My Debt Blog

President Bush Friday spoke about an economic stimulus package that would be about 1% of GDP, it just needs to be approved now. It is funny how both sides work together when money and votes are involved. The problem we’re seeing with the recent up and down ride on Wall Street may not necessarily be a recession.

Recession by definition is when we actually lose economic growth and GDP recedes backwards. Unemployment usually goes up and people work harder to hang on to their jobs. No matter how you look at it, we’re going to be in for a long up and down ride. They can cut rates and give us back our money, it may not make a bit of difference in the overall trend. So if we’re not in a recession, what has happened?

Slower growth in our economy is causing things to start to balance themselves out. People were riding everything so high, in their house, companies setting record profits, and raising the bar another notch always means higher expectations. Welcome back down to reality. Without a doubt the housing market has taken a hit because appreciation went up so fast, anyone could get a mortgage, and the bubble could not get any bigger. Now the individual making $50k is feeling what was once a $300k house on an interest only mortgage is really like. Panic always creates emotion and emotions can put us into a bad situation.

Monday the US markets were closed but the International markets were freaking out. Indexes in major markets were showing crashes, losing 2-7% in a single day! Then this morning when NYSE opened the DOW dropped like a rock 465 points but later came back up. This month alone I have literally watched my 401k drain away to the tune of hundreds of dollars. What goes up must come down, and the band played on. Why should I be concerned so much about my retirement savings right now? The stock market has a level of risk we accept when our money is involved with it. I’m keeping things just as they are because the sun will shine again and it will gain strength.

One positive thing I seem to be hearing about the tax rebate we could get is people want to pay down their debt with it. Getting out of debt somehow became more important than rushing out to spend. I think our economy would be stronger if we didn’t have to use credit as much or at all. In all due time though we will see what is going to happen with our economy.

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The stock market is all over the place lately, way down from the levels it was at last October. We have the media screaming recession, which may be true. I don’t think we will truly know if we are currently in a recession until months after it actually happens. The economy could be in trouble if something doesn’t happen.

Today President Bush plans to announce an economic stimulus package to help boost the economy. What would be part of this program is a tax rebate of $800 for individuals and $1600 for married, as long as you at or below the household income threat hold of $85k individual and $110k married. So what would you do with the money?

The government wants you to jump for joy like you won the lottery and go out and spend it. Sure, spending it will be a positive thing for the economy, but is that the best thing to do? You could instead put it in the bank and save it for when you really could use it. While it doesn’t stimulate the economy as much as spending, many people have no savings anyway. It could be used to help pay off some debt and help increase the net worth. I don’t think there is anything necessarily wrong you could do with this money.

I think the real thing we have to look at is will this package really help our economy come out of a recession, if that is what we are in. Nobody likes to pay taxes and an auto magic refund of $800 to $1600 is icing on the cake. Like all good things that come, birthdays, bonuses, tax refunds, we just have to be patient and see what will happen when the time comes. As far as what I think we’ll do with this money if we do get it, probably a bit of spending, saving, and paying debt.

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I had some sort of government consumer group agent come to my door this weekend wanting to see my gas bill. According to my gas bill I qualified for a rate lock on the amount I pay for each them of natural gas I use. So I won’t pay more than that if the price ever goes up. It got interesting when he got to the point of what he was really after. They also have this optional program where I could pay $4 a month to buy carbon credits to offset my carbon emissions. To me it does not make sense to pay more money to continue living the way I am and claiming the green title. I said “no” but it made me think about the other stuff.

Look at organic groceries in the stores. Why is it that the organic stuff always seems to cost more and is sold under a claim that it is better for you? If it is organic then it costs less to grow cheaper produce, why isn’t the savings passed along to the consumer? I think it is pretty bold to claim the green title by buying all organic food, you’re paying more of your resources and they make a greater profit in the end using the organic buzzword.

Along side the organic food, I see more and more ads for E-85 gas because it contains more ethanol. Ethanol comes from corn and can produce higher octane gas for most cars. The problem with this is it costs more to produce ethanol than regular unleaded gas refined from oil. Granted the price of oil is getting very high right now, and it cost more to drive anywhere period.

Global warming is not our fault or due to our carbon output. Carbon is a necessary element to life, and the greatest source of carbon emission comes from nature itself and it also creates more life. Climate change is cyclical and we have warming and cooling periods every 1,500 years. With that said this does not give someone the right to pollute the air or water just because they can.

So what am I doing by not buying into this scam? I recycle paper, metal, and plastic and don’t feel the slightest need to be paid for my efforts. I have found CFL light bulbs make a big difference in my electric bill, not because I’m doing anything for the planet. Grow your own produce in a garden if you’re able to. A company throwing the green theme and carbon buzzwords around is a pure marketing gimmick. Turn lights off in rooms you’re not in, don’t let the water run, and know that you are considering the planet and your wallet at the same time. Paying for carbon credits to offset your lifestyle is a total Ponzi scheme. Change your lifestyle and don’t expect your credit to be worth anything more than your big ego.

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There is so much scare out there about the sub prime mortgage lending damaging the economy. What confuses me is why so much blame is being put on the sub prime loans when it should also be shared by the consumer who signed up for that loan. For anyone who has ever bought a house, there is so much paperwork involved and it is a process to get the financing in order. At closing it can be exciting to just get through that paperwork so you can get the house. Did you have a real estate attorney at closing explaining and showing you exactly what you were signing? I did and know exactly what I am dealing with regarding my loans.

If someone buys a house they simply cannot afford, should it become a problem for the government to bale out people using taxpayer dollars? Our government will bale out corporations due to limited liability, sends money overseas as aide for other countries, but can’t help the average Joe save their home? The government is not going to make a person more responsible by helping them save their home. Regulation isn’t going to fix the existing problems of people trying to borrow 500k and pay 1k a month. It all seems fine until the payments adjust out of control and there is no way to handle the new payment.

When I got my house a year and a half ago, my credit was good and the time seemed right because I was getting married. Instead of doing one lump loan for 30 years, I did 100% financing through 2 separate loans. My first is a 80% 7 year ARM at a much lower rate than the fixed loan, lower payment, and no PMI. The second is a 20% HELOC which made up for the difference and structured the loans so I would not have to pay closing costs. This seems stupid to me now to have done it this way when I had 10k sitting in the bank. I did end up paying off my car and going on a completely paid for honeymoon, so what’s done is done.
(Read the article)

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I can’t put it simple than that. The realtor sent me a PDF with a projected sales price and a breakdown of all the fees, which there are over 10k in fees alone, of what it will cost me. One thing I forgot to consider was the property taxes in the state of Illinois are paid in the rear. So this year I am paying 2006 taxes and my escrow is building up for 2007 taxes. That part hit me off guard a little bit.

Even if the house were to sell for more than what the realtor suggested, it still doesn’t reduce it a whole lot. Either way I have to come up with some money to get rid of the house, or just hold out on it until things change. There’s a reason for why the area I am in is losing value: renters. Every other house in my neighborhood is rented! Having so many in this area lowers the value of the units that are lived in by the owners. The renters have really made themselves known over the past few months. Lots of noise, increased parking on the streets, dogs (and what they do), and worst of all is spray paint on the sidewalks. It is beyond me how so much can change in an area within a year. At the same time I am concerned it may cost me more if I were to sell next year. There have also been two foreclosures in the neighborhood that push things way under market value.

So why would it cost me 8k to sell the house? The equity in the house isn’t very high because I had very little down payment and have an 80/20 mortgage setup to avoid PMI. After everything is settled with the first mortgage, the difference between the balance on my HELOC and what is left is 8k. If I don’t use a realtor I could save half of the 5% commission and do for sale by owner. That would probably reduce the amount I would need to come up with at close.

Just so everyone knows, I can afford my house. I am not in any way in the position of facing foreclosure if it were not to sell. Everything is current and I can hang onto the house just fine. The area has just changed to something my wife and I are not happy with and moving closer to the city is more appealing. We’re going to improve some areas the realtor pointed out to us and do a real extensive cleaning this weekend.

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Along with the accomplishments I have made in my life, graduating college, getting married, buying a house, one of them may have been a mistake. Last year we made the choice to get out of renting an apartment and buy a house. This decision was proposed by my wife at the time and I was reluctant to make such a major move because of the cost increase. I think a warning flag should have gone off here.

We went to the bank to get pre-qualified so we could figure out what we could afford. I knew nothing about mortgages or how the process worked and basically learned as much as I could so I knew what was going on. Somewhere I heard that you should buy the most house for the money, so we used the upper limit of what the bank said we could afford. Being first time home buyers, what we wanted and what was available did not always match. Eventually we found the right house, got a pre-approval for a loan, and went into contract on it.

From that point there were issues with getting all the details together and problems with the underwriting process. I had to make some moves, like paying down the loan of my car so the bank no longer considered it as a monthly payment. Eventually all the financing was cleared and we closed April last year.

We are debating selling the house because it is costing us around the 40-45% mark of our current monthly take home income. That is all the cost for our two mortgages, property taxes, and insurance. Everything is current and that is not the issue, but the payment is about twice what our rent used to be. The idea was this might be high right now but would balance out once she has an actual salary job starting her career once she’s done with school. A majority of the money is going to interest anyways because the mortgages are so fresh, so very little progress is being made to actually afford the house. This is where selling the house and renting in the downtown Chicago area comes in.

The other side of this question is my wife is not happy with where we live because she feels lonely, no social life or friends. Simply put, she refuses to live where we currently live because she is unhappy where we live. I think she feels that if we sold the house and moved into the city, she’ll be happy, have friends, and plenty of stuff to do. I’m very bittersweet about selling the house and moving downtown because it feels like we’re starting over. The benefits of being downtown though would be lower house payment (just rent and insurance) would save money to put towards debt, I could sell my car (which I love but would not be necessary) and we would save on insurance and gas cost, and that extra money could go towards debt.

I think we’re viewing the extra money that would come into play with selling the house and renting again in different directions. The way I see it is we could really make some progress in paying off our debt while my wife would feel the extra money is no longer dedicated to something and can improve our lifestyle. The house does not have much equity in it so after all the fees and such are said and done, I don’t think we would make anything off it which sucks. We have moved every single year since 2001 and I thought we were done moving for awhile. At the time we bought the house, I never intended to just turn around and sell it a year later, but it looks like it has come to that.

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I can remember all the way back when the postal stamp was only 22 cents. Then it jumped to a quarter, then 29 cents in the early 90s. By the later 90s and early 01 it got to 34 cents, then seemed to rapidly go up to the former 39 cent rate. Now we hit 41 cents for a stamp, but not just any stamp, a forever rate stamp.

Now think about what the bulk of the mail you get daily that keeps the postal service working the way it does. Most of it is junk mail! I may filter through a bunch of credit card offers, student loan refinance offers, insurance, etc just to find my billing statements. Then if I pay a bill the old fashioned way, writing a check and mailing it, I must throw a stamp on it just to get my payment back to them. They waste money to advertise to me yet it cost me money to pay them.

Now we have come to the great new era of online banking and electronic payment. Why get your statement in the mail and pay by check when you can view the account online, schedule a payment to be made directly at the time you do it, no waiting, no worries, no additional cost. I think it is because of how many use the Internet to pay bills is causing the decline of having to mail letters with stamps. We still need them to ship larger letters or packages though, unless someone figures out a way to do that over the Internet I would suggest getting a patent on that process.

Back to the new concept of the forever stamp, how good of a deal is it? Sure you could invest in a ton of these things at the current rate, but what if we get to a point where there is no longer a need to use them? Give them a few years to see if they pan out, but I am skeptical about this idea of a stamp being good forever at the rate you paid for it. There are better things to invest your money in, stamps are not it.

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