One of the Greatest Months

by Shondell

December 2011 was one of the greatest months I have had in a long time. It was the month that I paid off exactly $95,778.50. It took me a little under 3 years to get rid of this debt. There were times when I felt like saying to heck with this debt; I am going on a shopping spree. But then I would listen to a Dave Ramsey show and hear people scream “I AM DEBT FREE!” and that would get me right back on track.

Taking a hard look

February 2009 was when I took a hard look at my finances and made the decision that I was going to aggressively pay off my car loan and my mortgage. My goal was to pay it off in 2012, but I managed to pay it off a bit sooner. It’s amazing what happens when you track your progress.

I never did a written budget before 2009. I just calculated my inflow and outflow in my head. That was budgeting to me then. Once I actually put all of my numbers on paper and saw exactly where my money was going, I was able to determine beforehand where I wanted it to go.

Motivated by progress

Once I saw the progress I was making, it motivated me even more. This is when I got really intense! I focused on paying off my car loan first. It was around tax season time and I knew I would be getting a tax refund, so I put the full amount on my car loan. I also cut back on a lot of my wants like shopping and eating out. You’ll be amazed how much money you could save if you don’t go shopping or eat out for one whole month.

Slowly but surely my loan was eventually paid off, then I began to attack the mortgage. There were several things that I did to pay off my mortgage. The bank that I had a mortgage with offered what they call 20 + 20. This is a prepayment option where you can increase your mortgage payments by 20% each year as well as pay an additional 20% of your original principal balance each year. I took full advantage of this program.

Other factors

I’ve gotten several raises at work over the past few years and rather than increasing my life style, I took that extra money and every three months I would make an additional payment on my mortgage. What’s great about additional payments is that it all gets applied to your principal balance, unlike a regular mortgage payment which is principal and interest.

Interest rates played a huge factor in getting rid of my mortgage as well. I kept a close eye on where interest rates were headed. The moment interest rates dipped, I did what is called a Blend & Extend. This is where I blended my mortgage rate with the going rate to get a lower rate. I did this several times throughout my mortgage. I kept my mortgage payments the same so more of my mortgage payment would go towards principal and less to interest which would allow me to pay it off sooner.

One last thing before I forget is payment frequencies. I set my mortgage payments at bi-weekly versus monthly. Bi-weekly payments allowed me to make 26 payments per year, which helped me to pay down my mortgage faster. I paid half a payment every two weeks instead of a full payment monthly. Since I made two extra payments per year I paid extra on my principal and less on interest. Bi-weekly payments also helped me to stay organized because I scheduled my mortgage payment to come out of my account the day after I got paid. Budgeting became a whole lot easier when I did this!

Shondell is a 32 year old from Toronto who paid off her mortgage in less than three years. (She blogs at Call Me Whatever You Want, Even Cheap if you’d like to read more about what she’s up to.)

Posted in Debt Free Stories | 8 comments.

8 Responses to One of the Greatest Months

  1. CONGRATULATIONS! That’s a HUGE debt to pay off! It can definitely be hard to work at it for so many years (3 yrs is of course really short actually) because I personally like to see great successes in short time. But you prevailed! You stuck with it and it paid off. Good job, gumshoe :)

  2. Shondell says:

    Thanks TB, it sure seemed like a hard work when I was paying it off. But the sacrifice was so worth it!

  3. I’ve never heard of a 20+20 option – I’m going to have to ask my lender about that when we buy our new home. I am also committed to doing bi-weekly mortgage payments – I saw a blog that showed just how it works (taking off interest), and I was shocked at how easy it was to save a lot of money!

    • Shondell says:

      @ Elizabeth 20+20 is a pre-payment option, where my bank allowed additional payments and lump sum payments with no penalty. Your bank may call it something else, so you could ask them what their pre-payment options are.

  4. Jai Catalano says:

    I have never heard of blend and extend before. How much was your house if you don’t mind me asking? I did bi monthly for a couple of years.

  5. Shondell says:

    @ Jai It’s a term we use here in Toronto to blend your current rate with the going rate to get a lower rate. Not all banks offer this option.

    I paid $139,000 for my condo.

  6. Congratulations! We are about to pay off about $100,000 in consumer debt, but it took us a few more years than three. This is a great story.

  7. Shondell says:

    Thanks John! I’ll be congratulating you as well in the near future when you pay off your consumer debt. Don’t forget to share the good news!