The Wong Ohana

There are tons of programs out there that are supposed to help you reduce your debt, but most of them will either cost you by way of buying a book, paying for a membership program, or charge you fees for refinancing, or consolidating your debts.

There is a way you can do this yourself at NO ADDITIONAL COST!

That’s right! You can reduce your debt and not pay a penny more than you are already paying right now! Hard to believe, but its true!! I’ve been doing it for years and by using this very same method in addition to paying additional amounts to my mortgage whenever possible - - - to date, I have personally reduced the amount of interest I’ve paid on my mortgage SO FAR by $160,248.75.

That means that if I look at what I “should have paid” to date and compare that number with what I have “actually paid” to date, I’ve paid $160,248.75 less than what is shown on my amortization schedule.

That is not a made up number, something I’ve read in a book, or heard in an infomercial on TV - I just opened up my personal file and copied what I have written down on my most recent mortgage statement! So when I tell you it can be done, what I’m really saying is that IT CAN BE DONE, I have PERSONALLY DONE IT, so I can say that YES, this really does work, and I’m happy to tell you how to do it!

This method can be used to pay down your mortgage, your car payment, in fact any large loan that has regular monthly payments, charges you interest, is amortized over time, and has no pre-payment penalty. Anybody got anything like that? I’m sure that a lot of you probably have multiple situations like this!

The concept is really very simple. Your interest payments are most probably given to you in a yearly figure. In other words, you pay 6% per year for 30 years on your fixed rate mortgage, or 9% per year on your car for 5 years - something like that. What is important here is that this figure is not charged to your account on a yearly basis. They are calculating it out and figuring up what to charge you on a DAILY basis, and it is this figure that is then applied to your account balance DAILY.

Now think about that. Its only a small amount each day, but it is added to your balance each and every day, day after day for years and years on end - so that after a year passes it AVERAGES out to that 6%, or whatever your APR (Annual Percentage Rate) is.

You can take years off your mortgage and save thousands of dollars by simply splitting up your monthly payment and paying it in frequent installments throughout the month instead of one lump sum.

For example: If your house payment is $1,000 per month, you will save a TON of money by making 2 payments of $500 paid twice a month, or even better yet - 4 payments of $250 paid weekly instead of writing one check for $1,000. The reason behind this is that each time you make a partial payment, your total balance is decreased so the next interest applied to your account will be calculated on that new LOWER balance.

There are special mortgages that will do this same thing for you. You’ve probably seen the bi-monthly mortgage that you pay every 2 weeks. The problem with this is that you are then TIED to that schedule, and you have twice the chance of being late each month if you fall on hard times. Not to mention the fact that you’d have to re-finance your existing loan to get this offer, which will cost you escrow fees, closing costs, etc.

You can do the same thing yourself without changing anything but the way you are used to paying your bills. It becomes really easy if you have an electronic bill paying system because you can just click on it and send a payment as often as you wish. If you are using the old snail mail, stuff a check in the envelope method, make sure that you take some photocopies of your statement each month, so that you can include a coupon with each check, just to make sure that your funds get credited to the correct account.

By taking it upon yourself, you can pay as frequently as you wish, so if you want to, you can send a weekly check. In fact the more often you make a payment, the more you will save because you are continually reducing the total amount that your interest is being calculated on. AND if you ever go on vacation, or have a tight week, you can go back to your monthly checks easily with no penalty.

Some online mortgage sites even have boxes that you can click on to indicate where you want the payment to be applied, so you can have the first couple of payments go directly to the principle and pay the last one to the interest - that will also help decrease your debt incredibly! As that principal goes down, so goes down the interest they are charging you!

If you’re incredibly anal retentive like I am, you can even print out an amortization schedule that will show you the “anticipated” payoff time period, and how much of each month’s payment goes to your principal and how much goes to the interest. It will give you a principal balance for each month until the loan is paid in full. Each month when I get my statement, I check to see what the actual principal is, and how much the “estimated” principal should have been had I adhered to a strict monthly check and not made any additional payments to my principal (which I always do). The difference is actually staggering as you can see from the figure I posted at the top of this thread.

Now you may haven noticed something I just said. I do make it a habit to pay in excess of my monthly payment amount every month. This also makes an incredible difference. In fact if you just make ONE ADDITIONAL payment each year, you can cut 7-8 years, and thousands of dollars off your mortgage. Now calculate the amount of your monthly payment X 12, and multiply that out by 7-8 years? What could you do with that kind of money? One simple extra payment each year will do the trick! Excellent usage of your tax return, or Christmas Bonus if you ask me!

One thing I always did was to designate my Christmas Bonus each year to put down on my Principal! This was always considered FREE money for me, and something I couldn’t budget on, so if, and when I got it, I sent it right to my mortgage company. Same thing for the Bonus checks I occasionally got from my boss. I spent years in the Commercial Real Estate industry and each time a big deal went through, my boss was in the habit of leaving a check on my desk which I sent right to the mortgage company. Now there were things I could have used that money for, being a single Mom, but I also knew that the difference $1,000 made to me today would be 10-fold or more over time, if applied to my Principal. I opted for the time method and look how much I’ve saved.

Now eventually, my own personal goal is to own my house free and clear, and I’m very close now. I know that a lot of people don’t agree with this, but I do, and I feel strongly about it. Some day in the not too distant future I will have achieved that goal, and that will be a day for celebration to be sure! And when I DO finally make that final payment, I will have paid hundreds of thousands of dollars in interest LESS because of the things I’m doing now! Think about that!

I know for sure that there are many things I can do with the hundreds of thousands of dollars that will be in my pocket each month because I paid my mortgage down early. That’s money I will have every month because it isn’t being sent to a mortgage company! That’s because of a choice I made.

Splitting up your payments into smaller installments is a simple, easy thing to do, and it can make a HUGE difference in reducing your debt.

Now this is one of those things that fall into my basic philosophy that “Life is all about the Choices You Make”, but that’s another topic for another thread! Perhaps some people can’t afford to make those extra payments that I made, but EVERYONE can take the payments you are already making and split them up into smaller more frequent installments! And if you do just that one small thing, what an incredible savings you will make.

Remember - Life is about choices! Now what do YOU choose to do with this information?

There are a lot of ways to pay down your debts, but this one is particularly effective method, and it doesn’t cost you anything more than simply taking the time to sit down and do it!

So, now would be a good time to go into your Bill Pay and make the adjustment for your house payment. Change if from monthly to weekly, and change the amount from $1,000 to $250. Its easy to do. It takes only a moment of your time, and you will have just saved thousands of dollars, and years off your mortgage without any real effort or cost to you at all!!

By the way, if you want to print out an amortization schedule so you can keep track of your own mortgage, go to this site, click on “Simple Mortgage Calculator” and fill in the particulars of your own mortgage. You can then find out where you are by looking for your Principal Balance, and go from there.

This is also a great site for figuring out what your payments will be if you are looking to purchase a home by filling in the interest rate, term, and purchase price, it will give you a monthly payment amount. But don’t forget to add in your home owners insurance, property taxes and fire/flood. That isn’t added in here, just the basic mortgage amount.

So far I’ve not had any trouble with multiple payments, and I do it all the time (Thank God for electronic Bill Pay)- but if you do run into a situation like this, what is my cardinal rule, again???? CALL THEM up and ask NICELY and POLITELY, that they please remove this fee. And I emphasize the PLEASE. Explain that you were not aware of their policy, and will certainly stay within their guidelines in the future if they would please help you out by deducting the fee just this once.

I would be very surprised if you couldn’t get the fee removed. The objective is to be polite, but persistent! Smile laugh, crack jokes if you must, but get them on your side. They want to help you, so give them a reason to do so.

You can even request that they either remove the limit for your account, or perhaps even raise it a bit to allow for more transfers. You’d be surprised the things they will negotiate on, and you won’t know unless you ask them.

And once again if they refuse, keep transferring, or calling back until you find the one that will “dance with you”. I don’t know if they can change policy on something like this, but I’d certainly ask about it!

Sometimes I think I actually call my Credit Card companies more than I call my mother, but I NEVER pay fees for anything unnecessarily. Get used to calling that number, its not really hard, and it can save you a lot of money in the long run.

In fact I’ll be calling MY credit card company today to ask them to remove an “over the limit fee” imposed this month because my husband forgot to tell me he put all his dental work on the card, so I hadn’t transferred over the funds yet to cover it. Its a $39 fee, and yes, we did go over the limit, but I won’t be paying this fee because I’ll be calling them to request that they remove it, and I’m sure that they will. Hopefully its the first person I talk to, but if not, maybe the second one??? The point is to always call.

Filed under: Personal Finances on January 7th, 2008