In The Interest of All...Penny Pinching For The Serious

It's possible that somewhere there is a dictionary that features my picture next to the word "frugal." It's not something I am proud of really... it's just how I grew up. I worked my way through college with just a single small loan. I lived on a  shoestring, as they say. Back in the day, phones and cars were luxury items. It was those... or tuition. A no brainer.

When my husband and I looked for our first home, someone told me the rule of thumb to housing interest. Take the price you paid, and multiply it by three. The total is what a loan will cost you over the term (usually 30 years) that you agree to. I nearly swallowed my teeth. That made the price of my modest townhouse scary high. I found out you can make small extra payments on the interest at any time, and it reduces the cost of the loan. But a caveat... the loan MUST originate from a NJ-based bank. If the bank is based in Delaware, or any other state, you could get socked with a pre-payment penatly. NJ permits pre-payment without penalty. That makes loan shopping a little more tricky... but it's worth it. Regular payments of as little as 25 dollars a month can reduce your term by YEARS... and save a boatload of interest.

And so I became an acolyte of interest. Interest is awful... but compound interest? Killer. If you start adding up all the interest the average human acquires, the numbers get scary. Minimum payments, added to home interest, and car payments can have you pre-spending 30 percent of your income.

We were never big on plastic. We kept it around for "emergencies", trying to embrace the "don't buy anything you can't pay off that month " principle. Neat on paper... but difficult to do. We didn't splurge on trips, the house... we tried to live within our means. But the best budgetary intentions can be trashed by one car repair at 2K, paired with a new set of tires in the same 30-day period.

We found ourselves toting debt that scared us. We had to do a few drastic things to eliminate it... things the "experts" say never to do. But we were being nibbled to death by ducks, and only drastic change would help. Since the issue was "interest", we took an IRA that was delivering slightly less than 1 percent, and took the tax hit on it... but it cleared  the debt completely, saved our mortgage.

We paid the IRS immediately... Uncle Sam is one creditor you don't want. It was an ouch. I won't lie. But the IRA was not huge, we had other retirement funding set aside. They say never use your savings too... but when it is paying 1 percent, versus 20 percent plus?  The weird thing about money experts is that they in an enchanted place, where you somehow have enough income to cover living, savings, a "cushion" for emergencies, college money, and all sorts of other goodies.

I live in real life. A few months after I cleared the debt, I noticed something interesting. We had MORE money, after I paid the bills. In hindsight, I get it. We were paying the bills... all of them. But when you pay "the minimum" you are cutting the end off a blanket, and sewing it on the other... to make it longer. Doesn't work very well.

I gave up plastic. Not long after, I noticed that companies were getting huffy with their clients. No more "free credit cards." It cost more than $100 year just to carry one. Multiply that times however many cards you carry. That's what you pay, bare minimum before you've spent a cent. The "grace" periods shortened. Late fees, over-limit fees, "days that end in "y" fees...and suddenly 2K in debt BLOSSOMS into a budget killer.

Four years later, we are still debt free. I shred credit card offers. I'm told our credit is not great... we don't "use" it enough. Tough. Most things we need we can actually afford. I went shopping for cars last year, and the dealers went nuts when I insisted on 1. Used. and 2. Paying cash. "But you can afford..." No. Actually I can't. I LIKE having just a handful of bills each month.

The ironic part? I have friends who have sterling credit... but are in horriific debt. They could not pay what they owe without hocking a major part part on eBay. But on paper, they "look" credit worthy. I have a feeling credit and how it is calculated is going to change. Too many people got creamed in the last few years. Now that they are examining the "debt to income ratio," loans are harder to get. Even "good credit" people are finding their credit limits cut... taking them close to that "over limit" place.

I'm no expert. The "experts" would say I am a few bricks shy a load. But paying money to pay someone MY money? Spending 30 percent of my income before the check clears? That didn't work for me. So call me frugal. Heck...call me "cheap." I can live with it. But interest? THAT I can live without.