds, take your time, do your research, and pick low costs over past performance and you will be one successful Boglehead investor.

9- YOU MAY HAVE A STABLE PRINCIPAL VALUE OR A STABLE INCOME STREAM, BUT YOU MAY NOT HAVE BOTH

At the end of the day, you need to make your own choices for the type of volatility you accept. It’s up to you how you want to diversify your money. Keep it simple fellow Boglehead!

10- BEWARE OF “FIGHTING THE LAST WAR”

Trends never last. They come and go. If a mutual fund has had a long streak of success, that’s your sign that it’s time to get out. Ignore the warnings about the future. Ignore the warnings from the past. Don’t get stuck in the “fighting the last war” mentality.

11- YOU RARELY, IF EVER, KNOW SOMETHING THE MARKET DOES NOT

Everything you hear, see on TV, emotions in life, and worries about the future are already priced into the market. You may think you know something, but you really don’t.

12- THINK LONG TERM

Who cares about what the stock prices do in a single day? If you are a long term investor, your horizon is 10, 20, maybe 40 years out from retirement. Ignore the noise on CNBC, stay the course, and invest regardless of what the markets are doing.

Well, there you have it folks. Now you know how I invest my money. The 12 pillars of Boglehead wisdom is quite possibly the best kept secret within the investment world. Kick stock chasing to the curb. Think long term, turn off the television and invest for your family’s future. Why take more risk than you have to?

Filed Under: Investing

Never Too Late to Save Money for Winter

April 19, 2011 By Leave a Comment

I know it’s the back end of summer at the moment, but before you know it we’ll be keeping ourselves warm for the winter. For many households, winter can be the most expensive time of the year, with boiler breakdowns, car repairs and Christmas combining to put a real strain on budgets. For this reason, it’s essential to look at every way possible of saving a bit of money – and there are a number of things you can try.

As strange as it may sound, one of the best ways to save money could be to spend it more wisely and potentially devote more of your budget to certain things. For example, insulating your home or getting boiler insurance may require an initial outlay, but you’re like to see the savings in the coming months and years. Here’s a guide to how these things could, help along with a few other top tips for good measure.

Insulation
Quite simply, the more you insulate, the more efficient your home will be. So look at lofts and cavity walls – these are among the places where the biggest savings will be seen. Then also consider insulating your pipes and water tanks – this will come in especially useful when the temperatures go sub-zero. In many cases, you’ll recoup your outlay within a few months or years.

Arrange boiler insurance
Each passing winter seems to break the record for the lowest temperatures ever recorded. So it’s no surprise that the nation’s boilers have taken a battering in recent years, with record numbers of breakdowns recorded by home emergency specialists. With boiler cover in place, you can rest assured that you’ll be able to call on a fully qualified Gas Safe Register approved engineer to carry out the work – and the cost is only likely to be your excess, rather than a repair bill running into hundreds of pounds.

Repair windows and doors
If your outside doors have seen better days and you’ve got small chips or cracks in your windows, then it’s best to get these fixed before winter sets in. Not only could the adverse weather damage them further, but could also make your property increasingly inefficient.

Don’t ignore your garden
If you’ve been tending to your plants and lawn in recent weeks and months, don’t let the harsh winter weather undo all your hard work. Protect particularly vulnerable plants by moving them into containers and putting them in the shed or conservatory. Cover anything that’s vulnerable but can’t come out of the ground with sheeting. And if you keep fish in a pond, put a tennis ball in the water which can be removed to let oxygen circulate when the pond freezes over.

Putting in a little time and effort ahead of the winter could really help you reap the rewards – so don’t delay and get cracking as soon as possible.

Filed Under: Family Finances, Frugal Living, Life Experience

Top 5 Financial Bible Verses for Christians

April 18, 2011 By 18 Comments

financial bible verses

Before we go over these verses, let me tell you something. I didn’t pick these out of the blue. These are verses that have molded my personal finance life to what it is today. While there are many other verses that deal with the topic of money, these five are paramount for any Christian striving to glorify God with their finances. As you digest these verses, take some time to really mull these topics over in your head. Take this next week and ask yourself how you can glorify God with your finances in practical ways.

On giving back what is rightfully His: Malachi 3:10

Bring the whole tithe into the storehouse, that there may be food in my house. Test me in this,” says the LORD Almighty, “and see if I will not throw open the floodgates of heaven and pour out so much blessing that you will not have room enough for it.”

This is one of the few places where God asks his followers to test Him. This verse strikes me in two ways. One, it’s always good to remember that nothing is rightfully ours. We didn’t earn anything. At the root, it’s all His because he gave us the strength and opportunity to make money in the first place. Also, tithing is no longer required of us for salvation. Although this is true, think about all the churches that wouldn’t exist today if people didn’t tithe…

 

On the love of money: Ecclesiastes 5:10

Whoever loves money never has money enough; whoever loves wealth is never satisfied with his income. This too is meaningless.

I used to struggle hardcore with this subject and I still do to some extents today. If it wasn’t for loving parents an amazing friends, I would worry about this a lot more today. There is something peaceful and harmonious to be content with the money that God has given you. I’m not saying you should be lazy, you should actually work your butt off. Just don’t make it the focus of your life to make it big. Because guess what, it’s all going to burn in the end.


On paying our debts: Psalm 37:21

The wicked borrows and does not pay back, but the righteous is gracious and gives.

This is a sensitive subject for people. Are you falling behind on paying off your debts? Don’t fall into the trap of not being able to pay off your debts. Look at this this way. The moment you are debt free, God can use you even more for the glory of His kingdom. Debt really limits what one can do with their finances. Pay off your debts as soon as possible and avoid it at all costs once you’re debt free.

 

On God meeting our needs: Matthew 6:31-32

Do not worry then, saying, ‘What will we eat ‘ or ‘What will we drink ‘ or ‘What will we wear for clothing ‘ For the Gentiles eagerly seek all these things; for your heavenly Father knows that you need all these things.

Don’t worry about making ends meet. God has everything in control and will take care of your needs. The Bible has never preached a wealth gospel. The Bible is clear on this. You are one of God’s children, He has nothing but the best for you. Trust in Him and you will be amazed by the miracles when others discourage.

 

On what really makes you rich: Proverbs 10:22

The blessing of the Lord makes one rich, and He adds no sorrow with it.

Riches, gold, your big house, or your Ferrari don’t make you rich. Those are temporary satisfactions and will disappear someday. What makes a person rich is a relationship with Christ. Once you realize this, watch as the blessings flow in your spiritual life!

Filed Under: General Finance

Pay Off Your Car 52 Months Early

April 15, 2011 By 12 Comments

pay off your car

To pay off your car is no easy task. Considering most Americans have a car loan their entire life, paying a car off early and never making a payment again is an unusual personal finance feat.

See the picture above? That is my amazing 2004 Acura TL. It was my dream car during college and I vowed to own one after I graduated. I made myself a deal. I told myself that if I graduated college debt free, I would go against one of my main principles: to never have debt. Yes, I promised to go into debt for a depreciating object! It sounds so silly, but there is just something really cool about this car. Let me tell you, it was worth every penny :)

So, I ended up graduating college debt free and purchased the Acura TL you see in the picture above. I hunted, scoured craig’s list, checked autotrader, and did ALOT of praying. I ended up finding the one I bought. The total cost of the car with taxes came out to roughly $15,000. My cash flow was tight at the time, so I ended up paying $5k up front and taking out a 5 year loan for the other $10k. At 3.99% interest, I didn’t hesitate to take this loan out. It’s funny because I was actually qualified for $50k. I remember the credit union clerk asking me why I didn’t want to spend more haha.

Anyways, so there I was, a proud owner of a 5 year loan. The excitement about the new car lasted for a while, but the gut wrenching thought of owing a bank money quickly took over. I knew I had to do something about it. I needed to pay this car loan off pronto. So what kind of steps does it take to pay off your car? Well, I’m glad you asked!

It was just after I purchased the car that I made a plan to pay off the car in less than 12 months. I moved away from home, set up a budget and made it a goal to save $1000/month strictly for paying off my car. If I did that, I could easily get it payed off before my goal of 12 months. Saving $1000/month would mean I would be able to pay off the car after 10 months. How did I do it in 8 months?! Two words: TAX REFUND.

Yes, my tax refund of $7k (thank you tution credits) made it possible to pay my car off in 8 months. My point is this. Don’t squander your tax refund. Whether it’s $1000 or $12,000, use your tax refund responsibly and pay down debt. Just make it a priority. If you do, you will savor the new debt-free air and never turn back. Let me tell you, it’s an amazing feeling. I love telling people that I own my car and the story about how I paid it off so early.

Another strategy I incorporated to pay my car off early was to schedule “extreme saving” weeks. By this, I mean that I made an extra effort to reduce my expenses to almost zero. This would mean brown bagging my lunch, raiding old food for breakfast and dinner, refusing to drive places on weekends, avoiding the grocery store, and other unusual saving activities. Through the use of extreme saving weeks, I could easily save a couple hundred extra dollars for that individual week. Keep an eye out, I’ll be writing a post on this subject in the near future…

I also shopped around for car insurance. I ended up going with a local car insurance company in the Seattle area. You need to make a strong effort to search out cheap car insurance quotes before you make any final decision.

So, get to it! Here’s the deal, you need to make a plan. You might not pay off your car 52 months early like I did, but you will be taking one step closer to “debt free driving.” After you pay off your car, you can contribute even more to your retirement accounts like 401k plans or a Roth-IRA.

 

Filed Under: Frugal Living
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