Our Debt Load

I’ve read a lot of per­sonal finance blogs that are ded­i­cated pri­mar­ily to track­ing the blogger’s jour­ney out from under over­whelm­ing debts. I applaud both the impe­tus (shed­ding debt) and the effort of jour­nal­ing their trek out of the abyss.

There but for the grace of God…

In our case, despite daily credit card use, The Hus­band and I do not carry a credit card debt load. Our debt load con­sists only of one car loan and our mortgage.

The Car
We bought our 2007 Sub­aru Impreza wagon in July of this year — the same month that we made the loan-retiring pay­ment on The Tank (our SUV). The new Sub­aru was pur­chased to replace the Sub­aru Legacy wagon we pur­chased new in 1994. The day we brought home the new Impreza, we sold the Legacy for $900. It was 13 years old and had in the neigh­bor­hood of 224,000 miles on it and still ran well with no major issues. The deal­er­ship wanted noth­ing to do with it

We bought the Impreza through the Costco Auto Buy­ing pro­gram. If you ask me, it’s the only way to buy a new car. First of all there are no pushy sales­men to deal with — Costco pur­chases are all run through the dealer’s fleet sales depart­ment. From what I under­stand, the deal one gets through the Costco pro­gram varies depend­ing on the man­u­fac­turer of the car you’re buy­ing. It’s typ­i­cally in the neigh­bor­hood of $100.00 over dealer invoice.

We couldn’t be hap­pier with the Sub­aru and we couldn’t have been hap­pier with our pur­chas­ing expe­ri­ence either. Because we were buy­ing a 2007 (the 2008’s weren’t out yet but were due out soon and the new ’08 was a model redesign year), our deal was par­tic­u­larly sweet. We paid noth­ing over invoice (that’s right, actual invoice price only and yes, we saw the invoice) plus we retained the Sub­aru incen­tive being offered that month (the pot was sweet­ened in July) of $1,500 cash back. We also opted for the 2-year 1.9% financing.

The Hus­band made a pay­ment today and showed me the pay­ment details. Our monthly pay­ment is $904.15. Of that amount, $871.63 is applied to the prin­ci­pal of the loan with only $32.52 in inter­est charges.

The House
We bought our house in the spring of 2002. The Hus­band has owned sev­eral homes over his life­time [he loves rem­i­nisc­ing about buy­ing his first home — a brand-new 2-bed, 2-bath in Boul­der, CO for $18,000] but I was a first-timer. Before buy­ing the house, we’d rented a house for 8 years and rented an 2-bedroom apart­ment for about 5 years before that.

The Hus­band had a pretty def­i­nite bud­get in mind — which was about 1/2 of what we qual­i­fied for. We got a VA loan (The Hus­band had pre­vi­ously bought a house with a VA loan and didn’t think he could use it again; his bril­liant wife did the research and found out that he could). We had noth­ing to put down and thus financed the entire pur­chase price. I don’t remem­ber what the final num­bers were but the seller accepted our offer of $224,000 (it had been sit­ting vacant for nearly a year). We got a 30-year fixed rate at 6%.

Shortly after buy­ing the house I read some­where that by sim­ply mak­ing one extra house pay­ment per year a home­owner can effec­tively take 8 years off of a 30-year mort­gage. I was floored! So I men­tioned it to The Hus­band and we agreed make it our plan.

Accord­ing to our this month’s mort­gage pay­ment state­ment, our unpaid prin­ci­pal amount is $208,910.83. Our Octo­ber pay­ment was $1,640.10 and of that amount only $342.58 was prin­ci­pal. Inter­est was $1,046.27 and $251.25 was applied to escrow.

Each spring The Hus­band sends in a check for $3,000 in lieu of our $1,640.10 pay­ment. So once each year, we apply (approx­i­mately) an extra $1,360 to our prin­ci­pal pay-down. That’s like mak­ing 5–1/2 prin­ci­pal pay­ments and saves us approx­i­mately $5,755 in inter­est each year. And with each extra pay­ment, the prin­ci­pal pay­down por­tion (how’s that for allit­er­a­tion?) gets bigger.

I’ve seen it argued that home­own­ers are bet­ter off apply­ing that annual extra house pay­ment to higher yield invest­ments. That may well be — in some cases. How­ever, in our case, that extra pay­ment brings me peace of mind. With The Hus­band turn­ing 73 next spring and bat­tling can­cer for the third time (a bat­tle that, sta­tis­ti­cally he will not win this time), any­thing we can do to make the future a less scary place is good.

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