My Debt Blog

Over the past few months we had the rare opportunity of actually having some money in hand to get things done. Normally we could only pay a bit extra on our debt, partly due to my wife not working. When I got my bonus in March, and then our tax refund in April, we had quite a bit of money in our hands. Sure we’re in six figures worth of debt, so paying it off smallest to largest helps climb the mountain.

During March and April it was very exciting to make payments of several hundred to over 1k and pay off credit cards. When I say exciting in my head I’m thinking what else I could do with the money. Quickly, I click the button and the confirmation screen that a payment was made is a sigh of relief. We paid off 7 cards in two months, who does that?

A portion of the money was used to buy a new TV. Sure this isn’t something that was truly necessary, it was something we have been wanting for quite some time. I wasn’t willing to go increase our debt just to have something. It’s amazing to look at my living room and actually own everything. I’m trying to figure out what I can do with the old TV.

The stimulus check came this month and half of it will be held over to July for our long scheduled vacation. The remaining half has been or will be spent within the month. I had a car repair done, will need to have some dental work done, and the EF needs to be back to the 1k mark. Car insurance is another expense that is going to be looming here this summer too, so we’re preparing for that.

I cannot explain how good it feels to reduce our debt and have an EF. In the past when a problem would come along, we would throw the credit card down to make it go away. We’re still paying for those past problems and it’s important to be prepared for whatever could happen in the future.

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This is a few days behind, but better late than never. If you haven’t noticed already, I did a reset on my Debt-O-Meter to show start balances from March on credit card, student loan, and house debts and the change in April. Payoff priority is obviously in that order for obvious reasons and tax purposes too. I’ve updated my NetworthIQ chart too, which took a straight dive downward. So instead of my net worth actually turning positive in April, our combined net worth is in the negative by six figures.

We got a lot accomplished in April though paying off over 6 grand in debt. A combination of using my bonus from work, our income tax return, and just pure focus on getting this stuff done was our motivation. I’m very pleased to say that we went from 12 credit cards to just 5 (originally I thought it was 4) which is huge. As we start to tackle these other cards, it will take larger payments to knock them down faster. I would like to see our credit card debt reduced by at least $500 a month, that would put us at 20k come the beginning of 2009. We have to get rid of our credit cards before we even think about tackling the student loans, so paying them off quickly is important.

I don’t know how big of an impact on debt we’ll have in May due to my car breaking down and having to replace funds in the EF. We’ll get through this and move forward slowly, but at least it isn’t going backwards.

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For most people reading the PF blogs out there, they either have debt or are interested in getting out of debt to create wealth. The most basic advice is living on less than you make, and using the excess to make larger payments on the debt. Most if not all debt is bad, but at what order should one go about paying it off?

I feel the following order is the best way to go about it:

1. IRS - The federal government is the last form of debt you should owe or have on the backburner. They can go into your bank account and drain it. When you receive a regular W2 paycheck almost the first thing that comes out of it is the income tax withholding. Get rid of this debt before you do anything else even if it means transferring the amount to a credit card.
2. Credit Card - Many of us got into debt because of how easily these stupid things let us spend money we don’t have. The minimum payment is usually 2-4% of the balance, yet they can carry anywhere from a 0-35% interest rate. This unsecured source of money is the second most important debt to get cleared.
3. Car Note - If you finance a car typically these are a term loan with a set payment over a period of few years. Interest rates can range all over the place because there isn’t a car dealership that won’t find a way to get you into a car, even if that means a 20%+ loan. A lease is even worse than financing a car because you don’t even own the car after you have rented it for a few years. Depending on the rate and balance, the car note could be paid off before, during, or after credit cards.
4. Student Loans - I don’t have a huge problem with taking out a reasonable amount of student loans while trying to get through college. The advantage is the payment can be deferred while in school and later during the repayment, the interest paid on them is tax deductible up to $2500. It is still debt that is important to get paid off quickly in order to build retirement and tackle the mortgage.
5. Mortgage - Most of us, at least younger people starting out, have resorted to using a mortgage to buy a house. It is important to make sure that the payment is between 25-35% of your income. Retirement is also important to have established before tackling this debt. The worst thing one can do is pay off their house without saving for retirement, you’ll just end up selling it. Once the mortgage is gone take the payment on it and save it in retirement and watch the wealth grow.

We’re currently in the middle of this process of paying off debt. Credit cards have limited our cash flow and we want it back! Our student loans are a looming amount but without making monthly credit card payments we will be able to knock out large amounts of them every month. It all takes time but this is a crock pot process not a microwave solution.

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As I have stated in the past, when I got our tax refund I would also pay off debt with part of it. I’ve been crunching the numbers and trying to determine if it would be better to payoff one larger balance or two cards with about the same balance as the one. In either case its money that we owe one way or another, but is paying off the smaller balance better than the larger one? Let me break this down a bit.

Option A
Pay off the one card which would be $2726.08 which has a 19.99% APR and averages a payment of $83 per month. I would then do a balance transfer of my other two cards to a 12 month 0% interest program that would have the remaining $2553.44. After adding the payments together it would be around $200 a month to clear the balance before the 0% is up.

Option B
The other option would be to pay off the $1215.62 and $1337.82 and those would be gone leaving just the other card at $2726.08. If I balance transfer this amount to my 12 month 0% interest card, it would be around $230 a month to clear the balance.

Am I just confusing myself here or should any of this even matter? In either case I want to make around a $200/month payment to rid the remaining debt at the 0% interest. Either case cuts us down to 4 cards total which is awesome considering how many we used to have. I also think that if our smaller cards have a fixed amount for a fixed period of time, we could boost our payments on the two bigger cards we have and pay those down faster too. Either case we want to get rid of the credit card debt in the most efficient way that we can.

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My wife and I have contemplated over purchasing a LCD HDTV since last year when the prices really started to drop. Being a guy I think TV is one of those things we gravitate towards. This past Christmas it wasn’t realistic to go out and buy one of these things simply because we couldn’t afford it. Our debt actually increased this past Christmas so that is something we plan to avoid this year.

With my bonus from work we paid off a lot of credit card debt. We got our tax return finally and the money went in the bank Friday. I would like to say I started making some payments on our debt that day, but instead we both went to the store to consider buying a TV. Retail stores seem to look down on younger people as though they’re not worth helping. The guy we talked to was very rude and pissed me off to the point we left the store. We went to a different store and found a younger sales guy that was very nice with us. After considering the different models of the particular brand we were after, we made our selection on a nice 40″ LCD TV. The thing wouldn’t fit in the car too, but some bungee cords were able to keep the trunk partly closed and we got it home.

The damage is done but WE OWN IT and that is all that matters. We have some credit cards the remainder of the tax return is going to completely PAY IN FULL. I’m emphasizing these things because HD does not mean for HIGH DEBT. Now the only problem is finding a HD receiver as it seems a lot of people used their tax return to buy a HDTV.

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I have watched this website closely for when they would actually release this tool. If you have time go check out Mint.com if you’re curious about their new free online money management tool. I’ll give my experience thus far and probably provide a follow up in a month to see how it is working for me. My backup plan is to continue to keep my Excel spreadsheets updated of course.

Signed up an account and after logon I was taken to the tab to add Accounts. So far I have 8 of them in there and the tool creates a secure connection and gathers your transactions. Then I went to my Overview tab to view the summary. There is a getting started area that lets you see how you could save money (for products they probably endorse which is how they make money), setup alerts to track bill due dates, or look at spending trends. So far so good.

After all the initial setup, I clicked the Transactions tab which basically lumps all your accounts into one big pool. A lot of my transactions have no category and there is some updating that has to be done to teach it what those transactions are for. You can filter the view based on the account you want to look at though, which helps since I track regular transactions on my checking account. Spending Trends tab shows me a neat pie graph of the amounts and percentage of my available cash is being spent in different categories.

Finally their Ways to Save tab is where they make the money through this tool. It suggested I transfer my balance from my 9.9% APR card to a 13% card with a cash back bonus of $110. I think I’ll just avoid the extra finance charges by not doing this. I probably won’t use this tab but I understand why they have put it in there. Overall I think this tool is neat and we’ll see how it goes for a month.

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My wife has been doing her student teaching this week and trying to get the whole teacher role down. At any rate, she stayed after school for awhile yesterday to go over plans of what she will be doing for the semester. She is only obligated to be a student teacher for the fall semester and then she is done in December. After that it’s time for her to start finding a job.

This is where it gets interesting. Apparently a science teacher in the same group as the teacher my wife is student teaching under will be going on maternity leave. They are going to need someone to put in their place and my wife has a biology degree already and will have her education masters completed in December. From what she told me it sounds like they want to transition her right into a teaching role as a science teacher when she is done. I’m trying not to get too excited or jump to conclusions about this, but I think this is a very positive thing.

What was funny was I held back my reaction as best I could. My response was along the lines of that I felt that sounds like a good opening. Then she comes out with a compromising statement that if we did stay in our house longer, she would like to replace our kitchen/foyer flooring with linoleum. I estimate the cost of this to be about $500-700 which I would be willing to commit to in the event we hold off selling the house for awhile. This type of stuff my Dad and I could install, as we have done before.

She went downtown this past weekend to go shopping with her friends, which is good because I think she needed some social time with other females. At the same time her friend takes the taxi to places because parking is expensive. Apartments in the area we can afford to live are much smaller and everything much more crowded. I’m not sure if she wants to live close to her friends and the city based only on the idea of making more money when things will cost more overall.

We still have to make it through these next couple months on a tight budget. This is going to be a real challenge to be able to swing all of our expenses and still be able to do anything. What is going to be difficult is not going out to eat and forcing us to eat at home. We need to make it through these final months of her finishing school without an income. If this job is waiting for her when she is done, I think that is her finish line she needs to cross.

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