Wednesday, January 14, 2009

State of Chacha's Union

Part of the stuff I blog about is also personal finance since I am trying to get my husband and I out of debt. So, while I haven't decided on any 2009 goals as of yet, I figured I should review 2008. Since I didn't dive wholeheartedly into aggressively paying down debt until like March of last year, I am not sure what the initial balances of certain loans were last January (not without going to my file cabinet at home, which I'm not going to bother doing at this moment). So I am estimating.

Loans we had in January 2008 and approximate balances:

Car #1: $8,000
Car #2: $7,000
Student Loan #1 (mine): $300
Student Loan #2 (mine): $11,168
Student Loan #3 (his): $1,800
Student Loan #4 (his): $300
House 1st: $413,006
House 2nd: $47,095 (to hell with this 2nd!)

January 2009:

Car #1: PAID
Car #2: $950
Student Loan #1: PAID
Student Loan #2: $10,253 (915)
Student Loan #3: PAID
Student Loan #4: PAID
House 1st: $407,884 (5122)
House 2nd: $45,073 (2022)

Total Debt Paid in 2008 (approx): $24,500

Considering the size of our mortgage payment, that's pretty good. Take out the house debt repayment that we can't NOT pay and we still paid down more than $17,000 of other useless, crap debt.

Savings
In the category of tax-deferred retirement accounts (401k), we contribute around 6.5% (not including company matching). That translates to be roughly $11,000 last year. Unfortunately, that money (along with a whole bunch more) has been flushed down a commercial strength toilet called the stock market. That's a bummer.

Cash savings increased by $1,400 since January. On the surface, that's not all that impressive, but had the plumbing disaster not occurred, it would be $5,600 more. The plumbing mess necessitated the kitchen remodel, which, thus far, has cost around $12,000. So, without those things (because they were not in the plan for the2008), we would have saved nearly $20K. I am happy, though, that we didn't decrease our savings from these unplanned expenses and projects. I do wish we could have saved more to get to the magic number in savings where I feel more at ease (in the event something bad happens).

Only one loan remains (aside from the house, which, really, I have no grandiose ideas of paying THAT off in the near term, and we'll pay off the other car next month). According to Sallie Mae, I still have 92 months of payments left. That would make me 38 (!) when it's finally done. That is just wrong to be nearly 40 years old and still paying undergraduate loans taken out 20 years prior. I did some calculations for two scenarios (1) if I just kept paying the regular payment and let that same amount sit in the bank, (2) pay it off and make the monthly payments to savings. I used an estimate of 3% interest for 7 years (since we're at 2.1% right now for our money market and we'll probably be down here for a while, seeing as the economy will suck for at least another year).

Scenario 1:
Leave $10,250 in the bank and keep paying loan minimum:
$12,875 after 7 years of interest at 3%
$12,943 total repayment cost (incl. interest)
Loss of $68

Not that much, really. It's almost break-even. However...

Scenario 2:
Let's say I pay it off and put the $141 each month in the bank getting that same 3%
$141 monthly contribution to savings for 7.67 years at 3% compounded daily: $14,161
Subtract the 10,250 I paid to Sallie Mae.
Gain of $4,161

I was kind of shocked, really. I didn't expect the difference between the two to be $4,200. Sure, in 7 years that might not be as much as it is now when you factor in inflation, but still. There's a significant gap there.

This calculation sold me. Sure, our cars are getting up there - the Husband's car is approaching 130,000 miles. I'm not sure how much life it has left. Mine has 104,000 miles, so its not so spry either. We could, rather than pay off my student loan, keep that money for a vehicle purchase in a year or so, but seeing this four thousand dollar gap, I just can't see doing anything but paying it off. There is no point keeping this loan - it is a burden. A useless burden. So, I guess I have one goal for 2009: by June, I want this sucker paid off.

3 comments:

  1. I am impressed by your calculation of different scenarios.

    I was all about indifferent ignorance last year but its time to face up to the real value of our assets. Not that we are going to touch them anytime soon...I procrastinate because I want to hang on to my Bourgeois delusion a little longer.

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  2. That is good that you were able to see all the scenarios. I'm sure you will pay it off this year. You are a determined young woman! With a lovely net balance.

    I am going to read my Dave Ramsey again and get reinspired.

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  3. I am pretending that my eleventy million dollar student loan does not exist. That's my idea of fiscal planning. Sallie Mae keeps telling me if I enter their drawing, I could win a chance at having it paid off. So that's my goal for 2009, to win a random drawing of probably 100 million entries. It could work.

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