Debts are contracts or commitments to borrow lump sums of money (principal) and repay them in the future, usually with pre-determined premiums (interest). There are many forms of debts, including house mortgages, credit card bills, auto loans and student loans.
During onboarding, BodesWell will ask you to enter a ballpark figure of the sum of all your debts. You’ll then be asked to enter approximately how much you spend each month paying down that debt.
For purposes of simplicity, during onboarding we assume that all of this debt is in a 30 year amortized mortgage at 4% interest. If you connect your bank accounts to BodesWell, we will be able to detect various debts and make suggestions to help you pay them off. But this simple approach is a starting point to help you get started and give you a sense of how BodesWell works.
If you own a property, we’ll ask you for its current value during onboarding. This can also be a ballpark figure, and we’ll use it to estimate your assets.
You can connect your accounts to BodesWell after onboarding. Although it is not required, it is highly recommended. Linking your accounts leads to a variety of benefits. You’ll be able to enjoy automatic updates of your accounts and balances and won't have to manually enter this information. Also, your plan will be more accurate as information transfers over directly from your accounts.
In BodesWell, we help you model debts and project future debt obligations (using both principal repayments and interest charges). We use different methodologies for modeling amortized and unamortized debts.
Amortized debts require borrowers to make regular payments that include principal and interest over the life of the loan. Home mortgages are commonly considered as amortized debts. In projecting amortized debts, we take into account factors such as loan amount, interest rate, start date, loan term and payment frequency.
Unamortized debts require payment of the total principal amount in a lump sum instead of through regular installment payments. Most credit card bills are considered unamortized debts. For credit card bills, for example, we draw interest rates on various credit cards through our data vendor, Plaid (www.plaid.com). For your high interest debt, such as credit card debt, we assume that every month you will pay a minimum of 1% of the current principal plus accrued interest. Please note that this monthly debt payment may be different from the minimum monthly payment on your credit card invoice and our formula does not consider additional fees, which range significantly between cards, so our debt payoff projections are only a rough estimate.