That’s right! The loan consolidation has been officially paid off. Find out how much I saved for paying it off early.
Just to recap, in How do you get so broke? Part III, I shared with you how a broke investor can end up even MORE broke. Well, it’s official, the credit card stack that was weighing this broke investor down has been lifted. I still need to handle the student loans and home mortgage, but there’s plenty of time to knock those out. Let me go over what happened.
As mentioned previously, I ended up using credit cards to pay bills and several impulse purchases after moving into my first home. Biggest mistake was using the credit cards, 2nd biggest mistake was not paying them off each month. I always thought, “ah, I’ll pay the minimum this month and next month I’ll pay it off.”
Well, do that about 4-5x and you got yourself a pretty nice pit to crawl out of. Mine came in at about $8800 with interest rates at around 24.99%. If the limits were higher, I am absolutely certain I would have taken full advantage to dig deeper.
Anyway, I decided to consolidate the 2 credit card debts into one consolidated loan that had an interest rate of 17.99%. Kudos for the lower interest rate, however, that came with a higher minimum payment of $319.41/month.
Fast forward a year and 3 months later and the total consolidated amount of $9,400 has been paid off (origination fee was $564). Let’s break down the numbers:
The loan was a 36 month term with expected last payment date on 5/19/2020. The total interest that was going to be paid $2,663, instead, since I paid the loan off on 9/5/2018, I only paid $1,343.36 in interest. That is a savings of $1,319.64 in interest payments. Not too bad for a broke investor.
I could have paid off the debt much faster if I would have really concentrated on paying it off. I started focusing on using the chop block method from 50/25/20/5 Budget Guide only a few months ago. Instead of using the chop block for one specific loan amount, I was initially using it to spread the amounts between the student loans and consolidated loan. That is not how the chop block works. The chop block is meant to chop down a specific loan amount, fast. Then you can use it to chop down another one and another one, until you have no more loans to chop down.
Another key element everyone should focus on when deciding to payoff their debts early is how it will affect their cash flow. In my case, since I no longer have to worry about paying a minimum of $319.41/mo, it essentially increased my monthly cash flow by about 16%. You can have a ton of income coming in, but if you don’t have a positive cash flow, you’re swimming in the deep end.
All that’s left now is to decide if I want to be as aggressive paying down my student loans and home mortgage or if I should focus on building up a cash reserve for short-term and emergency cases. That’s not to say I don’t already have a reserved saved up, after going through The Richest Man in Babylon, you always pay yourself at least 10% of everything you earn. However, it’s not a bad idea to save up for a rainy day. Also, I really one to focus on building my active capital fund.
On the flip side, I would like to NOT owe anyone any money. Especially if there is interest attached to it. Time will tell how fast I can chop down the remaining loans. I’ll make sure to keep you posted.
Keep growing, keep investing.
Even if you are, The Broke Investor.
PS: I started to work on a project at the end of August. If you have a moment, take a look at mystudentfund.me. The site focuses on getting student’s out of debt. Any feedback will be appreciated. Thank you.