After more than a decade of being a credit card impulse buyer with little to show for it besides a closet full of club clothes, I learned my lesson the hard way and finally got my act together. Now I lead credit companies on. They think I’m going to carry a balance and pay them years of interest on thousands of dollars of purchases, but I pay the balance in full each month and take advantage of the cash back rewards. In short, I’m a thirst trap for corporate loan sharks!
However, I won’t truly be a free Afro-American until I pay off my mortgage, and I’ve been thinking of ways to do that early. The most obvious way would be to make significantly more money, which usually requires having extra money to invest in the first place. That’s a work in progress. Until then, there are small but important things I can do that actually make a big difference over time, like using credit card cash rewards to make extra mortgage payments.
Here’s how it works: My wife and I put all our bills and expenses (excluding the mortgage and modest car payment) on one credit card, the Capital One Quicksilver, which gives an unlimited 1.5 percent cash back bonus on all purchases. We spend around $3,000 per month on colorful foods and travel and so on, earning a cash rebate of $45 a month.
(Note: There are at least two credit cards that offer 2 percent cash back on all purchases, the Citi Double Cash and the Fidelity Rewards Visa, but a brotha has to get his credit score up to qualify for either of those.)
We owe about $118,000 on our new home. By only putting the extra $45 in credit card cash rewards towards our mortgage payment, our home will be paid off four years early and we’ll save $15,039 in interest. I repeat, in Samuel L. Jackson’s voice, WE’LL SAVE FIFTEEN THOUSAND DAMN DOLLARS! If we contribute an extra $90 per month to our mortgage, maybe by eating in an extra night per month, our mortgage will be paid seven years earlier and we’ll save more than $25,000.
Of course the math works regardless of the size of your mortgage. If you owe $200,000 and use $45 in cash rewards each month to pay down your mortgage, you’ll save $16,116 and pay it off 30 months earlier. Or say you live in California and pay a paradise tax that results in a $500,000 mortgage: Contributing an extra $45 a month towards your mortgage means saving $17,212 in interest and having your home paid off a year early.
(You can find an extra payment mortgage calculator on TimeValue’s website.)
An itty-bitty extra $45 a month will not get me to my goal of paying off our mortgage in three years. And The Man wins if I get back in the habit of carrying credit balances with interest. But any hack that helps to avoid paying triple the amount we borrowed, which is what happens if you take 30 years to pay off your home, is well worth it. Plus it makes a lot more sense than wasting money on club clothes…though I did look pretty damn smooth (and greasy).
-Dewan Gibson
