Credit Card for Student Loan Payments!

No I am not implying you would pay your student loans with a credit card. That is risky. Although getting the points for it would be good if you were responsible and paid off the card each month!

This time I am referring to the Citibank ThankYou credit card. You earn ThankYou points that can be spent on gift cards, cash back, and in my case student loan payments! It starts as low as 2500 points = $25 payment. In my case I am getting 50,000 bonus points for meeting $2500 in spending. That will give me a total of 52,500 points or a $525 student loan payment.

This is a good card for someone who is financially responsible and is still paying down their student loans. They get a 1% rebate on all of their normal spending to go towards their student loans. Not doing this (assuming they are responsible with credit cards) is literally leaving free money on the table! Get every penny you are due!

This will cost me $0 to achieve since I will be doing my normal spending and some business travel expenses on the card. This was a no-brainer in my case as one of my latest credit card churns. Knocking off a nice chunk of my student loans for something I have to do anyway for free is smart money! All I have to do is call Citibank when the points are posted and request a check be sent. Easy!

Saving Interest: Pay Mortgage Every 2 Weeks?

I have been giving thought to an idea I have read about online. I am considering paying my mortgage every two weeks. Basically I would line up the payment with my payroll deposits and pay half of each payment on the 1st and 15th. Over time this results in interest savings.

I decided to run the math on my idea. Here is what I found:

$100,000 @ 4.5% paid monthly: 82,406.71 in interest paid
$100,000 @ 4.5% paid Biweekly: $67,886.84 in interest paid

In this case, which is the same interest rate of my mortgage, I would save over $15,000 in interest. This is a significant amount of money back in my pocket! This would also help me balance out my cash flow a little bit at the same time. It looks like a winning situation all around.

Now I have to research my mortgage and make sure that I will actually save interest by paying early. We shall see!

Resuming Debt Snowball: Mortgage Paydown

I am in the process of evaluating how to proceed with my debt snowball strategy. I have crossed the line from consumer debt to "good" debt and have been debating on how to move forward. Here is my progress:

• Credit cards are paid off completely
• Emergency fund is now at the 3-month+ level
• Retirement savings is around 10% of my income
• I am making headway on lower goals

I have not paid extra on the student loans or mortgage thus far as their interest rates are quite low. They are fixed at 2.65% and 4.50% respectively. I know I can do better investing the money as opposed to paying it down faster and have done that thus far.

I have now decided that adding a little extra to my mortgage will help my overall goal of traveling more often. I want to own my house outright once I begin long term travel. I plan on adding an extra payment's worth of principal each year to know a few years off the life of the loan. This only amounts to another $30 per month that I have to pay. Well worth it for the lower expenses later!

I will start in June with the extra payments and go from there. It will certainly not put me into any sort of bind and I can still apply a lot to my other goals. It will be nice to see the day when I can say "I own my house outright and don't owe anything on it."

Paying off Low Interest Debt versus Retirement Savings

The question I have been analyzing lately:

Should I accelerate payments on my student loans and/or mortgage or add more to my retirement accounts. A lot of blogs out there trumpet to become debt free then save. Based on the math I have to disagree. The return on paying of lower interest debt is significantly reduced and in a sense you can lose money by not investing for retirement!

My Scenario:

I have 2 existing debts: my mortgage (4.5% fixed) and my student loan (2.625% fixed). Interest on both loans is tax deductible. With my risk tolerance and investment fix I am assuming that my returns from investing will be significantly higher than 4.5% (my highest rate debt). If this is true then I lose the return from the investments by paying down my mortgage faster. If I assume I will average 8% return over the long haul that means I stand to lose 3.5% per year and that is before I factor in the tax deduction. That adds up over the 30 year life of my mortgage and the compounding of my retirement savings!

As a result I have decided to make the minimum payments on the two loans and any additional money will go to my retirement and other savings goals. I am in the middle of building my full blown emergency fund now so it will get all of the extra money first. One I have it at a comfortable level I will focus mainly on retirement (I admit I am behind here) and then look at car replacement fund, laptop replacement fund, and other smaller goals that need to be addressed after my emergency fund is completely built.

In most cases if you return on the retirement savings investments beats your low interest debt be 1% or more you are probably better off saving the money instead of accelerating debt pay down. It feels great to pay off debts early but feels even better to know that you can retire comfortably without worrying about  making ends meet in your elder years.

It's Official! I have paid off my last credit card!!!

Today marks a milestone for me. I have officially cleared all of my credit card debt. My last payment cleared my account today and I am now free of 3 payments! I have room in my budget to work towards other goals and of course more room to breathe. It has been a long process.

This is a big milestone for me. I have worked hard, sacrificed, and budgeted frugally to make this happen in (my opinion) record time! I used the debt snowball method of paying my lowest balance debt first then worked my way up to the largest balance. I did have the help of some bonuses, a home refinance, a reinstatement of salary, and successful ebay/craiglist sales to make this all happen. I admit I was in some hard times financially and mentally. It is all behind me now!


I am now reworking my monthly budget to utilize the extra cash flow effectively. I have increased my 401(k) contribution, restarted my automatic deposits to my emergency fund, and am looking into other options. Having money leftover every month is a great problem to have. Now is the time to get it put to work for me!

Refinance Closing Complete! Consolidation Begins!

Today I closed on the refinance of my current mortgage and HELOC into a new 30-year mortgage. I went through my local credit union and lowered my interest rate from 6% to 4.5% on my entire balance. This is a great rate and I freed up almost $200/month in cash flow as a result!

I finished my closing around 2 hours ago and I feel a big relief. All the paperwork, applications, appraisal, inspectors, and general hectic mess is over. I am now paying just shy of $400 per month for my newly remodeled foreclosure home in a great area. It took me 1 year, 2 months to get to this point. It feels great!

Now some real work begins. As I write this I am on hold with yet another credit card company. Now that I am past credit checks and needs for borrowing I am doing an "avalanche" of account closings. I have multiple cards that I no longer use. I opened them to get bonuses and rewards and am now closing the accounts I don't need.

I am in the big process of simplifying my financial life so I can focus on other things. I have paid off all of my credit card balances except for 1 and that will be paid off this month and I will close that account too. I will be left with only a handful of my oldest accounts to maintain my credit history and to have for emergencies. I will continue to use my Delta SkyMiles card to earn my free travel rewards as usual.

Another Credit Card Paid off!!!

Today is a small milestone for me. When I started this blog I had 3 credit cards with balance transfers on them at reasonable rates. The majority of the debt was from a failed business venture that I really should not have gotten into in the first place.

Reasons aside, I have paid off the second card! I sent the last payment today and the debt snowball method is working well for me. I am down to the last one and hope to have it knocked out in a year (or sooner if I get more side income and bonuses!). It is a great feeling to send a final payment on a debt and gives a sense of increased freedom.

My patience and persistence has paid off. Literally!

Which debts should you pay off first?

I had this question myself and the answer is not always so simple. Some will tell you it is the one with the highest rate. Others will say it is the one with the lowest balance. Both of these methods are good but you also have to consider the type of debt that you have. It can affect your credit score and ability to get future credit (such as a mortgage) if you need it.

Barring some insanely high interest rate or high payment I have come up with a priority order of what debts should be attacked first. I will give me reasons for each as well. The order in which you pay them off can have big effects on your finances as well as credit report. Here is my list:

1. Credit Cards - Generally the highest interest rates plus rates and payment amounts can be adjusted at any time. Choosing the highest rate or lowest balance doesn't matter as much. These must be paid first in almost all cases!
   
2. Unsecured personal loans - These are installment, fixed payment loans. Example: You borrowed $2,000 paid over 2 years from a bank for a laptop. Interest rates are usually higher on these.
   
3. Auto and motorcycle loans - These loans are for depreciating assets and should be paid off next. Accelerating payment of these reduces the risk of having an accident where the car is rendered useless and you still have to pay the loan back.
   
4. Student loans - Interest is generally lower on student loans than the above debts and the interest you pay is tax deductible. In a real emergency you can defer payments if needed.
   
5. Mortgage and equity loans - These are usually the largest of all loans we carry and will take the longest to pay off. You have assets to back up this loan so it should be paid last. The interest on these loans is also tax deductible. Interest rates as usually lower than the above types as well.

Following the order above will ensure that you pay your debts off faster and in the correct order so that your credit rating will improve over time. Lenders like to see installment loans more so than revolving (credit cards) with balances when they decide to lend to you. You pay off your most expensive debts first using this method as well. You will be on the road to success!

I am currently working on steps 1 and 2 simultaneously. I am slowly digging out of my hole and soon will be able to accelerate my payments in the other areas. I recently paid off my smallest personal loan and can move to the next. It feels great to have one paid off!

Problem: You are battling credit card debt but must have one for work

I have been working as a traveling project manager for over 2 years now. One of my conditions of employment is that I must have a credit card that I use for business expenses and get reimbursed. This is great because I get to earn rewards from the card but also tough as I am paying off credit card balances as well from the past.

A lot of get out of credit card debt guides say you should cut up all of your cards and use cash. I am writing this article for those of us who do not have that luxury. Some of us simply must have at least 1 credit card due to work requirements.

Solution:

My approach to this issue is to have one card that is $0 balance and stays free of any personal debt or purchases. Once you start mixing business transactions with personal debt balances you can get into a messy high interest situation. If you are carrying a balance on the card then you will also pay interest on the business transactions too. This can skyrocket fast!

Personally I have 1 American Express card that I use for business expenses only. This makes it really easy to see how much the company owes me at any one time. Once I get my check for reimbursement it also makes it easy to find a discrepancy, if any. If what I get doesn't match the card balance then something is definitely off. Mistakes do happen and you could end up paying for a business expense. Be sure to watch it closely!

It is great to be able to earn reward points for business purchases which can be used later on for gift cards, travel, cash back, or just about anything you like. With a wide variety of rewards cards out there you have endless options available to you. Using this strategy of a dedicated card for business will make paying of debt easier to track and less headache in the long run.

Use ThankYou Points for student loan payments

This nice little gem I stumbled upon when I got a new credit card from Citibank. I have the Citi PremierPass Mastercard that gives 1 ThankYou point per dollar spent. 2500 points gets me a $25 check that I can forward onto my student loan lender for payment. This is great because I can pay down my loans for money that I spend already. It is like getting free money!

This is a little known fact about the ThankYou program so I highly recommend it for anyone who has student loan debt. So far I have gotten $125 toward my student loans that I otherwise would not have gotten--not to bad for doing nothing but spending normally! Only catch is that you have to call their customer service to get the check mailed to you which you then forward to your lender. It is made out directly to your lender so all you have to do is put your account number in it and mail it out.

Details on the ThankYou program are found here. You need an eligible Citi account to participate. The only exception is signing up through Expedia and booking travel to earn points (and no other way to earn unless you have the aforementioned account). You can use the points for lots of other things such as electronics and gift cards too. It is a great program and most of the credit cards that carry it have no annual fee. Check it out!