Tuesday, April 08, 2008

Cheapass Tip #103

When faced with a large loan, say for a car, some knowledge you had crammed between your ears by a team of professors wearing motheaten sweaters and living on boats, a house, or a luxury yacht--consider NOT making the minimum payment.

For example:

When we receive the bills for Dr. Mad Scientist's bachelor's degree loans--that's right people, the PhD is paid for--we're still paying for the damn bachelor's degree!--each month the minimum payment due is $78.72. (We were able to consolidate his loans when interest rates were obscenely low. Remember those days? Heady times, man, heady times!)

Anyway, instead of writing out a check for $78.72 each month (I could have them deduct them this amount out of our bank account and lower our interest rate .25%, but I have relatives that work for the postal service. My mail supports their lives.), I write out a check for $100.

Ok, so I'm only paying an extra $21.28 each month, but times that by the four years it would normally take us to finish paying off these damn student loans and we'll be able to pay off the student loan much faster.

I know my mom will pipe in in the comments about how she's done this...so I'll spare you that example.

I also did this with my car. I purchased it back in 2003 for a killer of a deal at Andrews Chevrolet (Mid-Michigan represent!). Another cheapass tip: grease your connections. I had a connection I can't talk about with that dealership that paid off nicely in knowing I wasn't getting the shaft when I bought my [used] car.

Every month instead of paying the amount due, I paid the amount due as if I was making the payment late. I always paid on time, but paying the late amount due meant I paid $15 more than I should have each month.

I did this ever month since September 2003 except for one--this past Sucky September when I paid the actual amount due.

I knew I was getting close to paying her off, so I called the bank yesterday to get the final payoff amount.

The person helping me informed me that the loan was paid off as of March 18 when they received my payment last month.

Score!

100_5701

She's MINE!!!!!

The paperwork is in the mail and should be here shortly.

Looking at the payment coupon book, I paid off my car exactly six months early by paying a measly $15 extra a month.

What's $15 really? That's what, a week's worth of "good" coffee (Although I hear Starbucks is giving away free coffee 12:00 to 12:30 EST at all their nationwide stores)? Maybe four trips for one to McDonalds? Two and a half 12 packs of soda? A skein of decent sock yarn? 4 oz. of handdyed roving?

The savings don't stop at now having an extra $170 a month to pay for the aforementioned student loan, or that evil MasterCard balance that I am determined to get back down to nothing by the end of this year.

Once I get the paperwork squared away, I'll be able to drop the collision coverage the bank makes you keep on your car when they're the lienholder and I'll save on my car insurance.

This couldn't have happened at a better time for us.

100_5708

And thus ends my post wherein I sound like the biggest mother smugger of all time!

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38 Comments:

Blogger The Curly Knitter said...

Great tips. It's true that it seems that such a small amount extra can't make that big a difference but you are proof that it does! I hope to see that theory make a dent in my bills someday!

6:32 AM  
Blogger Poops said...

And maybe you can start a wee savings fund for your wheel. Because you deserve it!

6:56 AM  
Blogger Carol said...

absolutely true! I wonder that most people don't realize that giving a few dollars more doesn't hurt as much and haas long term benefits. I once had a conversation with my district manager that went like this:
DM:Why don't you buy a nice new car? That beater you are driving is ancient.
Me: But it still goes when I turn the key. AND it's paid off.
Him: But it's OLD
Me: So????

and that's my philosophy. If it ain't broke, don't get a new one....

7:17 AM  
Blogger Macoco said...

Congratulations! Weird but I was thinking of you yesterday, wondering if you had paid off the car yet (you had mentioned before that you were close).
All of the personal finance books say to tack on a little extra to the minimum payments to decrease the amount of time it takes to pay off the bill - but I'm always shocked at how few people actually do that.

You are an awesome financial role model for chunky.

7:23 AM  
Blogger Helen said...

I totally agree. Back last year when I had no expenses except for student loan and gas on the car, and health insurance....I was paying about $400 a month on student loans, which was only $160 actual due each month. So now, with my monthly payments under the $160 due, since it gets lower if you keep paying more, I still pay the $160.

We also have some extra cash down on hubby's car, and it's fun to see that the actual "next payment due date" is October 2009. But yes, I hear ya. The more you put in, the faster they go away and the less you pay in the long run...

Then maybe we can save up our "emergency fund" in case we lose a job. Ah, life...

8:04 AM  
Blogger Brena said...

Great tip! I did this with my student loans and spent much less money in interest.

8:12 AM  
Blogger Zonda said...

Totally awesome!! Thanks for the tip. People have been advising me of the mortgage one, but cripes, I'm not paying a service fee to them for it!! *scrambles off to up her car payment*

8:45 AM  
Blogger Miss T said...

Bravo!

9:26 AM  
Blogger weezalana said...

Congrats on the now-all-yours ride! :D

9:34 AM  
Blogger Tactless Wonder said...

Yey for you!

I have a tip re: car loan payments...read the fine print about payments.

If I pay any extra they apply it to the next payment UNLESS I ask nicely and in writing that they apply the extra to the principle.

There didn't used to be a difference, but apparently now there is and it it the principle you want knocked down so they can stop applying so much damned interest to it!

10:01 AM  
Blogger Laura said...

That's awesome, Bezzie! I'll be glad when my husband and I get our loan on our minivan paid off. My student loans are a whole other story... Considering how much education your husband has, he's very lucky to have such a tiny student loan payment every month.

10:14 AM  
Blogger Laura said...

P.S. Speaking of student loans, there's a new program, just started last year, where borrowers who work for a nonprofit or government agency can have their federal student loans forgiven after making 120 on-time payments - check it out here:

http://www.finaid.org/loans/publicservice.phtml.

10:20 AM  
Blogger Elizabeth said...

You might want to keep your collision coverage, but increase your deductibles by a lot. Imagine how sucky it would be if your newly paid off car got totaled. Talk to your insurance agent about how much you could save with a higher deductible.

If the value of the car becomes less than $1500, then drop the collision. But meanwhile, I'd keep it.

10:26 AM  
Blogger Dkswife said...

Right on! That makes me very happy for you!!!

We paid our Xterra off 10 months early by paying a bit more :)

We only have a mortage payment now! That's it. No other bills whatsoever, well, except electricity, phone, food, and gas.

It is a good feeling.

10:39 AM  
Blogger Donna Lee said...

I have a 94 Isuzu Rodeo and I love it. It's paid for and starts every day. When people say "why not get a new one", I ask "why?" I don't need a car payment and it runs. What's the big deal with new cars? Only 8 more years and the house is paid off, too. Whoot!
I'll be paying for the husband's college degree forever.

10:44 AM  
Blogger sgeddes said...

Good tip! I do that with our mortgage. I think it will help a little bit.

Thankfully (right now) both cars are paid for. My care has 180,000 miles but I'm hoping it will run for a lot longer.

10:46 AM  
Anonymous Anonymous said...

Yeah!!! Your car is paid off!!! Now some one told me once that you should keep making those payments to yourself....say like into a saving accounts to that when your car is soooooooo old it does not run when you turn the key you have the money to buy a younger newer model and hopefully with little or no payments.
Oh! You know me I love a savings tip! Making payments over and above the minimum can also help if you loose a job or come into hard times. They cannot throw you on to the street or take your wheels till you are in the rears and if you have been making more than the minimum that should give you a little time to get on your feet again.
To Laura thank you for the tip on the government workers. Bezzie's Youngest Sister is graduating here this year and is trying to get on with the Corp of Engineers. That net spot should help her out some.
I thought that this was a knitting blog....where are Chunkies socks? Love, Mom

11:00 AM  
Blogger Olga said...

My Post Hole Digger friend is soo in hock for her sheepskin she told me she'll never pay it off ,ever.And she doesn't care if she dies with that debt. wow. I wondered if it was worth having if you never pay it off.

12:30 PM  
Blogger Rebel said...

Yay! Congratulations!

When I finally paid off all my debts I felt soooooo free! I own my overpriced education, and I own my crappy little car, and I finally paid for all the stupid little things (and not so little things) I put on my credit card. It feels GOOD!

I did the same thing, just paying *a little* more than the minimum on each bill. It was nice because when times were lean, I could just pay the minimum and that would give me a break without having to skip a payment. Then as each debt got paid off I added to what I paid on the next bill - not the whole amount (I wanted to have a little fun afterall!), and I ended up paying off my college loan a good year early, and my car loan about 6-9 months early (can't totally remember).

And since then I've been able to up the amount going into my IRA, and my savings account.

1:13 PM  
Blogger Rebel said...

"I have a tip re: car loan payments...read the fine print about payments.

If I pay any extra they apply it to the next payment UNLESS I ask nicely and in writing that they apply the extra to the principle."

They did that with my student loan - so I had to be sure to send a letter - and kept a copy for myself!

1:15 PM  
Blogger Kim said...

Bravo! Good tips. You should be smug. And I'll bet your farts are smelling pretty good to you by now.
I paid off my student loans from law school in 2 years by paying more than the monthly minimum, wearing cheap-ass suits to work and not improving my grad student life style.

1:32 PM  
Blogger Magatha said...

Congratualtions! That is a huge accomplishment.

Now in future, when you're unbelievably wealthy from your creative brain, you'll find that the more money you have the better it is to use borrowed money and stay in debt. That way you can use more of your own money to invest. This is one of the ways the rich get richer.

2:00 PM  
Blogger Sarah said...

Another great tip is to pay your mortgage every 4 weeks instead of every month, throwing in an extra month to the principle every year, ctting your 30 year to like 17 years!

Who knew $15 would add up so quickly? 6 months sooner out of debt! Go girl!

2:13 PM  
Anonymous Denice said...

We're doing this with our credit card and car loan. I love the feeling of lowering the bill by more than the minimum. I can't wait until they're paid off!

Way to go, Bezzie! Enjoy YOUR ride!

3:50 PM  
Blogger Yarn is my antidrug said...

Congrats on paying off the car! I'm going to have to second Elizabeth though when I say to check on raising your collision deductibles, rather than dropping it altogether. I see it so often that people drop their collision right after they pay off the car, and something happens, then you end up with a serviceable car that had a good value suddenly become a worthless hunk of metal. Then it's back to the car payments all over again.

4:31 PM  
Blogger Karen said...

For some reason, I apply this to my student loans, but not to any other loans. Hm. If I start applying that to the car loan now, maybe it'll be paid off by this time next year. :) And then I can apply all of that money towards extra mortgage payments.

4:32 PM  
Blogger Christina said...

Congrats! I use the same tip for my student loans as well. Only 27 or so years to go.

That mother smugger in the last pic is very adorable.

5:45 PM  
Blogger Carol said...

Very wise indeed! It always pays to pay more! I did the same with my car. Feels good, no?

6:41 PM  
Blogger Batty said...

That's a great way to do it. Now if only we could do the same with our mortgage...

8:11 PM  
Anonymous Aimee said...

I did this with my car. I paid $7 extra month to round my payment up to a flat $300 and they wouldn't let me do that with the direct draft.

I paid mine off right on time because there was a month that I was SUPER BROKE - I don't remember why - so I called them and they deferred a payment - even though I was ahead, they let me skip that payment to the end - so I would have finished a month earlier otherwise.

You save a ton of intrest too - its nice because that extra goes to your balance and not your intrest.

8:56 PM  
Blogger Nell said...

Great tip! This from a woman with some large student loans payments coming up soon!

11:21 PM  
Anonymous birdie said...

If you're as cute as that Mother Smugger, I'd give you a big squeeze and a chin scratch! Well, I'd give you a hug anyway...a chin scratch might be wierd. Congratulations on the car being ALL YOURS!!

And Mom, I'll be starting for the Feds next Monday! And I've been making payments towards my student loans since I took them out. I wonder if those payments would count....I'll stop thinking on your comment board....

1:05 AM  
Blogger IrishgirlieKnits said...

Love Cheapass Tip #103. How is the book deal coming ;) Seriously. I'd buy it (well, check it out of the library to save pennies...just kidding! I'd want an autographed copy!). Enjoy YOUR ride!

2:12 AM  
Anonymous Melissa said...

Congrats! We are fortunate not to have any payments like that here...although, we are still paying on our house. In the states. O_O

6:42 AM  
Blogger Stacie said...

sweet! I paid off my car early too, and the chumps at the bank lose... satisfying!

2:56 PM  
Blogger Starfish said...

Good for you - that must feel awesome. We do that with our mortgage, pay a little extra. It will knock a few years off in the end. Go mother smugger go.

9:26 PM  
Blogger T. Budnik said...

Um, you're not a Mother Smugger. What the hell? Why apologize for being happy and proud that you paid off your car and smartly? Sometimes, we have to toot our own horns.

CONGRATS!

-T.

PS. I'll take two scoops of that Meatykins.

8:15 PM  
OpenID bufanditas said...

Congratulations!! There is no better feeling than knowing you won't have to make those monthly payments.

3:47 PM  

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