My Debt Blog

No not us, we’ve played that game and now we use our money. A story on CNN Money, Barely surviving by using their credit cards has really got my head hurting. This story is so biased and at no point blames consumers for their actions. Then I read this:

Government and agency statistics illustrate this troubling trend. The Federal Reserve reported Wednesday that Americans’ credit card debt jumped 6.7% in the first quarter of this year to $957.2 billion, This spike comes despite the fact that nearly one in three banks is tightening guidelines for credit cards.

The US is near $1,000,000,000,000 dollars in credit card debt. According to the story racking up credit card debt isn’t a choice people want to make. They had to run up their credit cards because the costs of their basic needs were going up. The reason they have to use their credit cards is because their lines of credit and home equity has been used up. At no point have they acknowledged the fact that they are living beyond their income and going deeper into debt. The great expert says that they can’t increase their income, but their expenses are going up.

Why does a weak housing market all the sudden create a financial problem so people have to use their credit cards? They drained the equity they were getting out of their house to fund their frivolous lifestyle. The system of not being able to tap their house for cash like an ATM has caused them to run to their credit cards. Now their balances are increasing to the point they cannot make the minimum payment. You will never get out of a hole by digging out the bottom.

The best line was at the very end:

“A lot of people will quit going out to dinner if they see their balances rise,” Hampel said. “This will hurt the economy.”

NO!

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Finally after months of waiting, weeks of speculation, and days of checking our account, the 2008 Economic Stimulus check finally showed up in our account this morning. I know other PF bloggers out there have been waiting on theirs too, so if you haven’t got it yet hold tight.

We received a flat payment of $1200. Half of this will go to our vacation, the $300 that was taken from the EF to fix my car is going back, and we will work $300 into our budget to help us tackle some debt. The government of course wants us to go out and spend it, but we recently purchased an HDTV so I think we already have done our part. This money is nice to receive but is not necessary to our economic stability by no means. I’m glad we didn’t spend this money on something before we received it, because it may have never came.

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The mainstream news media never ceases to amaze me. Recently the New York Times published an interactive chart on their website, All of Inflation’s Little Parts which is a visual representation of consumer spending and inflation.

Below is the breakdown of what the average consumer will spend their income on annually. I took note on some of the areas that peaked my interest:

• Housing 42% It puts 2.4% for vacations in this category for some reason. Meanwhile home owners spend about 24% of their income on their home.
• Transportation 18% Gas prices are 5.2% of our annual income, which is up 26% so we’re only paying a quarter more for gas. If you break that down, it’s about $550 more a year on 40k income, that’s $45 more per month. There’s way too much hype and panic over gas prices.
• Food and beverages 15% Adding 2 categories together, this thing shows the average consumer blows 5.4% of their income on eating out! This might have something to do with the health care costs going up.
• Health care 6% The skew in this graph is that prescriptions are 1.5%, doctor and hospitals make up 2.6%, yet we only pay 0.5% to health insurance? Maybe I’m looking at it wrong but health care costs are something that needs to be taken seriously.
• Education/Communication 6% College costs up 6% which is near twice the average inflation rate. If my generation is Gen Debt from large student loans than what generation will my children be stuck in, Gen BK?
• Recreation 6% Cable makes up the largest single component of this area at 1.2%. The media obviously can’t report this to you because they need you to watch them lie to your face and work up your emotions.
• Apparel 4% This area is a bit sexist because the women’s categories are broken up into a few things, and men has about 5 or 6 categories. Both sides are 1-1.5% but they make it look like women spend more money in this section.
• Miscellaneous 3% Obviously tobacco products take up the largest slice of this area at 0.7% on the average consumer. If a person making 40k a year stopped smoking, they would have an extra $280 a year to save or invest. Again this could be related to the health care costs too.

Feel free to look at the chart and let me know what you find interesting.

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If you filed your 2007 income tax return and it was processed by April 15 and you elected direct deposit, expect to see a direct deposit this week. There has been new information released last Friday that people could expect to see this payment as early as Monday, April 28 and no later than Friday, May 2. Keep an eye on your bank account for that direct deposit.

I have a feeling that this stimulus payment could actually be helpful for our economy. Unless you live like a hermit, inflation has become a larger problem for most of us. Gas prices going up, food prices going up, and for those out there with fixed income it can be difficult to absorb the increased cost. Not that this stimulus payment will be spent on frivolous things, but what about the basics like gas and food?

We are planning to save part of the stimulus for our vacation this summer. The remainder will be rolled into our income and will help us make slightly larger payments in May. I think getting out of debt is the most efficient way to stimulate the economy and ease the stress of inflated costs. The fewer payments to debt I have to make, the more money I have in my pocket to handle higher costs of living. That is a winning game plan no matter what happens in the economy or the election.

Question to my readers:
Have you received your stimulus payment yet and what are you doing with it?

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It seems every time I turn on the news, look at a paper, or check a news website, recession comes up more frequently than anything else. By definition a recession is two consecutive quarters of negative GDP, which hasn’t happened yet. We could be in one right now, but I’m not going to go as far as labeling it yet. So if we’re not in a recession, what are we experiencing? It’s a simple slowdown of the economy as a result of some very major blows to some markets.

What makes it even worse is the rate of inflation that we do feel. Most people have a relatively fixed income, same thing from month to month. When the basic expenses like food and gas are going up, the average individual will feel that more than the overall effect of a recession. In my opinion the greater threat to a slow economy is inflation, not recession.

So what can we do to try to reduce expenses. Here’s what we’re currently doing:

1. Gas - We have been carpooling to get to work which saves a few fillups per month.
2. Heating/Cooling - Now that the weather is starting to come back, we will have some time where we won’t need to use the heat or AC.
3. Food - Eating out less and bringing lunch from home really helps save money.
4. Entertainment - Finding the cheap or free things is great. We go to wine tasting on Saturday afternoons and experience the finer things for an hour at no cost!
5. Work Out - We’re going back to the gym again and getting in shape. Even though there’s a membership for this, the benefit is longer life span and reduced medical costs.

We’re also able to reduce monthly expenses by paying off credit cards. If everything goes as planned we’ll be down to only 2 cards each, around 14k remaining in credit card debt combined. I would like to get that number under 10k before the end of the year. To accomplish this it would take $500 a month for 8 months to wipe out 4k. I plan to work on the blog to get some more debt meters and where we stand on getting things paid off.

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I never like getting to January in that the damage from Christmas is actually felt this month. It has been a difficult month to get through on one income on top of that. With no EF or additional income, it is getting increasingly difficult to keep focus. As the pressure or weight of carrying everything gets to me, it gets harder to keep going. I’m to that paycheck to paycheck point and there is nothing to show for it.

So if January was bad, how does February get better? We need to pay close attention how much is coming in, and what needs to go out. My wife will also be setup to help with our household income, even though it won’t be permanent yet. Spending is the single most important issue that needs to be watched very closely.

Getting through February is important because I’m patiently waiting on my bonus. The bonus does not necessarily fix problems, but it will help turn things in a much more positive direction. I can’t post details yet because it isn’t in hand yet. Priority before paying down debt is to get that EF back to 1k though.

Expect my regular monthly plastic pinch update and my net worth update. I might as well point out that debt is going up and net worth is going way down, partly due to the huge hit I’m taking on my retirement savings. Even though it is only Monday, I cannot wait until Friday comes around.

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With all the panic and recession talk going on, the markets really dropped. Yesterday and today there were massive sell offs and then a surge this afternoon not only balanced but the DOW actually closed positive to the tune of almost 300 points. I don’t think I have ever seen a roughly 600 point swing in a single day.

I was looking at some of the articles online, believe it or not some companies are still reporting profit. With the massive sell off, I think we will see people with money try to find deals out there to help keep the ball rolling. I would like to see the market return back in the 13k area so it will take some time. Slow growth is one thing but a failed economy is another.

Today feels good though and I can only hope that it continues like this. I’m waiting on some more Q4 earnings to come out yet to see where I personally stand. At the same time I am waiting to hear what, if any, kind of bonus I might be able to get half of after the IRS takes half of it. I wonder if that tax rebate will still be on the table now. Only time will tell what happens.

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