Private Student Loan Refinancing

Warning:  This blog entry contains math.  You are warned.  Actually, I did all the math already, nevermind.  Caution: This blog entry contains numbers.  Also, remember that I'm not a trained financial wizard, I'm just passing on what I've learned.  Your mileage (or savings) may vary.

Best advice I can offer on student loans:  If at all possible, avoid them.  

That said...

Back in 2004, my wife graduated from Columbus College of Art and Design.  It's a great school, she got a great education, and she wouldn't trade her experiences there for anything.  Great schools, however, come at a cost, and she took out several student loans.  For some reason or another, very few loans were available through government, and most of her loans were private loans through banks.  We consolidated the federal loans early on to lock in an interest rate, but I didn't look into private loan consolidation (shame on me).  3 years later (2007), interest rates had risen greatly, and I investigated consolidation.  I did my research, and the best I could do at the time was a fixed rate of 9.66% for 30 years.  I don't recall the exact interest rates of the loans I was consolidating, but this was a good rate at the time.  I know, ewww.

Fast forward 5 1/2 years later.  During that time, the economy, eh, not so much.  Over the years, I had looked for different ways to lower the interest rate.  With the economy the way it was, banks weren't looking to loan money for private student loan consolidation.  Finally, the economy started picking up, and at the end of 2012 I found a place called custudentloans.  My biggest concern was, the interest rate is variable.  However, the interest rate is tied to LIBOR, which is very stable, and likely to stay very low for several years (according to a friend of mine from high school, who now works in all manner of financial things).  And looking at the previous 9.66% interest rate, a nice 4.75% rate sure sounded good.  Add to that, the loan was only a 15 year loan.  And did I mention that the new monthly payment was 21% lower than the old one?

Because my brain likes comparisons, here's a few key comparisons between the old and new:

Caveat:  The numbers below assume the interest rate wont rise above the 4.75% that it currently is.  However, it will, that's pretty much a sure thing as the economy improves.  More on that below.

Old:  24.5 years @ 9.66% fixed.  294 monthly payments remaining.
New:  15 years @ 4.75% variable.  180 monthly payments remaining.  21% lower payment.
New loan will be paid off 9 1/2 years sooner than the old loan.  (but wait, there's more! See below...)

That's right.  Paying 21% less each month will still save 9 1/2 years of payments compared to the old loan.

Another Caveat: The numbers below reflect extra payments I made.  First month, regular payment.  Second month, extra 18%.  Third and subsequent months, extra 36%.  Keep in mind, however that the extra 36% on the new loan is equivalent to only 12% extra on the old loan.  During the previous 5 1/2 years, I had paid an average of 10% extra per month, so really it's only 2% greater than what I was paying on the old loan.  Confused yet?  I hope not.  And remember that 2%...

Averaging the last 6 months of the old loan:
19% of the money went to principal.
81% of the money went to interest. (Ouch)
1.1% of the principal was been paid off (approx 2.2% per year).

Averaging the first 6 months of the new loan:
58% of the money went to principal.
42% of the money went to interest.  (Still ouch, but less ouch)
3.5% of the principal was paid off (approx 7% per year).

The first 6 months of payments on the new loan paid as much down on the principal, as the last 19 months on the old loan.

Remember that 2% extra I'm paying?  2% seems really small, but it compounds.  In interest you pay, that's bad, but in principal you pay off, that's good.  No, that's great.  Just by paying that extra 2% (compared to the old loan) each month, my new loan will be paid off in 9 years, 8 months instead of the original 15 years (terms of the new loan), or 24.5 years (terms of the old loan).  Total savings:  14 years, 10 months (178 months) of payments.  Maybe I'll bump up the payments a bit, just to make it an even 15 years of savings.  :)

Pay down the principal as fast as you can.  This is especially important to me on this loan, because of the variable interest rate.  Someday, hopefully later than sooner, the interest rate will rise, meaning my monthly payments will rise.  The more I pay off the principal now, the less it will cost me in the future when interest rates rise.

That orange/blue stacked graph up there?  Every month, the orange (money applied towards interest) will grow smaller, and the blue (money applied towards principal) will grow larger.  That was true of both the old loan, and the new one, it's just that with a lower interest rate (new loan), and in particular with a lower interest payment and additional payments (new loan w/extra payment), much more principal comes off the loan each month, meaning less money in the future towards interest.  It's inherent in a standard loan: each month you (hopefully) pay the previous months' interest, and some of the principal.  The following month, because you paid off some of the principal the previous month, your interest (your cost for borrowing the money) wont be quite as high as the previous month.  Because of that, this month, a little bit more of your money goes towards the principal, because you have less interest to pay.  And so on and so forth, repeat until the principal is gone.

Which brings us to the final graph.  This blog is all about making good decisions.  One good decision is education.  Another good decision is saving as much money as you can, when paying for that education.  Refinancing our private student loans will save us 55-58% over the life of the loan.

Regardless of the actual dollar values, would you rather pay a blue, orange, or yellow amount of money?  :)

Do you have private student loans?  Are you interested in refinancing them?  If you click my referral link for custudentloans and refinance, I get a nice thank you from them.  And you'll get a nice thank you from me.  :)

Do Your Own Simple Car Repairs

A great way to save money is by doing your own car repairs.  The key to being successful is knowing your limitations, and doing your research.  While cars are big, complex machines, they're really just made up of many, many simpler machines.

Case in point:  This evening, I was with my wife at her aunt Maria's condo for Sunday dinner.  As we pulled into the complex, my father-in-law was looking at Maria's friends' car.  It was a 2002 Honda Accord SE, and it was stuck in park.  Normally, you'd start the car, step on the brakes, and then shift out of Park.  A quick search on the Internet showed this to be a common problem, and had the following troubleshooting tip:  Step on the brakes.  If the brake lights don't come on, you've got a faulty brake light switch.  Sure enough, no brake lights.  Faulty brake light switch.  She was just going to take it to the dealer and get it repaired there.  However, a little more Internet searching showed that the repair is ridiculously simple.  The switch unplugs from the wiring harness, and screws right off the brake pedal.  We took the part to the FLAPS (Friendly Local Auto Parts Store), and $28 later, had the new part, which included a lifetime warranty.  Took it back, screwed the switch back in place, and it fixed it.  Under 45 minutes total, from removal to repaired car, including drive time.

My local library (and maybe yours) subscribes to different databases.  One of them is the Auto Repair Reference Center, with repair information on over 37,000 different vehicles.  That alone is a goldmine of information, but included with it is a listing of labor times for repairing different parts of your vehicle.  For this switch, it listed repair time of 0.5 hours.  Most mechanics in our area charge around $90 an hour, but most have a 1 hour minimum.  Thus, for this $28 repair that took well under an hour to do, they would probably charge close to $150, parts and labor.  I found a post on a message board that got an estimate from a mechanic for...  $150.  $122 saved, and I didn't even break a sweat.

Remember what I said about knowing your limitations being the key to success?  A few weeks ago, my 1999 Saturn was in need of wheel bearings.  They've been grinding for too long, and slowly getting worse.  I'm the original owner, 154k miles strong, so I knew that the bearings, and indeed everything in the front end, was original.  I read up on it, ordered what I needed, and figured it'd be a 2 night job, maybe 3.  Now, when I say I read up on it, I mean finding a good online forum.  For me, SaturnFans.com is it.  I should have heeded the advice of several, no, many people who said it was something they would not attempt themselves.  Once I started, I realized that, oh, my ball joints are cracked, and should be replaced.  And the one ball joint is part of the control arm, so that should be replaced.  And when replacing the control arms, you need an alignment anyway, so, shucks, I might as well replace the struts too.

17 days later, my car was back up and running, with essentially an entire new front suspension.  The 2 years of Southern California winters were fine to my car, but the subsequent 13 years of Ohio winters had severely rusted 2 bolts into place.  After many nights of trying different many things, I was finally able to safely cut the bolts out.  I got an alignment at a mechanic, and had them do a check on the steering/suspension system, and all was well.  According to the library database on car repair, I saved well over $1,000 in labor costs alone.  However, based on how long it took me to repair the car, I would say I definitely didn't pay attention to my limitations.

One final piece of advice:  If you have the time, for the best price, order from RockAuto.com.  And before you order, do an Internet search for "rockauto 5 percent discount".  They always have a 5% discount code floating around.  That $28 part from the local store, was $18, shipping included, from RockAuto.

Do your research.  Be an informed consumer.  Know your limitations.  Or learn them, like I did.  :)

Don't Exchange your Propane Tank

Because it's summertime, and because there's not much better than burgers and bratwurst on a grill, I thought I'd make my first piece of Normal Advice the following:

Don't exchange your grills' propane tank.

They're easy, they're convenient, and they're everywhere.  On a street near me, you can drive 1/2 a mile and pass 5 different propane exchange locations.  Grocery stores, convenience stores, drugstores, they all seem to want to take your old propane tank, and give you a "filled"  one, for around $18-$20.

Filled is in quotes above, because you're getting 15 pounds of propane in a 20 pound tank.  It's written right on there, but it's in small writing.  Imagine going to the gas station, and only ever getting 3/4 of a tank of gas.

Another issue is that when you exchange your old tank, you don't get a "refund" for whatever propane is left in it.  In my experience, as a tank gets close to empty, with just a few pounds of propane left, the flame starts to get a little weak.  Not as hot.  Burgers take longer to cook.  Oh, the horror!

Here's the advice:  Get your tank filled at a propane dealer or RV/camping supply dealer.  Obviously, every store is different, but at the place I go (Four Seasons LP Gas, Westerville, OH), you get a full 20 pounds of propane in the tank.  Not only that, but if your tank still has propane in it, you only pay for the propane they put in.  5 pounds left?  Pay for 15 pounds.  3 pounds left?  Pay for 17.  Last time I was there, a 20lb fill is $21, which equates to $1.05 per pound.  Doing the math:

Tank with 5 pounds left, exchanged at a Propane Exchange place:  No "refund" for unused propane, and you get a tank with 15 pounds of propane.  You essentially bought 10 pounds (15 minus the 5 that was wasted in the exchange) of propane for $18-$20.  That's $1.80 to $2 per pound.  At best, a fully empty exchanged tank, is $1.20 to 1.33 per pound.  But who wants to cook on a weak flame from a low tank?

Tank with 5 pounds left, refilled at a propane dealer:  $1.05 per pound * 15 pounds.  You bought 15 pounds of propane for $15.75.  $1.05 per pound.

Thus ends the inaugural first blog entry on Normal Advice for Normal People.

Welcome!

Normal Advice for Normal People?

Yes.

Are you normal?  You are to yourself, so you qualify.

Disclaimer (or not):  I am not a trained financial counselor.  At all.  Because of that, this blog will not deal with major, large scale financial issues.  This blog is all about helping normal people, make better decisions in life.  Because so many people seem to have problems with money, I'm guessing most of them will deal with the financial aspect.  I've been compiling a list for some time, and I'm sure I'll be able to add to it.

This will not be a daily or weekly blog, but will be updated as I discover new things that have helped me.