[Don’t bother looking for debt paying tips #’s 1-66, I make things up like a weirdo]
If there’s one thing I hate more than debt, it’s owing someone something. So any chance I have to speed up the process to be utterly, and completely, free of that dirty D – mortgages included! – I’m all for it ;) From crazy schemes of paying off $2,000 extra every month (since suspended) to finding ways to have someone else nix it all for me (still trying to solve that one), my brain never stops working.
My wallet, however, sometimes does. And unfortunately you can’t pay off your liens with scoops of hate, unless you’re a Lannister.
So for the rest of us, we’re left to be as scrappy as we can muster, while at the same time enjoying a nice and happy life too. Which is a lot easier to say than do :)
One of the ways I’ve found that works WELL, however, is by simply rounding up my payments. And more specifically, to the 2nd nearest *hundredth.* For example:
- My first mortgage is $1,866, but I always pay $2,000.
- My 2nd mortgage is roughly $65* but I always pay $200.
That means that every single month we’re paying $269 *extra* that chips away at the principal . It never seems like that much when you’re actually making the payments each month, but multiplying it by 12 makes it $3,228 by year 1, and then $22,596 by year 7 – which is roughly the amount we’ve been doing this so far… And that’s ON TOP of the built in amounts going straight to principal with every payment too! Not to mention all that future interest you’re saving – or the fact it’ll be paid off faster.
Every time you round up you’re getting closer and closer to debt freedom without noticing it much. And if $269 is way too much for you to stomach, rounding it up to the actual nearest hundredth also works like magic. In this case you’d be paying $69 extra towards principle monthly which is still $828/year! And all better than $0.00!
You can also do this in other areas too:
- Credit card bills where you have a balance
- Loans you owe people
- Donations (the opposite works too, in giving back! :))
- And my favorite: with all spare change you get after buying stuff. Only instead of rounding up to pay something off, you pay yourself instead in the form of money in a jar (the “rounded up” part of the bill you just broke) which you later bring to the bank and make a hefty deposit. So more of a “savings” way of rounding up, if you will.
You make ANY of these a habit, and I promise you you’re golden. And just like all habits they’re hard as $hit to break too, once engrained.
I haven’t missed a rounded up mortgage payment in 7 years straight despite having a rather crappy past 12 months in the cash-flow department! But I’m a creature of habit, and I know the second I start taking breaks I’ll manage to undue the whole damn thing, so I don’t even dare risk it. Even when it makes me “lose” money that month (“lose” in a sense that I go into negative cash flow territory, but not obviously losing the money since it went towards paying off debt). It’s a long term play, and I’ll always take the hits to reach the finish line quicker.
I highly urge you to give it a shot if you haven’t tried so already. It’s nothing new and enlightening here (tons of people have done this long before the weblogz came out, and even books for that matter!), but it does work. And only adds to your arsenal on top of everything else you’re doing too.
So keep chipping away with every dollar! A BudgetsAreSexy reader always pays his debts!
*Our 2nd mortgage is a HELOC which is an interest only loan @ 2.8%. So even MORE important to pay off extra every single month for these guys – without doing so you’re never touching principal!
UPDATE: Here’s another awesome way to use rounding up to your advantage, courtesy of “Not Quite Sexy” below in the comments:
“I heard this tip when I got my first bank account, and I think we’re the same age. It said that when tracking expenses on your check register (remember those?), round up all your expenses and round down all your deposits. Manage your money to those dollar totals, then at the end of the month/quarter/etc, transfer that money to a savings account. You’ve already been living as if it was gone, so it’s easy. Plus, the math was always easier using whole numbers”
[Awesome Lannister Card via Imgur.com]
Get blog posts automatically emailed to you!
Rounding up is a great idea, as you say it perhaps won’t seem like it’s making much difference at the time, but if this process is applied consistently, then over time you will see an impact with what seems like little effort. Thanks for the tip!
I just posted about “rounding” the other day. I round all my payments….maybe not QUITE as much as you, but at least to a nice, whole number.
There’s something satisfying about the whole numbers too :) Easier to remember!
When I refi’d on our mortgage, I had knocked about 2 years off the total payment with just bumping up to the nearest 100. And what most people really don’t get until they do it (just like automatically putting $ into savings every month) is you don’t miss it.
Credit cards on the other hand; I really don’t like using even though I have one. I would agree that if you can’t pay it off each month then round up definitely.
I have honestly never thought of this, but I am stealing it. Rounding numbers are easy for budgeting and it’s definitely a sneaky way to get ahead of yourself. Since 67 was so good, I really want to read 1-66. :-)
Was thinking the same thing, makes balancing the budget that much easier when dealing with whole numbers.
When I paid my debt last year ago, I never rounded it up, but I add small amounts on it. Especially when I owe money from my mom, when I was financially down during that time.
Yep, I hear ya! I round up our mortgage and our two rental property mortgages like that. I want to pay those babies off!
I LOVE this method J! We used to do this all the time on virtually everything. All we have left is our mortgage and scaled back on that a little when we went self-employed but use it in good months. The money in the jar is a great one too. We usually have one or two going at a time, one for vacations and the other to save/invest.
Doing this would certainly make it easier to remember what money you need to hold back each month for debt repayment.
$2k is a lot easier to remember than $1,866. Or is it $1,688? Or is it $1,806?
One day it’ll even be EASIER: $0.00 :)
Honestly, I don’t do this… but my compulsive tendencies make me think I probably should for an easier budget. That being said, if I do this in multiple categories my budget will be blown… :)
Just pick one of them to try out! The one you hate the most :)
We’ve rounded up our mortgage payment since we first got it (what seems like forever). I only alter that when the escrow analysis comes around. Last year, we were only paying ~$2.50 extra/mth this year, we’re paying ~$64 extra per month. I like the nice round numbers in our budget as well.
One thing to check with your mortgage provider/servicer is whether any extra you send in actually goes to the principal or to the next month’s payment. We had a 2nd mortgage at one point that we had paid ahead over a year before we realized that *anything* extra had to be paid in a special way for it to count towards the principal rather than future payments.
Yup! Great point. It’s gotta be extra towards the principal to have the best effect!
We do this with our mortgage as well. You’re right, I just think of that as the actual mortgage payment. If you asked me what our actual mortgage is, I couldn’t tell you, because I’ve never paid less than a nice round number!
I use the “round up technique” whenever imagining the highest possible cost of something. That way, when it costs less, I’ve budgeted more than enough.
Brilliant! Much better that way than the opposite.
I’ve used the round-up method, too. Nice and easy way to chip away. I prefer the ground and pound method to knock it out super fast, but round-up works in a nice slow and steady way that adds up quite a bit. Works great with savings and investments too! Even your spare change example sounds great.
If I remember right, didn’t you talk about not spending one dollar bills a while ago? Maybe I’ll try that from July 1 to December 31 this year and see how that stacks up….
Haha, probably… My favorite’s the $2 bill trick though :)
This is great. I started doing something similar with my student loan, which is the only debt I had left, and I’m making great progress on it. I’m making some moves so I can add even more every month and officially be debt free.
I like the sound of that :)
I do that with my car payments. Made a world of difference. Great advice.
Yeah great Idea, I have done this for every past loan I had. Because I sent bigger payments, I paid off all my cars / CC years earlier. My next car will be paid in cash, sorry Mr. Bank no touchy my money.
My dad would pay half the mortgage every 2 weeks. Since there are 52 weeks in the year, he would make 26 half payments or 13 whole payments, 1 extra payment a year. That being said, I have a 3.75% interest rate and I believe, over the long run, I can make a much better return on investing the money than using it to pay off my mortgage early.
That’s a whole other topic for a whole other day :) Smart dad, though.
I like this Idea. I hate uneven weird looking numbers. I’m slightly ODC about it.
We did this with our first home (now our rental property). Our mortgage was $740 and we paid $900. Then we refinanced to $515 payments and still paid $900. We threw even more extra principal to it in 2010-2012 and paid it off in 6 years total.
Now we have a $990 mortgage at 4% and haven’t been overpaying at all yet. Money got a little tight and we’re prioritizing the Roth IRA’s and padding…
Perfect plan though! Once you’re used to spending at a certain level it becomes habit so the debt paying just compounds the more you work the angles (ie refinancing). We had to shut down our $2k/mo extra plan too due to biz, and more so babies (hah!), but you do what you gotta do and roll with the punches :) One day we’ll be swimming in it again!
I love that graphic w/Tyrian. Too funny.
You’re always sharing good mental tips & tricks. The rounding up has the potential to be particularly effective for any debt that has a long payback period (like a student loan or mortgage). Every little extra bit towards principle pays dividends.
I round up my mortgage payment too, though not to an even $100. I try to bump it up another $5 every 6 months or so. I set up automatic transfers so I can’t “forget”. I know it doesn’t sound like much, but over time it is.
My current mortgage is only about 2 years old, but I’ve been doing this sort of thing my entire adult life. It makes a difference when it comes time to sell.
I have to say though, J Money, in your situation, I think I would not pay a cent extra on the first and instead focus on killing the second. Given a choice, I opt for one less thing to worry about.
Love your blog. :)
Thanks! So glad you’re here and reading it :) Deep down I do want to concentrate on the 2nd too and just finish it off, but I also like the double whammy of rounding up that I haven’t been able to pry myself away yet… Especially when we were paying $2k extra a month toward it – all of it went to the 2nd!
I like this approach J! Every little bit extra helps get rid of debt faster and save money. I wonder if this tactic would work in other areas of life? Like if I rounded up my calorie intake count for each meal I would lose weight faster. Or would I just eat more knowing I had that margin built in. :)
You would eat more, don’t even try to fool yourself ;)
I’ve thought about doing this lately, but haven’t gotten around to actually doing it…Ah the joys of procrastination
Dig the approach here. Makes sense!
The only Dirty D I owe is student loan debt, but at a very low interest rate that’s tax deductible I’m taking my sweet ol’ time with it.
I hate debt. Probably the worst four-letter word of all!
All I know is that I’m SUPER proud of you for the ballsy move you just made. Such an exciting way to live life! :)
Now that you’ve mentioned it I realized that I kind of do this with some of my loan payments. For some reason it irks me to have an odd number or an unrounded number! It’s cool to realize that other people have some of the same number games as myself!
You need to hang out with Debt Busting Chick up there :)
“[A]nd I know the second I start taking breaks I’ll manage to undo the whole damn thing, so I don’t even dare risk it.”
So true!!! I stay away from changing a fiscally-responsible habit once I’ve started. Our monthly income has been reduced by $1,000 consistently over the past 3 months but we have not changed/stopped the $$$ that automatically make it into our long term savings because we feel like it’s a slippery slope. We just tighten our belts and know this too shall pass.
Scary stuff! But you’re right – it’s always temporary… For the good, or for the bad :)
The round-up technique is an old favorite from my playbook back when I had consumer debt (almost 10 years ago now!). I’ll admit though, I haven’t been doing this with my mortgages. I’ll add $100 or $200 regularly or here and there, but with the round-up, you don’t even notice it. I need to get back on this train!
Yeah son! So one day you can say it’s been 10 years since you’ve had *any* debt whatsoever!
I’m all about spare change in a jar (or in my case, a very pretty bowl I painted at one of those paint on pottery places.)
Not dealing with loans right now, but rounding up is my go-to tactic for planning costs of vacations. Inflate the budget so I’m more than prepared when saving for a trip!
I heard this tip when I got my first bank account, and I think we’re the same age. It said that when tracking expenses on your check register (remember those?), round up all your expenses and round down all your deposits. Manage your money to those dollar totals, then at the end of the month/quarter/etc, transfer that money to a savings account. You’ve already been living as if it was gone, so it’s easy. Plus, the math was always easier using whole numbers. Just like your advice, the rounding was to the nearest dollar for the tight budgets, or to the nearest $10, or $100 for those with a little more flexibility. It’s the same tip, but for creating savings rather than paying down debt.
Yes, love it!!! Where was MY bank person to tell me that years ago? :)
Great tip! I was rounding my mortgage payment up to the nearest $1,000 which was about an extra $155, but I just started investing that $155 each month. Once I accumulate the amount in my investment that I have left to pay on my home, I’ll simply pay it off. Doing it this way will save me an extra 3 or 4 years over just paying extra on my principle. I did the calculations and it works well for me. This method doesn’t work for everyone, but it’s worth running it through a calculator. Thanks for the tip! Once again, simple applicable tips are my favorite!
Seems the logic you used to build the accumulated amount could be the same logic to justify just keeping the mortgage and letting your money continue to grow. I think there is value in being mortgage free, though, but financially, do you end up on the negative side of the opportunity cost ledger?
I think that sounds like a fine idea – whatever gets you to actually TAKE ACTION :) And if, later down the road as Not Quite Sexy points out you decide to change your mind and keep your stash growing, so be it! We’re allowed to change plans as our vision/goals change throughout life. Either route ups your net worth so I’m all for it.
Very true. We could continue that route, but I think being mortgage free is more important for us. Of course, everything depends on timing and our rate of return. I think there is great reason to justify not paying it off from a financial stand point, but the emotional side and the feeling of being 100% debt-free is higher on my personal priority list.
(I’d side with you on that one too)
I haven’t really done the round up method yet. Usually I just set aside a certain amount to pay extra on my mortgage. I like knowing how much extra I’ve paid each month. Potentially I can try this with some other type of debt. It would make it easier to just deal in whole dollars rather than accounting for partials!
I like this rounding idea. Perhaps I should apply it to saving, as well. Instead of $1,458 a month, I’ll round it to the nearest hundredth ($1,500) like you’ve suggested. Am I really going to miss that $42 a month? Probably not. But it will make a difference in my portfolio over time.
Yes, it will! And easier to budget/think about stuff too with bigger whole numbers. Go for it!
I just started doing this on my student loans (which is just like a morgage!) and it’s so helpful. It’s also nice to calculate how much you’ll be saving in the long run. I love it!
Every little bit extra helps. And if you can keep from adding it up so high, that helps even more.
We’ve been rounding up our mortgage payments for the last couple years. It’s amazing the difference it makes over time and you don’t really feel it in your day-to-day budget.
Can I brag? My mortgage payment is at a beautiful $0.00. but I do round up my car payment (nice car due to no mortgage bit). :)
Yeah girl, work it!
Rounding up debt payments is a simple and easy solution to paying debt off early. A few dollars here and there make a massive difference!
I paid off my first car in only half the length of the term by using this simple strategy. I also use it with my “spare change challenge”.
My sister had a difficult time doing this before when she had a lot more loans/credit cards. But now that she is out of some debt, she always tries to round up, even if it is only five dollars. I will pass this on to her!
Please do! If she snowballs the old payments into the outstanding loans it would make it much easier too :)
I used to do this on my car payments ($500 instead of $3xx per month) and knocked that 5 year loan out in 3 years! Whoo! We tend to do lump sum extra payments on the mortgage but this could make it easier to keep paying extra once Little Bean comes along.
Yayyyyy! So exciting:)