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Paying off debt: The little things mean a lot

<p>Special to the Pahrump Valley Times - Diva Patti gives examples of how $1.80 per day can add up to paid off credit cards and a reduced mortgage.</p>

Special to the Pahrump Valley Times - Diva Patti gives examples of how $1.80 per day can add up to paid off credit cards and a reduced mortgage.

In this season of resolutions, I’m going to resolve to spend $1.80 less than usual each day. Would you like to join me? Why would that small amount make a difference? Think about this: $1.80 comes out to roughly $12.50 a week. Saving a measly $12.50 a week on groceries is totally doable, right? Shop the sales, use a few coupons and skip a few convenience items. That’s $50 every 4 weeks or $650 a year you can put in the bank or begin paying off any debt you may have.

If you have absolutely no money in the bank, I’d suggest first you stash it away for a few months and don’t touch it. Build a little cushion of cash. Don’t touch it! The difference between “I can’t possibly afford to buy that” and “I choose not to buy that in the best interest of my family” is a monumental difference for the soul. Once you have a bit of choice back in your life, you’ll feel more in control again. But don’t touch it! That’s for a dire emergency ONLY!

Credit Cards

Okay, so $50 a month doesn’t seem like a lot, does it? Let’s pretend you have a $6,000 credit card balance. Based on how your credit card payment is calculated, at a 21 percent interest rate, your minimum payment would be about $163.95. As you pay the card down, the minimum payment would go down. If you paid only the minimum payment, it would take you 25 years and two months to pay this off. The interest paid to the credit card company would be $10,044.78.

However, pay the same $163.95 minimum payment as a fixed monthly payment to reduce that to four years, 11 months and interest of only $3,667.

Now, if you kept that minimum payment as a fixed payment and added the $1.80 daily / $50 monthly savings from your grocery budget, you’d be paying $213.95 a month. The credit card balance would be paid off in three years and three months and you’d only pay $2,323 in interest. After you’ve paid off the credit card, you can apply those same savings to your mortgage.

Mortgages

Let’s say you have a $200,000 / 30-year home mortgage at 7.5 percent interest and you apply that $50 groceries savings to your mortgage every month.

The result of that small effort over the life of your mortgage is an additional $18,000 off the principle earlier and you’d save $41,326 in interest! That’s a year’s income for a lot of folks. On top of that, the time it takes to pay off your mortgage would be shortened by three years and four months.

That little old $1.80 daily savings translated to $50 per month doesn’t seem so little any more, does it?

Frugal Financial Fodder contributed by Patti Diamond author of Divas On A Dime – Where Frugal, Meets Fabulous! www.divasonadime.com Join us on Facebook at DivasOnADimeDotCom

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