My Debt Blog

Last night I wanted to run an errand, and my car wouldn’t start. At first it was confusing which quickly turned into frustration then anger. I could hear the ignition switch kick in the starter, and the starter was turning over normal but the engine wasn’t firing at all. Not even a choke or a cough, no fire. At least the car is sitting in my driveway and not the side of the highway.

For the most part it sounds like I am at the mercy of a mechanic. I’ve got to get it to them, towing it there is going to run some money anyway, and then hopefully it will be something easy for them to spot. I’ve narrowed it down to spark or fuel. Either the spark plugs are bad or my fuel pump isn’t functioning. Either case I could be looking at $200-500 in parts and who knows how much in labor to replace stuff. What is sad is this is the first major breakdown my car has gone through. I change the oil regularly, check my fluids, change air filter, and don’t beat on the car by quick acceleration or hard breaking. Sometimes things break though so this is just part of life.

Hopefully this won’t be a huge setback, but I will most likely be part of the EF to handle this car issue. This is exactly the reason everyone should have an EF! I’m glad my wife has a job now too and we don’t have to go through this battle scraping by my income alone. Debt reduction could be limited this May, but my asset doesn’t have much value it doesn’t work.

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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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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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Maria over at Cents and Sensibility tagged me to play the Six Word Memoir meme. I’ve seen these things go around PF blogs before, so why not play along?

Here are the rules…

1. Write your own six word memoir.
2. Post it on your blog and include a visual illustration if you want.
3. Link to the person who tagged you in your post.
4. Tag at least 5 more blogs.
5. Leave a comment on the tagged blogs with an invitation to play.

My memoir is…

Life is hard, it gets better.

Instead of dwelling on the negative in life I like to feel positive and optimistic. Sometimes life throws us lemons and we have to make lemonade. Don’t wait for someone else out there to fix your life, only you can improve it. I’m an optimistic realist, everything is what it is but always gets better.

I will tag:

1. Creating a Life by Destroying Debt
2. Dog Ate My Finances
3. Living Almost Large
4. It’s No Joke I’m So Broke
5. The Bright Side of Debt

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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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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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