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Paying off debt

VtDivot

SLIGHTERED
Supporting Member
Apr 16, 2005
7,154
32
I am torn on the debt thing.

I just paid off the SUV 2 years early so no more car payment.
I use my credit cards for everything and don't carry cash but I pay the cards off in full every month.
I don't owe a whole lot on my mortgage. I would love to pay off the mortgage entirely and be completely debt free. I would be fast tracking paying off the mortgage but I am worried about the economy to the point that I feel my money is better liquid in the bank and available for emergency instead of using it to pay down the mortgage. I work on commission and I had a great year in 2008 but I am thinking my income in 2009 will only be about half of what it was in 2008. OUCH!!!!

I don't want to turn this thing political but this administration is making moves that are extremely bad for businesses. Great for big government but terrible for business. I have no faith that things will improve in the next 2 years. I'm hunkering down. My goal for the rest of 2009 is to figure out how to get into and make money off of government accounts. I'm not going to be able to make a living off of private business if things continue like this.

Where do you think the government money is going to be spent? Private contractors and businesses. It's not like washington can build roads or write code for health care IT. In our business we are investing time and ressources into figuring out ways to get our hands on this money.
 

ClairefromClare

Like my balls?
Jul 23, 2008
2,056
4
Paying down your mortgage isn't all or nothing. You're right that once you've paid it off, it's hard to get the money back.

However, you can always bump up your monthly payment by a hundred or two. That way, you're paying the mortgage off faster but if you need to, you can always go back down to the minimum.
 

zaphod

Well-Known Member
Jan 30, 2007
2,160
0
Paying down your mortgage isn't all or nothing. You're right that once you've paid it off, it's hard to get the money back.

However, you can always bump up your monthly payment by a hundred or two. That way, you're paying the mortgage off faster but if you need to, you can always go back down to the minimum.


+1 on Claire's advice. Very clear thinking.

It sounds like you are risk adverse right now so keeping a cash reserve is a good thing. The same can be said for investing that reserve. Safety, maybe at forgoing larger growth but prudent. Pay down the mortgage principal in a steady conservative manner.

The jury is out for me on the current administration. Remember they have been in power for just a month. This recession had started before them and is world wide. A simple changing of the guard in Washington is not likely to shift the recovery phase in the short term. What we (business) do, the administration does, Congress, the European Union's battle of collective vs nationalism actions, and China does will be the major influences of the fate of the economy. Too many variables for me to consider for an credible prediction.

What we can control is how we react to what policies are being put in place in Washington. Rather than hand wringing what personally we view as unfavorable policies, look at the changes as opportunities. How do I position myself to take advantage of the changes?

If it is your belief the policies are wrong and will prolong the recession or deepen the recession then cash will be a very desirable asset. If your belief is the policies will prompt a orderly recovery now may be the time to acquire some more risk thereby more growth potential.

Also what sectors will profit. I'm going to hazard a guessing the car dealership business is not going to be good for the immediate future. How about as fore mentioned road construction and related industries, perhaps a company involved developing software for hospital records, etc. The administration and congress has sent signals as to where growth and retraction will be directed. With the new mortgage abatement program loan managers could at a premium. How do I shift skills and assets to my betterment???

The time for change in Washington will come at the next election cycle. Silver linings. Snowball (Buffet) profited in up and down markets. We can too if we take the time to think it through.
 

VtDivot

SLIGHTERED
Supporting Member
Apr 16, 2005
7,154
32
How do I shift my skills to take advantages???

This is what every american should be thinking about all the time. There are tons of goodies in the bill, you just need to figure out how to take advantage. I work in Healthcare IT Software development so we are planning on being swamped.
 

ClairefromClare

Like my balls?
Jul 23, 2008
2,056
4
Thanks, Zaphod. In general, I'm a big believer in baby steps. Start with small success and build on it. (or, fake it 'till you make it--which is mostly what I seem to be doing lately)
 

Pa Jayhawk

Well-Known Member
Nov 15, 2005
7,196
62
Country
United States United States
Paying down your mortgage isn't all or nothing. You're right that once you've paid it off, it's hard to get the money back.

However, you can always bump up your monthly payment by a hundred or two. That way, you're paying the mortgage off faster but if you need to, you can always go back down to the minimum.
Yeah, I believe the adage is that if you have a 30 year mortgage and just pay what is applied to the premium extra each month (which is very little in the beginning), you will turn your 30 year mortgage into 18 years. Just make sure they are applying it to the premium and not simply putting it in escrow.

When we moved up here, we got a bit more of a house than we had in our old area that was on a 15 year mortgage. So being a little alarmed with the higher mortgage we went with 30 years. In the last 5 years we realize we wouldn't notice the difference between 30 and 15. Because the whole market thing is in such bad shape and even before that we thought of refinancing to a 15. However even in what bad shape the market is, the rate we can get on a 15 now is still 3/4 of a point higher than what we financed about 6 years ago, as we got a very good rate then.

So the concept of refinancing at a higher rate and paying the refinancing costs associated with doing such so that our home will be paid off by the time we want to retire is just stupid when we can do the same on our own by simply paying more each month. That mixed with the fact of what was mentioned earlier, where if were ever to get in a bind, we do not have to pay the extra. It is just all a matter of discipline. I compare it to things like tax returns, where people are excited about getting a big return. For years we have always been excited that we managed to owe more money and have done so within the laws of avoiding penalties, which is pretty simple to do. However if we didn't have the discipline to put the money aside, or assure that it would be available at the time, I would probably be pretty upset that we owed $6-10k a year. However in doing so we basically are making money on the IRS over the course of the year as opposed to them doing so with our money. There are a hugh number of things like this that people just overlook out of lack of discipline.
 

BigJim13

Well-Known Member
Staff member
Moderator
Aug 13, 2006
11,840
3,154
Yeah, I believe the adage is that if you have a 30 year mortgage and just pay what is applied to the premium extra each month (which is very little in the beginning), you will turn your 30 year mortgage into 18 years. Just make sure they are applying it to the premium and not simply putting it in escrow.

When we moved up here, we got a bit more of a house than we had in our old area that was on a 15 year mortgage. So being a little alarmed with the higher mortgage we went with 30 years. In the last 5 years we realize we wouldn't notice the difference between 30 and 15. Because the whole market thing is in such bad shape and even before that we thought of refinancing to a 15. However even in what bad shape the market is, the rate we can get on a 15 now is still 3/4 of a point higher than what we financed about 6 years ago, as we got a very good rate then.

So the concept of refinancing at a higher rate and paying the refinancing costs associated with doing such so that our home will be paid off by the time we want to retire is just stupid when we can do the same on our own by simply paying more each month. That mixed with the fact of what was mentioned earlier, where if were ever to get in a bind, we do not have to pay the extra. It is just all a matter of discipline. I compare it to things like tax returns, where people are excited about getting a big return. For years we have always been excited that we managed to owe more money and have done so within the laws of avoiding penalties, which is pretty simple to do. However if we didn't have the discipline to put the money aside, or assure that it would be available at the time, I would probably be pretty upset that we owed $6-10k a year. However in doing so we basically are making money on the IRS over the course of the year as opposed to them doing so with our money. There are a hugh number of things like this that people just overlook out of lack of discipline.

My wife and I also looked into refinancing, since "rates are at all time lows." Being in the mortgage industry I have a pretty solid concept of what is a good/bad deal. We looked around at what local banks and bigger places-countrywide mainly which is who bought our original mort- and found that in order to refi we were looking at about 4K in fees, then PMI and paying up front for the appraisal which could be a crap shoot given the market now. In the end lowering our interest rate by .75% woudl have saved us about $120/month. While that number seems nice we then looked at the fact that we would be starting a 30yr note over again and basically that 4K would have put us basically back to where we started-completely erasing the last 3yrs of paying down our mortgage.

Needless to say we decided it wasn't worth it for us at this point.
 

zaphod

Well-Known Member
Jan 30, 2007
2,160
0
This is what every american should be thinking about all the time. There are tons of goodies in the bill, you just need to figure out how to take advantage. I work in Healthcare IT Software development so we are planning on being swamped.

Which company? I just invested in CPSI "a hospital software company directed to mid and small hospitals" with that very thought in mind. They actually are carrying NO DEBT. WOW
 

zaphod

Well-Known Member
Jan 30, 2007
2,160
0
Thanks, Zaphod. In general, I'm a big believer in baby steps. Start with small success and build on it. (or, fake it 'till you make it--which is mostly what I seem to be doing lately)

I like the faking it comment.:thumbs up: If investments was without risks it would be easy. So faking it, my lack of clairvoyance, is appropriate. The future is always challenging!!!!!! For those getting interested in the Stock Market and other tools there are some great web tools you can used to simulate stragies real time to get one's feet wet.

Also great advice getting one's personal finances AND GOALS in order before investing is the way to go.

A wise lady are you!
 

zaphod

Well-Known Member
Jan 30, 2007
2,160
0
While that number seems nice we then looked at the fact that we would be starting a 30yr note over again and basically that 4K would have put us basically back to where we started-completely erasing the last 3yrs of paying down our mortgage.

Needless to say we decided it wasn't worth it for us at this point.

Jim ---what do you know about the new mortgage abatement program released this week? Have you worked with it?

Just curious on who the program will help. From what I understand you have to be either upside-down on your current mortgage or facing financial hardship through job downsize or medical bills etc to qualify. True? Also the timing of the acquirement of the mortgage is a factor? Primary dwelling also? Does the government basically downsize the principle to reflect current market value to achieve the lesser monthly payment? So is this a local market value established product? In other words more subsidy to those areas hit hardest--the Iron Belt, East and West coast of of course Florida?
 

BigJim13

Well-Known Member
Staff member
Moderator
Aug 13, 2006
11,840
3,154
Jim ---what do you know about the new mortgage abatement program released this week? Have you worked with it?

Just curious on who the program will help. From what I understand you have to be either upside-down on your current mortgage or facing financial hardship through job downsize or medical bills etc to qualify. True? Also the timing of the acquirement of the mortgage is a factor? Primary dwelling also? Does the government basically downsize the principle to reflect current market value to achieve the lesser monthly payment? So is this a local market value established product? In other words more subsidy to those areas hit hardest--the Iron Belt, East and West coast of of course Florida?

It's hard to say just how many people this will actually help. In our case, at the branch level most of the stuff has not filtered down from the higher ups- lawyers etc- as to just exactly what we can and cannot do. I will say that we have been much more proactive as far as modifying loans if need be. Living in a state like Vermont we have been pretty sheltered as far as the real estate bust has gone. Our values have gone down, just not as sharply as other places.

As far as reducing principle it will be interesting to see how the Govt gets the companies to work this out. Six months ago you would have been hard pressed to get a company to just write off 20K or so. From what I have heard is that alot of places are pushing short selling of houses, this way the companies avoid the cost of foreclosure and get something back. Who knows where this will all end up, every day the latest expert is wrong including the Treasury and Fed.

Loan modifications, (Modification meaning either stretching out the term in some cases to 40 yrs, lowering the interest rate or both) have been in the news alot recently and was the hot topic about 2 months or so ago seem to have been abandoned in favor of the new govt plan. I know from professional experience that Loan Modifications are great for the borrower for about 2-3 months and then alot of people are back to being behind again and right back in the same boat they were in before the modification.

Unfortunately for all of us there is no silver bullet or quick fix. It took several years to fill the bubble enough for it to pop and I can only imagine it will take several years to clean up the mess...as much as I hate to say it.
 

VtDivot

SLIGHTERED
Supporting Member
Apr 16, 2005
7,154
32
Which company? I just invested in CPSI "a hospital software company directed to mid and small hospitals" with that very thought in mind. They actually are carrying NO DEBT. WOW

I cannot say who I work for because I am canadian and working for them illegally.
 

zaphod

Well-Known Member
Jan 30, 2007
2,160
0
I cannot say who I work for because I am canadian and working for them illegally.


eh---I've often felt imported talent can keep the wheels turning.

Canada Isn't that part of America:emot-ange

Cheers
 

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