Tuesday, March 24, 2009

I get it now!!!

Last night Tim and I were looking up some information on my school loan. I stumbled across a page that shows our payment history. What is nice is that it shows the amount we paid, the amount applied to principal, and the amount applied to interest. WHAT AN EYE OPENER!!! I knew you saved on interest by paying loans ahead - like mortgages and school loans - but I never fully understood the full impact until I saw it in writing (have I mentioned I'm a visual person).

The minimum payment on my loan is $296.33. Following Dave's plan, we've been paying the minimum amount on our largest debt (yes, I owed more on my school loan than we did on our second mortgage) until just recently. I couldn't believe when I saw the summary just how little those minimum payments were doing at knocking down what I owed. I knew it seemed like the balance never changed, but I didn't think too much about it until I saw in in writing. Here's a few lines from the report to help show what I saw...

April 10, 2008 - Paid $296.33 = $78.99 to Principal - $217.34 to Interest
Sept. 10, 2008 - Paid $296.33 = $81.19 to Principal - $215.14 to Interest
Jan. 10, 2009 - Paid $296.33 = $117.21 to Principal - $179.12 to Interest

We were making progress, but it was slow. Then at the end of January we started really ATTACKING the debt.

Jan. 23, 2009 - Paid $2,750 = $2,674.96 to Principal - $75.04 to Interest (because this was not a regularly scheduled payment).

After a couple more large payments like that (thanks to deferred house payment after refinancing, payment on my work, extra paycheck in February, and some scrimping) the real affect can be seen in our most recent "regular" payment:

March 10, 2009 - Paid $296.33 = $249.51 to Principal - $46.82 to Interest

Now that is the proportion I like. We're FINALLY paying more on principal each month than we are on interest. What a great feeling. The change started right after our large payment in January. Our regular payment in February was the first time we actually paid more toward principal than to interest. Now that each payment makes a significant dent in the principal, I finally understand the power of paying ahead. This could be a great motivator when it comes time to paying off our mortgage too. That's getting ahead of things, but I can happily say that I AM SO EXCITED about the numbers I'm seeing on paper right now. Stay tuned for more on that...

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