Tracking Debt and Creating a Payoff Plan

As I have noted previously in other posts, I use a handful of online tools and apps on my phone and computer to keep a pulse on our finances.

One of the most important things for us in making progress in our financial journey has been having a clear picture of the money that we owe. As the saying goes, the first step in recovering is admitting that you have a problem. This is true with debt as well. And one of the best tools to track that “problem” that I have come across is called Undebt.it.

The concept is pretty simple. You manually add each account that you owe money on – the total balance, interest rate, due date each month, the monthly payment, and other information if you’d like to add it. You go through and add each account separately, whether it is student loans, credit cards, personal loans, medical debt, whatever it may be. While this can seem overwhelming, this is an awesome way to come to terms with all that you owe. Once you know what you owe, it’s much easier to come up with an effective gameplan to get moving in the right direction financially. For the sake of transparency and for an example, here is what my main dashboard currently looks like. The Quicksilver credit card has an introductory 0% interest rate, and we are going to pay it off in the next couple of months, so not to be too alarmed.

 

Undebt.itDashboard

Once all of the information is entered for each of your debt-related accounts, you can begin to get an idea of how to best attack each of the accounts to effectively and efficiently pay each of them off. That’s where the usefulness of this tool really begins to shine. Under the Payoff Plan section, you’ll find the Debt Snowball table.

I’ll quickly review two of the most popular methods for paying off debt: the Debt Snowball and the Debt Avalance. The Avalance method is the logical way to pay off debt. You start by making the largest payment on the debt with the highest interest rate and work your way down the list, paying off the highest interest debt to the lowest interest debt, until all of the debts are paid. This method will typically guarantee that the least amount of interest is paid over the lifetime of your loans. The second method, the Snowball, is slightly less logical, but more psychological. With this method, the smallest debt is attacked first, followed by the next largest, and so on. We’ve been using the Snowball method ourselves as it has proved to be an excellent motivator to stay the course as the smaller accounts have “dried up” and gone away as we have successfully paid them off. It’s how I was able to extinguish all of my undergrad debt, paid off our initial credit card debt after getting married. We still are running with this strategy today.

The real fun comes in with Undebt.it when you start to calculate what you can pay on your debt each month. To be able to know what you will be able to put toward your debt each month, an existing budget is necessary. With the zero-based budget, you’d basically add up your total income, subtract all of your monthly expenses and spending categories and then whatever is leftover would be part of your debt snowball. In this screenshot, you’ll see what the first few months of paydown would look like for us if we were sending $2,000 per month toward debt:

SnowballTable

If we did this $2,000 per month toward debt between the two of us, all of our debt would be gone in 39 months, or 3 years and 3 months from now.

Perhaps we were only able to send $1,500 per month toward that debt instead. This would balloon the payoff timeline to 4 years and 5 months. Much less appealing.

Now say we were able to really ratchet down our spending and send an outrageous amount of money to our debts, say $3,500 per month. That would shrink down the pay-off timeline down to only 1 year and 9 months. Pretty crazy swings in the amount saved in interest and the time it would take to pay everything off. Even making an extra $50 or $100 payment each month on debt can make a pretty large impact on the amount of money you save and the amount of time you take to pay it all off.

For me, this “hypothetical situation” tool is awesome in keeping me motivated. Every dollar that can be freed to help fight debt is a small win that multiplies.

You can see here that there are two very basic truths that arise with this payoff process. Decreased expenses are extremely valuable, and so is increasing income. Side hustles, getting a raise, a promotion, a bonus, or any other influx of income can make a huge difference in making this process a better experience. Got a tax return in your near future? You can use the Additional Payments section of this site to visualize what kind of progress this would help you make if you sent some or all of this amount toward your debt instead of potentially spending it elsewhere.

Tools like this can be daunting and sobering, pushing you to stare your true financial situation square in the face. But this can also be a huge opportunity to realistically evaluate your situation, construct a gameplan, and start to execute it.

Perhaps this is a tool that you would like to use, but don’t know where to begin. I would be happy to get you going in the right direction with a free tutorial and quick test drive of the website. I think it is that valuable! You can reach me at justinovenell@gmail.com.

I will also mention that the creator of this website offers a premium Undebt.it+ version and subscription to their site. I think it is great to support other people’s work, and this is a great way to show appreciation for this innovative author’s creation if you feel so inclined.

First Video! Spark EV “road trip”

Spark EV Video

For those of you that may not know, I’ve owned a 2016 Chevrolet Spark EV (electric vehicle) for about 9 months or so. I bought it as a way to save money on gas (the tie to this blog) and for the tech it features. It’s great not having to use gas at all and being able to charge up at home. Hopefully you enjoy this first video of mine! Hoping they get smoother and easier to watch as I get better and producing them.

Building Trust with Your Partner

IMG-3946

I have meant to write about this topic for some time now, so today I’ll finally bite the bullet and get ‘er done.

This is a word of advice to any of you who find yourself in a serious relationship or married, primarily. I know everyone has their own way of approaching finances, and I’ll just open by saying that this is my opinion, and nothing more. Like anything written on this blog, you are free to take what you like and leave the rest! So without further ado…

Trust is a vital cornerstone of any relationship. Trust is something that is earned and built over time, not overnight. Every small action every day in a relationship either builds or erodes away at the trust between two individuals. In finances, this is no different and is maybe even amplified. So how is financial trust built?

Transparency – Like I said, I know people get it done in different ways, but we have found that complete and total transparency is absolutely critical in being able to build healthy financial trust. Our primary checking account is through a bank called Simple. With Simple, we each have our own personal account, and then we share a joint checking account in between. Sort of think of it like a Venn diagram. We each have a very small amount of money in each of our personal accounts, but the lion’s share of our money at any given time is in that shared checking account. When I got to BestBuy to purchase a gadget, I slide my debit card for that shared account, and both Jos and I get a notification on our phones instantly with the business and total amount spent from the account. If that makes you sweat, you should probably have an inward look at why that might be!

This transparency has become as normal and easy as breathing for us. The point is not to be the police for one another, but rather it is to keep each other in check. If I saw Jos swiping for a coffee a few days in a row, I might ask her about it. When I buy something technology-related, say for $50, she is going to kindly ask me what I bought. Both of us know where our money is going. “Our” money – this will lead me to my next point.

Togetherness – The Bible tells us that we are not to keep track of a record of wrongs with our spouse. This is basically scorekeeping, right? Keeping a scorecard of the way that our partner has hurt us or messed up. So why would we do that with finances? I am a firm believer that the bulk of a couple’s money should be in a joint account, with both names on it. When you get married, the two become one flesh, and the bank accounts should too. When Jos was in graduate school and unable to work, I didn’t lord it over her that I was making money and she wasn’t (or at least I didn’t try to – sorry honey, for when I did!). The money that landed in our account from my payday was always OUR money, not my money. When she needed to go out and buy some new clothes for a placement or internship, I didn’t tell her to go use her own money. It’s our money.

The main reason I would encourage this mode of operation is that it is so easy to get into the mindset of owing this or that to one another. This way of thinking clouds the fact that in a relationship, both sides bring specific talents and abilities to the table. Currently, my salary is a bit higher than Jos’. Ask me to decorate or make the house feel “more like home” and I am basically useless. Our house would look like the inside of a prison if the interior design was left to me. Jos loves to cook and is an incredible hostess! If I was in charge of that, it would be Little Caesar’s pizza every time. When I get dressed, I can barely get anything to match or look decent. If it wasn’t for her, I’d go out on the town on a Friday night looking like trash. One of the biggest ways that we’ve been able to cut down our spending the last few years have been with meal preps on Sundays. Once again, ring up a bunch of points for her for all the ways she contributes to our financial well-being. There is way more to a relationship than simple dollar amounts. We each pull our own weight in unique and completely valuable ways.

My last point I’ll make about togetherness is that the victories and defeats are shared when all the money is a collective “ours”. Early on in Forest Grove, we had to replace the wheel bearings in the front of our 2008 Prius. It was $600 and we had very little money to spare. Instead of this turning into a fight about who was going to pay for it, or who’s car it was and who’s the responsibility it was to maintain it, we both were able to discuss it and spend the money from our joint account. On the flip side, when we finish paying off a loan, it is a chance for us to both rejoice equally in that win together. She didn’t pay it off, I didn’t pay it off. WE paid it off. So let’s go celebrate!

Teamwork – Life is more bearable, and more fun, when you have someone on your team. Ecclesiastes 4:10 says that “If either of them falls down, one can help the other up. But pity anyone who falls and has no one to help them up.” There are days when I do not make good choices financially. I want to go out to eat when we’ve already been out recently, or I want a new gadget to add to my tech collection. There are days when I just want to say screw it! and give up on our journey towards being debt-free. And Jos is always right there to help remind me what we are doing and why we are doing it.

When I have a strong paycheck or bonus, I don’t feel the need to pocket it or put it in my personal account, because I look at all the ways Jos lifts me up along the way, and my heart’s inclination because of that is that I want to help put us both into a better financial position. We both contribute, we both make loan and debt payments, we both keep one another on course for the goals that lie ahead. Because of the trust we have, we are able to spur each other on.


Trust takes time and it takes intentional steps. But the reward is worth it. You will find that financial trust spills over into other areas of your life and relationship, and can bring you much closer than you would be otherwise. Trust builds intimacy, intimacy grows love, and the cycle can continue to feed itself.

If all of this sounds like too much or too scary of an ordeal, start with a simple conversation. Try to be honest and open with your significant other about where you are at, what your expectations are, and how you would like to help one another toward achieving your goals (financial and otherwise) together. You’ve got this!

Post-House Purchase: Status Update

House for sale with real estate sign in yard.

As the title implies, a lot has changed for us in the past few months. We are new homeowners! But that update will take a while to unpack for the purpose of this blog, so I’ll try to get into it. Perhaps the easiest way is to bare our current debts, and then walk through an explanation of how we got to where we are. So here is the current breakdown:

Jos’ Student Loans – $52,959.46

Personal Loan – $2,863.36

Credit Cards – $4,924.65

Car Loan – $8,289.29

Total Current Debt (not including mortgage) – $69,036.76

The student loan balance was falling sharply over the course of 2019. Our beginning balance in January 2019 was $75,147.74 if you can believe that. So we actually made a lot of progress on those loans over the course of the year. This progress was generally put on pause (we are just making the minimum ~$600/month payments on them currently) as we saved for a down payment on a house.

This gets us to the second debt listed here, the personal loan. I took out this small loan as “insurance” as we were working towards closing on our house. Basically, I wasn’t sure if we would have enough cash to cover the down payment and all of the closing costs. This was sort of dumb since this could have wrecked my credit right before getting the mortgage dispursed, but I feel that explanation must come in a separate post. Looking back, I probably would have done this differently.

I will briefly touch on a few things regarding being a first time home buyer. There is so much we didn’t know until we came face to face with it in the closing processes. Your credit score matters a lot both with your interest rate on the mortgage, and if you get PMI, or Private Mortgage Insurance. The amount you will pay for PMI also relies heavily on your score. The amount you put down on the house impacts the interest rate you can qualify for. If you put even slightly more down (which we did, and this stretched us) your PMI can go down, and you can also lower your monthly mortgage payments this way. As I write this all out, I am realizing that to do all these topics justice, I may need to post a few times this week.

The credit cards are cringeworthy since I had basically sworn them off in the past few years. I hate them. The thinking here was to get an interest free for 15 months credit card to put some initial expenses on as we moved in. We were strapped for cash down the stretch as we saved every dollar we could to put down on the house and on closing costs.

Last up is my car loan, which I haven’t explained much up to this point. Late this past summer I purchased a used 2016 Chevrolet Spark EV with 36,000 miles on it. When we moved back to Missoula from Portland, I knew that the Miata was no longer going to be a viable primary vehicle for me. It is very small, unpractical, and having a convertible in Montana is asking for trouble. I bought the car right after we got married a couple years ago for $5,500, and was able to sell it this past summer for $5,000 which I was super excited about. Outside of the usual insurance and fuel costs, the only real thing I had to do to it was get new tires on it, which were inexpensive for such a small car. All that to say, I was basically able to drive a first-gen Miata around in Oregon over two years for only $500. Pretty much a steal.

Being back in Montana, I knew that the Miata wouldn’t cut it especially as the weather turned in the fall. I have been pretty interested in EV (electric vehicle) technology in the past few years. I researched them a bunch and found that the options were basically to get a very expensive one (over $30k in most cases, all the way up to $100k for a Tesla Model S), or get a used, compact one off-lease for a little under $10k. I found the Spark EV, a car that GM did almost nothing to advertise to the mainstream marketplace. I believe they only built a couple thousand of them in total. They were basically compliance cars for GM to balance out their gas-guzzling portfolio of vehicle offerings. The Spark EV was never meant to be a standout or a money maker.

These cars originally retailed for almost $28k from 2014-16, the only years they were ever built. I was able to find one in Idaho Falls for about $8,500, huge savings over the new cost. I couldn’t resist. We’ve since put about 3,000 miles on our Spark EV. It has proved great in the snow (with snow tires, of course) and it uses no gas at all. It is rated to travel 82 miles on a single charge. Not much, but more than adequate and really ideal for around-town travel, which is what we use it for. Okay wow, I am way off-topic. I’ve been meaning to write about the Spark more, perhaps another post is in order for that in the near future.

We have decidedly gone against a few of my primary principles of finance in the past few months: taking out a loan for a car, taking out a personal loan, spending more than you make, and using credit cards. All that said, there was some method to the madness.

Housing prices in Missoula and around the country continue to rise each year. Just looking over a housing report for the past eight years or so in Missoula, the median home price has risen at a rapid rate each year. Sure, the housing market could take a dip at any given moment, and it may still, but right now, that is not the case. Interestingly, from the time we made an offer in early December until now, houses that are nearly the same as ours on our newly developed street have already risen in price $10-15k in some cases, in just a few short months. Things do not appear to be cooling off. We decided to jump on the train now, and suffer some short term debt in order to get in before things continue to climb.

Buying a house is always somewhat of a gamble. Things could always tank. But we knew a few things: we didn’t really want to rent again, we likely aren’t moving away from Missoula anytime soon, renting in Missoula is expensive, and in the end we really just wanted to be in a house.

I can’t recommend the steps we took to everyone. I think in an ideal world, I would have loved to pay off all our debt, save up a proper 20% to put down, and maybe even tried for a 15 year fixed loan instead of a 30 year. But life comes at you fast, and sometimes you’ve got to call audibles and make changes on the fly. We are loving our house, we are able to start building equity, and I definitely don’t regret this decision. It does come with a set of consequences that we are working through currently.

To help balance out all these new costs, we’ve tried to cut back on our spending in other categories like eating out, entertainment, and gas (the Spark EV helps out a lot here). The new approach will be to make minimum payments on everything we owe on and start knocking down our smallest-balance debts first. If my projections are correct, we should be able to be debt-free, other than the house, in the next three years. If we really dig into it, or get raises or different jobs that pay more, that time frame could shrink.

As I said a few times in this post, I think I’ve got a lot to unpack about intricacies of buying a home, some of the related costs, and how to best plan for it. I wouldn’t say we did the best job handling the transition, but things are settling out now and I can see a clear action plan to continue making progress on our debt-free journey. I hope this is helpful to you as you read through my mumbo-jumbo.

 

Working From Home

Shortly into conversations with new acquaintances, the “what do you do for work?” question almost always comes up. My response is usually something along the lines of, “I work remotely for an IT managed service provider out of San Francisco.” The response back is usually “oooo that must be nice to work in your sweats!” Very clever line, I’ve never heard that one before.

Working from home is the dream of many employees, especially the generation around my age. Landing a remote job is a home run in so many ways, right? Show up when you want to, no one checking in on you, no need to deal with co-workers who talk too much or stay at your cubicle too long. The list of what makes it a dream position (in theory) is pretty lengthy. I thought I would share about the things I like and don’t enjoy as much about it. Don’t worry, I’ll weave in a decent amount of finance talk here, too.

Time – I’ll begin with the precious commodity of time. Working remotely really is a sweet spot for maximizing time. If you work at a physical office, you have to drive to and from that office to your home. It seems obvious, but when you work remotely, you don’t have to step foot in your car. No scraping ice off a windshield, no warming up a car, no waiting in traffic. I have had days where I wake up 5 minutes before my workday starts and guess what? I’m never late.

This may not seem like a big advantage, but it really can add up. Even if you had a 15-minute one-way commute, working remotely would give you back at least 2 1/2 hours each week. Over the course of a year, that’s 5.4 DAYS that you get back by working remotely. This number is dramatically higher and more significant with a longer commute of course.

Eating Out – During my days managing the hotel here in Missoula, I ate out for lunch every day. Shoot, when it got really bad I was picking up take out breakfast AND having lunch out too. It was spendy! But if I didn’t plan ahead (which I obviously never did), lunchtime would roll around, I’d be hungry, and my favorite fast food was five minutes away while my apartment was 15-20 minutes away. No way was I going home, making a sandwich, and hustling back to work.

My wife gets the biggest shout out here because she loves me so well, and one of those ways is with her excellent food skills. She’s a great cook. Before our week starts, she does a great job of making food preps (and I usually try to take care of the dishes) and then we both have pre-made, delicious and nutritious meals ready to eat during the rest of the week. This is much much better for our health, but it’s also a huge benefit to our bank account. Eating out since I’ve worked from home takes time and effort. I’d have to get in my car and drive at least 10 minutes one-way to get some food. Instead, I can walk out of my home office, open the fridge, pop my lunch in the microwave and voila, I’ve got an awesome home-cooked meal in less than 5 minutes. This is the way to go.

Vehicle Expenses – The savings from working from home don’t end there. Without needing to leave the house, my car gets way fewer miles put on it each month. This also equates to less fuel (I now have an electric car, but that is a different topic), maintenance, and other expenses like fixing rock chips in the windshield, replacing tires, and all the other wear and tear that cars absorb over the course of their lives. Since I bought my all-electric Chevy Spark EV this summer, I am on pace for only 4,700 miles per year on it. That is with Jos taking it fairly often for work and errands around town. The average driver in the US puts on 12,000-15,000 miles per year on their cars on average, in comparison.

Convenience – This is my wife’s favorite part. When she’s off work, I’m already home when she gets here. She doesn’t have to wait for me to get back from an office across town. When I clock out, I’m ready to go and do whatever we have planned that night.

If she forgets something at home, or we need to put a load of laundry in, this can all be handled by yours truly if needed.

This is where I will start to discuss the tougher side of remote work. I know I know, you were thinking it was all just rainbows and butterflies…

Along this same vein of convenience is the isolation factor. There are days where I quite literally never leave the house, other than to maybe get a walk in during my lunch break, or when I work out in the morning. No coworkers to chat with, no one else at the house. After a long time, week in and week out, this does get lonely.

Collaboration and Rapport – Not sitting close to other members of your team at work can be challenging. As mentioned above, of course, it can be nice for train of thought, and a quiet work environment. But I can’t just lean back in my chair and ask the guy or gal next to me a simple question. I have to do everything over phone or video call, or more commonly, over instant message on my computer. This may work fine for the most part, but not being in the same physical space with colleagues can be frustrating.

It can also be more challenging to build up trust and good working relationships both with coworkers and bosses. When you work in the same office together, you get to know people better, work-related or not. Working remotely does not easily lend itself to that growth that can be so valuable for career development in an office.

Work/Life Balance – When your work is so close – like right in the other room – it can be difficult to disengage your brain from work activities. I don’t know much about psychology, but I have noticed in my own experience a certain level of isolation and feeling down just because I am not around people. Whether you are trying to relax, or are crunched for time trying to get a work project completed, you are still in the same place (your house or apartment). This lack of separation can be difficult.

Working remotely is easy on the wallet, and helps save money in more ways than just the commute. It saves time, gas, wear on your car, and lowers the temptation to eat out and restaurants. It can also be somewhat lonely and it can be difficult to focus if you aren’t disciplined or don’t have a good personality type for the isolation that can accompany it.

Thanks for reading!

I just set a new savings record… and it took less time than you’d think

I have never been much of a saver. When we were young, my two siblings and I would occasionally collect an allowance for doing chores and helping out around the house. It was a method for my parents to get small amounts of money in our hands at a young age in hopes of establishing healthy spending and saving habits. The method was good, but I was a slow learner.

I almost always had my eye on a toy or set of Legos (I was big into Legos and Beanie Babies when I was really young). If I got $10, it was usually enough to get me one Beanie Baby and maybe a small Lego set, like a racecar. I rarely gave a second thought to saving any of the money I had. Easy come easy go.

That trend continued into my middle school and high school years when I worked various jobs. There was always something to buy: a tank of gas, a new part for my car, going to dinner with some buddies or a girlfriend at the time. I’d get a paycheck, and spend it all before getting the next one. I have never been a good saver.

Back in the spring of 2017, I was recently engaged and getting ready for my new life to begin in July when I would marry my best friend. It was exciting, but also scary. I was under-prepared to be a strong leader financially, I didn’t know what I was doing. I had a bunch of credit card debt and a large car payment, and I was spending the rest of what I made on eating out and other frivolous activities.

As I’ve shared before, getting married was the financial wake-up call that I needed. We got things turned around, have paid off all of our credit card debt, all of my student loan debt, and we’ve been working feverishly to defeat Jos’ student loan debt. In my last post, I shared that we are now working toward a down payment for our first house. This is a shift in our usual strategy of budgeting, then dumping any left over money onto debt repayment. Now instead, we are making standard payments on the loans, and then saving every penny beyond that toward that first down payment of ours.

In very little time, we’ve already got over $3,000 saved. It is by FAR the most money I’ve ever had saved in my life (excluding retirement plans, as I don’t count these as traditional savings). It is crazy to think how long it took for me to save just a few thousand dollars. 28, going on 29, and I was finally able to do it.

What are the biggest takeaways from this small victory? Well, there is obvious pride in reaching a goal. There is also a new sense of security, knowing that if something bigger happened, we have cash in the bank and wouldn’t need to turn to a credit card to make ends meet for a larger bill or purchase. For me, it is a glimpse into what is possible. It’s really the first time that I haven’t been in a paycheck to paycheck situation in my entire life. If we both lost our jobs tomorrow, we would be okay for at least a month or two. Before that? The cash reserves would have quickly dried up and I would have been forced to pull out the cursed credit card.

For those of you that are natural savers, good on you! You’ve mastered a great life skill that I’ve only recently experienced for myself. If you are like me and have never found saving to be worth it, or if you haven’t found the motivation to save, give it a shot! If you’ve never saved $100, do that. Seriously! Save a Benjamin. Once you’ve done that, try saving $500. Then $1,000.

As the savings grow, I am for the first time envisioning a host of benefits. Less stress at work, since you aren’t 100% dependent on every dollar that you are expecting in your next check. Savings will allow us to breathe easier when a larger unexpected expense comes up. It will enable to us to step from one financial life stage into the next one eventually (homeownership!). There is a lot to look forward to.

Saving for a House

Ah yes, the seemingly impossible task for Millenials. This daunting and elusive purchase has been looming over me for a couple of years now. I would love to get us into a house and into home-ownership. But man, property is expensive!

Reading the struggles of others in similar situations to us, it is clear that homeownership is a scary prospect for many. We hear it all the time from our parents’ generation and the generation before: renting is a waste of money! A house is your greatest investment! Easier said than done, unfortunately.

Over the past few months, we have juggled the two (well, really three) options on what to do with any money over and above our usual expenses. We can 1) pay off debt 2) save for a down payment on a house 3) increase our savings/emergency fund.

As it stands right now, we have about $53,200 left to pay off in student loans, and $9,000 to pay off on my newly acquired Chevy Spark EV (a car I love by the way, and is saving us money at the pump. But I digress and will surely need to justify my purchase in a separate post, so stay tuned!). We carry an emergency fund right now of only $500. I contribute 4% of my income to a company 401k since I get a 4% company match and want to max out that free money. In a nutshell, we are very cash poor at this juncture.

About a month ago, I talked to a large national lender just to see what kind of mortgage we could prequalify for. I let the loan consultant know that I didn’t want to take out any more than $300,000. He ran through some numbers and returned with a rate of 3.49% on a 30-year mortgage with only 3% (or about $9,000) down.

Then, about a week ago, we met with a family friend who is a local realtor and chatted with her about what we are looking for, and some of the costs associated with homeownership. One item that I didn’t know much about, but is an important expense, is closing costs. Closing costs consist of a number of necessary transactions that essentially increase the amount of down payment you need since all of the closing costs are due right around when you wrap up a new house purchase. In our $300k house example, closing costs in Missoula would be estimated to be right around $6,600.

Even with making a minimum payment, and closing costs wrapped into it, we will still need to come up with about $15,600. But getting into a house with that little money definitely has some drawbacks.

If you own less than 20% of a house and finance the rest, the bank wants to make sure that you are good for the mortgage payment each month. To make sure that you are, you as the borrower are required to basically insure the interest of the bank against your property. For example, a homebuyer who puts down 20% on a house is pretty well invested in the home. They are very likely to continue making their on-time mortgage payments. But someone who only puts 3% down has much less “skin” in the game, and are more of a flight risk. They may not make their mortgage payment on time, or at all.

This insurance that must be bought by homeowners owning less than 20% of their house is called PMI, or Private Mortgage Insurance. It is a hefty addition to the monthly mortgage payment. Some quick calculations from our $300k house example show that without PMI added in, that mortgage (with property tax and home insurance factored in) would come to $1,590 per month. But since less than 20% of the house would be owned, PMI tacks on an additional $249 per month, upping the total cost to $1,839 per month.

All of these costs aside, it is important to realize that with homeownership, anything that goes wrong or needs to be fixed on or in the house falls squarely on the homeowner’s shoulders. When you rent, and the water heater goes out, you just call the property management company or your landlord, and let them know it needs to be fixed. If you own property though, that fix is coming straight out of your pocket! Homeownership, the more I’ve researched, is anything but cheap.

So where does that leave us right now? Well, we are planning for a few things, and hoping for a couple more.

We are scaling down our debt repayment to make only minimum payments both on our car loan and our student loans. Any money on top of that will be set aside in a 2-2.5% interest rate savings account. The goal would be to save as much as possible for that down payment and hopefully save a few thousand more on top of that to cover any upfront costs of moving into a new home.

It is hard to justify homeownership over renting in a lot of ways. But looking at the housing market, it’s hard to argue the fact that housing will likely only get more and more expensive, and with it, rents will only continue to rise as well. As I’ve heard some experts say: the best time to buy a house is when you need one.

We have a lot to consider as we aim at homeownership. How much total should we save? Should we buy a small house now and then upgrade later as we start a family? How much money should we put down? Can we even afford to look into buying a house right now? Well, I’d like to think this blog is aptly named. Just like you, I am just trying to make sense of this all as we continue Figuring Out Finances.

Should Student Loans Be Forgiven?

If there ever was a hot-button topic recently in political debates, it is student loan forgiveness. Some Democratic candidates are riding high on the idea of sweeping forgiveness for loans. There are a lot of ways to slice it, fund it, and sell it to the public. But would student loan forgiveness really be doing the right thing?

Here’s the thing about student loans: they are ultimately the borrower’s responsibility. I know there might be some that read this that will strongly disagree. There are outlying cases. Perhaps you really were the victim of predatory lending. Perhaps you were promised one thing and then delivered another. I get that, and I sympathize with those situations. But right now, I am speaking to the average, everyday borrower.

When I graduated from Azusa Pacific University back in 2014 with $25,000 in student loans, I wasn’t looking around for someone else to pay those off. It was my responsibility. I had gotten a good education, my market value had risen because of it. That debt included two study abroad semesters, great learning in the classroom, and an experience that I would not trade for anything. But I was the one that signed for those loans. I was responsible.

Fast forward a couple of years, and I finally – by the grace of God – was able to free myself from those undergrad loans. It took a long time, and it wasn’t fun. Every time I made a $1,000 payment, I cringed at the thought of what I could have done instead with that money. But the fun had been had, the education had been provided, and it was time to pay the piper. And that’s what I did.

2017 rolled around and I found myself newly married to the most amazing woman in the world. During our courting, we had discussed in depth the prospect of graduate school for her. It was going to be expensive, there was no doubt about it. We may have picked one of the most expensive options in the list of schools she was interested in. But we went in with eyes wide open that the final debt bill would be well over $70,000. She signed up for those loans with expectations no lower than “we will pay these off.”

That graduate school loan balance is now down to $55,000. We both make decent money, but we don’t spend a bunch of it. More than half of my most recent paycheck went straight to student loans. Her paycheck was just deposited yesterday. Today we will pull out taxes and tithe, and the remainder will go straight to loans. It is gut-wrenching, and it sucks. It’s not fun. I don’t like it, she doesn’t like it. But we chose it. We knew what we were getting into and taking on. And we will pay back those loans.

There are massive problems with the current lending system for higher education. Lending is careless. Prospective students are not properly evaluated for their ability to pay back loans. Going to be a social worker? Excellent! The world needs those! But taking out $100,000 in loans to become one? That is irresponsible both on the side of the borrower, and it is borderline predatory on the lender side. Did this future social worker have other options? Probably. There are community colleges everywhere. They could have stayed in-state to lower their tuition price tag. They could have lived at home for a while during school. There are always options.

I do need to take a moment and say that Capitalism is really ugly when certain light is shed on it. Student lending is one of these places. Colleges and Universities have jacked up the prices to match the reckless lending that goes on by both public and private lenders. They are simply getting top dollar out of the system that is in place. Lending needs to be reigned in and regulated to some extent. It is out of control and is in most cases somewhat if not totally predatory. Those who lend money to those they know can’t afford to pay it back should have a nice long look in the mirror and ask themselves if they are loving their neighbor as themselves.

Whew, off the soapbox now. What would student loan forgiveness teach people? It would not teach reality, that is for sure. When do you ever get to spend money and not pay it back? Never. Unless you go delinquent on payments, wreck your credit score, or worse, file for bankruptcy.

It makes me sad that people have recently pressured their idols or role models into paying off their student loans. Being rich does not mean that these people owe anything to anyone else. I am all about equality whenever it is possible. But blaming the rich and asking them to pay debts that we have incurred is pretty ridiculous.

This post may not make you very happy. But just keep in mind that if you are a borrower buried under student loans and other debt, I am quite literally right there with you. Is it hard? Yes. Do I wish someone would wave a wand and wipe away our remaining balance? Some days. But I also believe in taking responsibility and paying off every dollar that you borrow.

If you find yourself hoping that the federal government will bail you out of your situation, I would encourage you not to. You would be better off working on getting out of debt now instead of waiting for the next President to arrive in office. Politicians promise the world to get to the Oval Office. I have yet to see one that has fully delivered.

To leave a heavy subject on a more positive note: you can do this. I can do this. We can work hard, make better choices, and dedicate ourselves to adjusting our lifestyles in order to achieve a goal. I am excited for the day when Jos and I can say “we are debt-free!” I hope you would join us in that endeavor.

What is student loan grace, anyway?

“Grace”

What a nice word that is. We all want grace in life from friends, family, and strangers on the road when we make the occasional questionable lane change in traffic. Who doesn’t like grace?

If you have ever taken out student loans, you’ll know that there is a grace period for repayment. This is typically a six-month period of time where you do not need to make any payments on your student loans. The clock for grace usually starts ticking right as you graduate. The idea behind it is to help new graduates have space and time to find a new, steady job so when the first round of payment does become due, that new professional should have had ample time to get financially stable to start making those payments on time and in full. Sounds like a great system, right? How nice of those loan providers to provide ‘grace’ to these new graduates! If only life were that good.

The problem with the grace period in student loans is that it does not save you any money. Quite the opposite. Say you’ve got $50,000 at 7% interest in loans when you walk across the stage at graduation in May. You’re feeling good because your first payment isn’t due until mid-November. You’ve got all kinds of time, right? Well, this is what your balance will look like in the following months:

June – $50,291.66

July – $50,585.02

August – $50,880.09

September – $51,176.89

October – $51,475.42

November – $51,775.69

And look at that. While you were enjoying your time of ‘grace’, you now owe an extra $1,775.69 to your student loan provider! What a ripoff! How can you avoid this?

Well, you can’t stop the hands of time, and you also can’t stop the effects of compounding interest. However, the best way to combat growing interest on your loans is to pay early and pay what you can afford.

If you are fortunate to get a good job right away after graduation, you’ll probably be thrilled by getting your first few paychecks. After living on a shoestring budget, you feel like you can finally breathe! And you should, you’ve accomplished a lot. But instead of spending your entire paycheck, take honest stock of your budget and figure out what wiggle room you can come up with and pay that towards your loans, even during your grace period. This will make a big difference in the interest that we saw racking up in the above example! Even make a payment of $100 or $200 during grace can help tremendously in your road to getting that debt repaid.

When it comes to student loans, grace is far from as good as it sounds. Keep an eye on your loan balances even during the first six months after graduating, and try not to splurge on purchases. Be realistic about your budget and what you can contribute each month or each paycheck toward debt repayment, and be faithful in doing so. You will see the results with your persistence!

Picking Up Steam

My apologies for being generally absent from posting. Summer has been crazy for us, basically since we moved back to Missoula at the end of May. Weddings, family events, and a few more weddings. It’s an exciting time!

On our financial journey, Jos and I are finally picking up some good momentum. It was tough living on one salary for the last two years, but we are finally almost out of the woods with that stage. Jos got her first paycheck from her new job a week or two ago, and it has already made a big difference for us! It is simply amazing what a second income stream can do for the debt repayment process.

As I’ve shared before, we are keeping our exact same budget from our single-salary days and just chunking all of Jos’ earnings at the debt snowball. We’ve had some big travel expenses and have had some wedding and baby shower gifts to pick up here and there, but having the extra income makes all the difference in the world.

I think the biggest challenge at this stage in the debt repayment is not getting complacent about where we are at. I think it would be easy to loosen the reins and get a little lackadaisical about where our money is going. But we have other goals in mind, including a down payment for a house, and hopefully a newer car soon, so we are staying motivated in order to achieve those goals.

I logged into my student loan portal yesterday just for kicks, and it was incredibly refreshing and encouraging to look at all those zero-dollar balances. What a relief it was to shed my student loan debt! I can’t wait until we got Jos’ taken care of and then we both rejoice in the feeling that we don’t owe a dollar to anyone. That we will need to celebrate, big time!

Looking ahead, we may still be on track with our original, lofty goal of being debt-free one year after Jos got her first paycheck. It will be right around our anniversary, July 8th, next year. I think we can still get there if we are persistent and make good choices along the way. It’s encouraging to see how far we’ve come, and it gets me excited to think about what we will be able to accomplish once that weight is gone.

Are you onboard yet? Maybe you’ve read a post or two of mine and have thought that this debt-free journey isn’t for you. It’s just too much to take on. But let me tell you, you can, and you should! It is worth the time and effort it takes to make a plan and stick to it. Putting off a few nice things today can mean being in a much better place in a few years, maybe even a few months. If you are having a hard time knowing where to begin, I would be happy to help. Please feel free to reach out to me at justinovenell@gmail.com if you have questions or just want to chat about where you are in your journey, I would love to hear from you.

Cheers to you.