Monday, December 8, 2008

Every Penny Counts

I'm a "paperless" kind of girl. I don't like clutter and I detest junk. If I can get an electronic copy of something, by all means, please deliver it to me that way. Most of my bills are sent to me electronically or I get an e-mail letting my know that my invoice is ready for viewing. On Saturday I guess I was bored or something because I decided to look at the details of my AT&T bill. Now my phone bill does not change materially each month, it may fluctuate a couple of cents or maybe even a dollar but it's pretty much the same. Turns out my boredom was not in vein because these two items caught my attention:

$6.00 - voicemail service
$7.50 - inside maintenance plan

It's been a very long time since I reviewed my phone bill with this much attention (can you say 5 years). Let's do the math, $6 + $7.50 = $13.50 per month * 60 months = $810!

That is enough money to pay an additional 6.5 months of principal payments* on my mortgage. Guess who's about to get a call from me? You got it, AT&T. Oh, did I mention that I have an answering machine at home? Yeah, it's electronic and connected to my cordless phone. It's been "off" since I had the phone.

*I have a 30 year mortgage which equals 360 payments. When I say extra payments, I mean extra principal payment. If you look an amortization schedule, you will see that each total payment is comprised of interest and principal. For example:

Monthly Total Payment = $1,000
1. Jan: Interest $900 ....... Principal $100
2. Feb: Interest $897 ....... Principal $103
3. Mar: Interest $890 ...... Principal $110
4. Apr: Interest $883 ....... Principal $117
so on and so forth until you get to payment # 360.

If I paid $1,000 for December's mortgage plus an additional $323, then I have paid 3 extra principal payments (Jan - Mar). When I send in my $1,000 payment in January, I've moved 3 months down the amortization table to April or payment #4, and have saved myself $2,687 worth of interest (add Jan - Mar's interest). My payment made in January will be broken up as $883 to interest and $117 to principal.

Think of it this way, the amortization table tells you how much you paid to borrow the related principal amount. Taking #1 above, essentially the bank is charging me $900 to borrow $100. For February, the bank is charging $897 to borrow $103. When you prepay principal, you do not pay the related interest. Ah ha!

6 comments:

PJ said...

Wow - great catch girl!!! That is alot of money that is being charged...hopefully you can get that all worked out! I myself do alot of my bills online, it makes things so much more organized in this hectic world, so it may be good for people like me to go back and check my electronic bills too!!

Excellent work, and keep us updated if you end up getting that credited back!! =)

Sharon Rose said...

Hi there-well done for spotting this on your phone bill, its great when this happens! You're doing very well on your mortgage repayments too, keep up the good work!

jpkittie said...

wow - what a nice chunk of change --- good job on catching that!

Ms. MoneyChat said...

PJ: Unfortunately there will be no credit. I should have monitored my phone bill way before now so I'll take the loss on that one. The good news is that I'll save $13.50 a month going forward.

Sharon Rose & JPKittie...thanks so much for the encouragement.

Saver Queen said...

I have caught so many mistakes like this. I really think sometimes they do it on purpose! What did they say when you called them on it - why won't they refund it? I would argue that one!

Ms. MoneyChat said...

Saver Queen: I love your spunk! Well, apparently these services were selected by me and since I paid them for 5 years (yeah, I never looked that closely at the bill) I didn't think I had much room to fight.