My Debt Blog

For me the house buying process was like having dental surgery. Buying a townhome was a big step forward in my life and I knew going into it my financial history was going to be looked at with a fine tooth comb. The first time home buying experience was long and hard, waiting for people to call me back, getting on top of people to call me, calling people to call me back, but finally I got that much needed approval. Now the process is going to get more difficult.

With the foreclosure rate increasing, we’re starting to see a trend regarding sub prime lending. For a family that makes 100k a year they can afford a 300k house as long as their debt is relatively low and their credit is solid, and they have money left over to save, invest, or for emergencies. The same family would really be stressing themselves on that 100k a year trying to afford a 500-600k house which eats up any extra income they had, no savings, no fallback plan.

Types of mortgage flavors you can get out there:

• Fixed rate mortgage is probably the best because it locks a (hopefully) low interest rate in for a term of 30 years, 15 if you feel you can handle that extra payment given you can handle those emergencies that come up.
• Adjustable Rate Mortgage (ARM) 3, 5, 7 year terms typically lock an interest rate for a period of time and then become a variable rate after the term expires.
• Interest only financing does not include any principle payment unless you include it in your payment, these are common for equity lines of credit or secondary financing.

Going back to the example of the family trying to afford a 500-600k home on 100k are probably doing it on an interest only mortgage at about 95 to 100% loan to value, which means they basically don’t own any of their house. I would love to have a huge house but I’m not going to get myself into a serious financial bind trying to afford it.

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As much as I read a lot of books,  I find documentaries also interesting. Take it from me, I watch a lot of them on many different topics, but the latest I have taken notice to are about debt in America. Why does America use credit so much? Not all debt is necessarily bad debt, some of it will open more opportunies in your life. Want to get an advanced job that requires specific skills with a high school diploma? Good luck, because that’s all you have. This is where college becomes crutial to young adults, the sooner that is realized the more advancement is possible. For people who claim they cannot afford to go to college are lieing to you. Are you a poor investment? Student loans for many are the only way to foot that tuition bill, among working a lot of crappy jobs for spending money.

I figured I would highlight some of these out there for those who have not heard their names thrown around. The latest one is “Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders”, which you can see some clips and a synopsis at their website maxedoutmovie.com. Another interesting one is “In Debt We Trust”, same guy who did “WMD: Weapons of Mass Deception” (do the terrorists not count as WMDs?), website at indebtwetrust.com. These are only the latest ones that caught my eye, there are many others out there.

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This special was aired on ABC back in January. I had to post this clip about some extremes when it comes to living on a budget and being frugal. This video shows a family that is struggling with their debt and compare them to a family who has zero debt. This family has seven kids, two cars, a house, and absolutely no debt. They have self labeled themselves and their book “America’s Cheapest Family” which may or may not be a good thing. They buy a lot of stuff used, cars, furniture, clothes, and are on an extremely tight grocery shopping budget. Planning their meals for 30 days so they can go shopping once a month, which is almost like running a business at that point. I’ll give them credit for the dedication to their budget and owning that title. Do they ever take a vacation or splurg on something ‘brand new’ that someone wasn’t getting rid of?

I would like to see a followup on this family and what happens when their kids discover what credit can do. Money should not control your life to this point.

http://www.youtube.com/watch?v=bcsKi2hNuUw

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As April 17 is looming closer, I’m glad I did my 2006 taxes two weeks ago because today I got my refund. It is almost like an extra payday of my own previously earned money being returned to me like a lost pet. For the sake of priorities, I’ll split it up and use part of it to possibly pay down some debt, start an emergency fund for those situations that can and will arise, and use the remainder to give the checkbook a little buffer.

Although Uncle Sam gave me my money back, Mr. Lincoln thinks I need to pay the state more. I’m still debating if having a tax prep guy was the best way to do my taxes this year. Normally I always do them myself, but 2006 just felt complicated because of my student loans, mortgages, property taxes, getting married, my side business income and the like. For 2005 I used the box and it was pretty simple but I wonder if you really maximize deductions like the tax guy did.

Did you file taxes by the box or have them done?

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Today the domain game finally stopped and I was able to register mydebtblog.com. Now I know what people might think, why not setup the domain first and then create posts going forward? I wasn’t sure if I wanted to do this back in March, so I setup a placeholder blog on my hosting account for it. At the same time, blogs need some time to setup themselves in order to actually get going.

This blog is finally public. My Debt Blog is a story purely about my debt and my walk down that long road to one day find freedom from it. For the sake of making this simple, I am focusing on my unsecured credit card debt, or in better words ‘bad debt’ that I have. Once this is gone, which it eventually will most likely in my 30s, I will then turn tables to focus on my student loans. More on that much later though.

Welcome to my blog!

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MTV used to primarily focus on music videos, they now have MTV2 for that, instead the focus has been mostly reality shows. This particular show called True Life follows young adults with the real world sitautions, those phases we go through transitioning out from under our parents. The episode titled “I’m in Debt” first aired about a month ago, if you happen to catch it.

The show highlighted three young women and their struggle to deal with debt with very minimal income:

• Amy (22) has $14,000 in credit card debt and employement is on and off. Debt collectors calling her daily and yet she still spends about half of her small paycheck on tanning and shopping.
• Daniel (25) has a $900/month mortgage payment, thousands in credit card debt and struggling between jobs.
• Ashley (21) has $20,000 in credit card debt. Her debts have forced her to move back home with her parents and must decide to do a debt management plan or even consider bankruptcy.

A lot of people in their 20s have stacked up credit card debt they regret, these are from what I feel are extreme cases. This would be a good thing for teens who are trying to obtain a credit card and build credit history to watch what that credit card the potential to do if they let it. Some lessons in life need to be experienced while others can hopefully be avoided.

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I find this video simply amazing. America was built on hard work yet the land of opportunity is being sold off to the highest biddder. As we grow up a role model inspires us to be like that person. I remember the “I want to be like Mike” Nike commercials, of course most of you know who Mike is. Celebrities at one time actually had real respect, yet today they act/say/do anything they want and go to rehab to fix their vices. Politicians sell themselves and their leaning to the highest bidder and tell us everything is fine. What happened to role models? How many of us are experiencing the American Dream or the American Nightmare?

http://www.youtube.com/watch?v=VCxJRrHyGdg

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