River Of Debt

A Note to HighClassLowIncome

Ξ February 6th, 2008 | → 0 Comments | ∇ Observations |

This is a Note to HighClassLowIncome.blogspot.com

I cannot comment on your blog.  Your settings on blogger are set to only allow comments from other blogger users.  Furthermore, I tried to tell you by email, but the email address listed on your ‘About Me’ profile bounced.

What order to pay things off

Ξ February 4th, 2008 | → 4 Comments | ∇ Debt Payments |

I’ve been doing a lot of thinking about which debts to pay first and which ones to keep paying the minimums. For the most part, there doesn’t seem to be a right answer so far.

Of course, Dave Ramsey says to pay the smallest balance first. The logic is that this will give you some good, positive results early on so that you will see results and it will give you a psychological boost. This gives positive reinforcement so that you are more likely to continue to make cuts and increase your debt snowball payments. As a general rule to be given to such a wide audience as he has, this is good advice. It is something that is easy to grasp and it answers the question, “I want to pay this off, but where do I even begin?”

But of course it may not be the best for everyone. There are some people who are very inclined towards the mathematics of it all and will insist on paying off the higher interest first. By eliminating the highest interest, you can pay off your debts in the shortest period of time, all things being equal. You may even pay them all off a month or two faster this way.

But there is a problem with both of these ideas. With the lowest balance method, what would happen when you get toward the end? That is to say, what happens when you have your last debts remaining and they are all high balance debts? It seems to me (and I am no expert on these things) that as time goes on, there will be a time when you will face burnout. To maintain a frugal budget even while working overtime and delivering pizzas on the side, while seeing no benefit in your personal life is a good recipe for burning yourself out. It seems that there could come a time when you have simply reached your limit of what you can endure. Especially if you are facing your highest balance debts. I would think that by paying down your highest limits when you are most excited about paying your debts off and especially motivated to do the work and sacrifice necessary, you can preserve your easy targets for when things get less motivating.

Then when you are facing burnout, you can start paying off some of the smallest debts and that will make you more motivated at that time, when you most need it.

And again, if you are paying the highest interest debts first, you will come to a time when you are finished paying off the worst ones and are left with a bunch of zero interest debts. I can all but guarantee you that if you are so number-oriented as to start with the highest interest debts that when you are down to zero interest debts only, you will think that it would be better to put that money in savings and draw interest on it until the zero interest period expires. And while mathematically this would make a lot of sense, psychologically it would not. When you pay off the zero interest debts and become debt free, that will make you even more excited, even if you are a numbers person. Or so it seems to me.

And of course there is a third possibility. You could pay off the debt that you hate the most. The one that kept calling you and asking if you wanted credit protection. The one who wouldn’t adjust your payment due date to what worked better for your schedule. The one who was rude to you on the telephone. And of course, the one that raised your interest rate to 21.9% 18% interest. That’s the one that I am most inclined to.

However, over the weekend, I’ve been thinking a lot about it, and it occurred to me that there is no 100% right answer. You have to do what works best for you. And with this income tax refund coming my way this year, I want to know before it gets here where it will be going. So I’ve been working out different payoff plans for my debts.

I started by saying, “What if I paid off the BofA account with it, and took what’s left and put it towards the next CC in the stack. If I were to transfer the balance of the Air Conditioner to the BofA account after it’s paid off, I would be able to pay off all of the CC’s that would be left with any sort of interest on them by the end of summer.

And I tried variations of this, too. What if I just paid the next CC with the Income Tax Refund and then made payments on the BofA until it’s paid off by way of the debt-snowball. The time works out the same, except that I would be paying more interest on the Air Conditioner. So that’s a no-go.

And then it occurred to me. I could put the Income Tax onto the student loans.

As it stands, Sallie Mae is getting right at $850 a month from me, and will be paid off at or about the end of October.

But if I simply put the Income Tax onto the student loans and then made my normal payments, it would be gone at the end of May.

But then I thought, what if I left BofA alone for a little while and put the debt snowball onto the student loans? They would be gone much faster. AT THE END OF MARCH.

Now of course, I would still have an interest payment on the BofA account because of this. But because I’ve transferred a lot of it to zero interest cards, I could handle it for a couple of months. Because after the student loans are gone, my debt snowball would grow by a whopping $850 a month, putting it up near $2500 per month. This means that I could pay off BofA in April, and because of the third paycheck that I will get in May, I could actually pay off the Air Conditioner in one month, or at the latest, the first paycheck of June. Factoring in the zero percent CC’s that I’ve picked up, minus the AC and the BofA, I would drop about another $90 or so a month after that into the debt snowball, putting me up well past $2500 a month extra to pay off the remaining debts. At that rate, not one of them would last more than two months, with the exception of the car, which I intend to leave for last anyway.

Right now, this seems like the best all-around plan for me. I’ve been dancing with Sallie Mae for too many years now. And although I’m hating BofA, I could handle three more payments. And actually, when I put in the transfer to the zero percent, this months payment had already posted as due, so the transfer actually satisfied my payment to BofA for February. That makes it easy to pay back the Emergency Fund with the money that I’ve already budgeted to this month’s BofA payment.

So somebody let me know if they see an obvious hole in this plan. I think that the benefit of knocking out the student loans is great enough to justify making the extra interest payments for a few months, because then my monthly obligation is lower and if work should slow down again, it would be a lot easier to hit my break-even point every payday.

But maybe I’m overlooking something. I am still learning, after all, and tend to make this all up as I go along.
So feel free to put your two cents in. Good, Bad, or Ugly, it doesn’t matter.

I Filed My Taxes

Ξ February 2nd, 2008 | → 3 Comments | ∇ Taxes |

I filed my Taxes today. I normally try to break even on taxes throughout the year, such that on tax day I won’t owe anything, but I won’t get anything back. But this year was different. I made a lot of money during the first part of the year, and then hardly anything during the last part. So the taxes taken out for the first part of the year were based on if I were to make that level of income for the entire year. But of course, I didn’t. So I am expecting a refund this year.

Thirty Six Hundred Dollars!!!

I already know what you are going to say. “It’s your money that you gave the government to use for the entire year without interest. You shouldn’t get excited about it, since it is simply the government giving you your own money back.”

But to that, I have a pretty good response:

Thirty Six Hundred Dollars!!!

It was pretty bad filing this year, since I had opened up a string of checking and savings accounts for the sign-up bonuses that they offered. I got fifty dollars here and a hundred dollars there. And at tax time, they counted it all as interest and sent me a 1099. Each. So I had to file long form, with Schedule B.

Yeah. Greek to me, too.

My mother suggested that I use a certain service that is online. They e-file your taxes for you and it is pretty painless. They ask you a bunch of questions in plain English and then print up your taxes for you. The only thing is that it is not set up for accepting some sort of new “energy efficient modification to house” kind of deduction. But other than that, if you want to file online, it seemed like a wonderful tool to me.

They charged me thirty dollars, which they took a debit card. (They also will accept Credit Cards, which I WILL NOT BE USING) and they can also take the amount out of your refund, if any, but I think a fee applies if they do it that way.

It asked me if I wanted my state tax form, too, but since I live in Texas, that wasn’t necessary as Texas has no state tax.

When I was finished, they gave me some coupons that if I want to refer a friend, they will give the person five dollars off. They would also give me a referral fee, too.

So if anyone is interested, you can go to www.ezTaxReturn.com/ezcash and when you are registering, enter the coupon code:

CA0807 (That’s with a zero-eight-zero-seven)

And you can do your taxes online for twenty five dollars that way. If you use direct deposit, you can get your refund in a couple of weeks. (I did mine today and the estimate says that they would deposit the refund on the fifteenth of this month.)

And just because it felt good, I want to say it one more time:

Thirty Six Hundred Dollars!!!

Playing the Shell Game, and some random thoughts

Ξ February 1st, 2008 | → 2 Comments | ∇ Observations, Credit Cards |

I don’t particularly hate BofA, so to speak. But I do hate 21.9% 18% interest. So I dug out an old Credit Card and called them up.

“Thank you for calling Chase, how may I help you?”

“I’m not sure,” I said. “I either want to close an account or transfer a balance, depending on what offers you have available.”

“I see here that you have a $4000 limit and a zero balance. How much would you like to transfer?”

“It would depend on what balance transfer offers you can give me,” I said.

“OK,” they responded. “I can offer you a 3% transfer fee with a $75 maximum, up to $3700, zero percent interest until January 22nd of ‘09.”

“I would like to transfer $3500 from my BofA CC to this card then,” I told them.

“What is your account number at BofA?”

“XXXX-XXXX-XXXX-XXXX”

“Done.”

And that was that. I think that it is totally worth the one time $75 transfer fee to get zero percent for a year. Seeing as I was to have to pay over a hundred dollars per month in interest, I come out WAY ahead. Even if I were to pay this off over the summer I would come out ahead. After this and the Citi transfer go through, I will have a $2000 balance left on BofA, which I expect to make quick work of. I’ll be getting my W2 when I go to work this afternoon (or at least I expect to) and I’m hoping to get a little something back this year.

So as of right now, my intention is to pay off a card that I have with a $500 balance on payday, and then to knock out BofA next. After that I will begin paying off my non-zero percent CC’s from smallest to largest, and probably transfer my Air Conditioning financing over to BofA at 1.99% (that’s a lot better than 18%) and just include that in the mix.

I’ll be replenishing my EF first though. I will put the $100 back into it on payday and whatever is left in my checking after paying off the small card this time will go toward getting my wife something for Valentine’s day. I expect there to be somewhere around $300, assuming I work all of my hours today and tomorrow (which would finish my work week without getting canceled for the first time since July).

It feels good having a plan to get out of debt. I can totally see this debt going away in short order. Especially if I’m knocking the interest rates down. The only way I can think of that I can lose is to get frustrated and quit. That’s a lot of what this blog is about. Keeping myself motivated. It helps me to stay focused when I have to put it all into words and then proofread it. Of course, something unexpected could come up (like last year, when my AC fried) that could put me back. But if I’ve paid off a lot of my existing debt, I’d be in a lot better position to deal with it.

I can see myself getting better organized as the days go by. I still haven’t written all of my debts down in order yet though. So far I’ve taken the position that one at a time is all I can handle. But I’m getting to the point where I’m going to have to look at the whole picture if I want to really make the most impact. I think mostly I have just wanted to pay off those small debts that could be paid off in one paycheck (albeit with the WHOLE paycheck). After this next one, I will be to the point where I need to start thinking along the lines of paying things off in multiple paychecks. Paying something off in two or three months worth of paychecks is more difficult, but I would imagine, more rewarding.

I was somewhat taken aback when my 13 year old was looking the numbers over with me and he pointed out that at the end of March, the student loans will break through $6000.

I appreciate the comments that people have left so far.  It’s a strange feeling to know that someone is actually reading what I have written here.  I particularly like some of the observations that FranticWoman made.

So thanks a lot, you guys.

Rough Day and a little bit of Refocusing

Ξ January 31st, 2008 | → 6 Comments | ∇ Budget, Emergency Fund |

Today was a rough day.  Plain and simple.  I think the reality of it all is sinking in.  Or maybe not.  Nevertheless, it was a rough one.

I woke up this morning to the sound of rain.  That’s not too bad.  I like the rain.  But this didn’t sound like it normally does.  This sounded more like rain sounds when you are outside.  And that was a little bit disturbing.  I looked around to see if I was outside, and I wasn’t.  So I got up to go investigate.  Outside it was raining so hard I could only see about twenty feet, and the wind was blowing so hard that the rain was coming in sideways.  And the front door was wide open.

The dog was in the living room, so I knew that nobody had come in the house.  So I checked on the kids and they were both nestled all snug in their beds.  So I just shut the door and locked the deadbolt.  It seems that the wind was too much for what’s left of our doorknob.  The little part that holds the doorknob latch part into the frame is very old.

So I knew I would have to replace it.  That’s not so much of an issue.  I’m really handy around the house.  It was just a matter of having the money to get a new doorknob.  And I think that was the root of my bad day.

Having already had to fill my wife’s prescription, I was left with about fifty bucks left in my checking account.  Of course, that’s enough for a doorknob, but I still have to go to work all week, and I have to pay to park at work, which comes out to about twenty five dollars a week, and I will still need gas money.  I think we are still OK on food.

So I faced the reality that I wouldn’t have enough money to fix the doorknob and still make it through the workweek.

It’s not that I haven’t been broke before.  I’ve been very, very broke before.  It’s just that this time it happened to occur to me that I was a lot happier day in and day out when I was blissfully ignorant and in debt, as opposed to sending in all of my extra money to get out of debt.

Ignorance is bliss, so it seems.

But of course, I have a thousand dollars in my EF, and I think that front doors qualify.  And gas money probably qualifies, too.  In the end, I transferred a hundred dollars from my EF into checking, and I’m guessing that will get me through until payday.  And I guess that’s what the EF is for, after all.  It’s just a lot different than how I am used to doing things, and it takes some adjustment.

(shrug)

Student Loans Break Through Eight Thousand

Ξ January 30th, 2008 | → 2 Comments | ∇ Debt Payments |

The recent payment to Sallie Mae has posted to my account. My balance is now officially below eight thousand dollars. Way below. The new balance is 7662.08 which I have updated the sidebar to represent. I don’t intend to update the rest of the sidebar totals until next payday, when I will be making my normal monthly payments, since this takes so long to do and I will have to do it all over again in a week anyhow. I think I will update the balances on the credit cards once per month whenever I make my payments, and I will update the student loans twice per month whenever the payment is posted to my account.

The overall current balance, however, will not reflect the changes to my student loan payments until the next time I update the credit cards.

Heck, that sounds confusing even to me, and I’m the one that wrote it. I have it all straight in my mind though.

Welcome to the family, Citi

Ξ January 29th, 2008 | → 0 Comments | ∇ Credit Cards |

I got an offer for a balance transfer, so I took them up on it. It only has a $3000 limit, but it’s zero percent until ‘09, so I transferred 2800 from B of A over to this new Citi Card. I also intend to put my income tax refund, if any, onto it, too. That will bring it down enough to be able to pay it off relatively quickly. I think after I do that I will probably transfer the entire balance of the Air Conditioner debt over to the B of A card, since they continuously offer me 1.8% interest on transfers. But I’ll see what they are offering once the balance is paid off completely. I don’t want to transfer anything onto it before it is paid in full, because then they apply all of your payments to the lower interest rate debt first and hold onto the higher. It’s kind of screwy that way. But one day at a time I will continue doing this.

Yes, I’m Still Here

Ξ January 29th, 2008 | → 1 Comments | ∇ About Me |

It’s been a heck of a weekend. I had a full work schedule on Friday, Saturday, and Sunday. I got in 36 hours for the week.

My son had his thirteenth birthday on Sunday. I told him that I had to work that day and that I couldn’t get out of it. He was OK with that. For his birthday I took him up to the store and let him pick out his own stuff. I had $300 budgeted and spent about $290 all told. Not all of it was for his birthday though.

Even so, we were within budget and he was really happy with what all he got.

I still have a hundred bucks left to last me another week and a half. It’s a bit spooky though, because I’m used to having a bigger buffer in my checking account. Although I still have a half a tank of gas left, and the pantry is still full. I don’t really have much to buy for the rest of the pay period.

But still, having only a hundred bucks to last me is a scary proposition. And that’s when I realize the value of the Full Emergency Fund. It gives me a feeling of peace that I have a thousand bucks that I can fall back on in case anything should happen.

I’ve been doing a lot of thinking about the order that I should pay things off.

I am really starting to hate B of A, and I want to pay them off next. But I don’t think I will. There is another account that I have that is on six months same-as-cash, and the six months is over in mid-February. So I need to get them paid so that I can avoid the interest that will have accrued if I don’t pay them off.

I haven’t written out a complete budget for next payday yet, but I expect that I will pay them off at that time.

Nevertheless, it’s exciting knowing that I am getting things paid, and even though I still have a long road ahead of me, I have a lot of optimism about the whole deal. I can see how the debts will just fall off one by one until they are gone.

I think ntmom4 is right. I will just worry about my credit rating when the time comes. For now I will just keep paying on things one by one until they are gone. There’s less stress that way, because I don’t have to second guess myself.

And that being said, I’m not even all that worried about paying B of A off so fast. I will get to them soon enough, and when I do, I expect I will make short work of them.

And as far as all that food that I bought goes, we are eating better than we ever have, and if it holds out for a whole month (or for 4 weeks, actually) I’ll keep doing it this way. If I have to go back and go food shopping again though, I will work on some other way to do it. But I’ll cross that bridge when I get to it.

Big Shopping

Ξ January 24th, 2008 | → 9 Comments | ∇ Groceries |

I’ve had a long, on-going debate with myself as to how to manage the food budget.

On the one hand, there is always a lot of flexibility in the food budget. You can buy hotdogs for $3.29 or you can buy them for $0.89

And I’m pretty sure that they both come from the same unnamed parts of the cow. (Shudder)

You can get hamburger helper or you can get T-Bones. There are a lot of choices to be made.

But because I grew up with not always enough to eat, I’ve always been hesitant to skimp on the food. I’ve taken the attitude that I’d rather pay on the debt for a longer period of time than to let my kids be hungry. So my food bill has always been somewhat of a higher number than what it could be.

But I still see a lot of areas where I could make cuts.

A lot of the excess could be easily solved by buying bigger, less frequently. By shopping less frequently there is less waste, because people tend to buy something that they don’t need every time they go into the store.

So I over-budgeted the food this time and stocked up.

I’ve seen people blog about shopping for the month, and I’m hoping that that is what I just did.

Of course, I’m sure that I’ll be back in the store before a month is over, since we will need the little things, such as bread, milk, or whatever. But as far as meal planning, I just bought a month’s worth of food.

I am now completely at capacity.

I have to admit, I am a bit nervous about it. I spent more than I am used to on food, because I am trying to make it twice as long. Some of the items that I bought will probably still be there longer than a month though.

I still have some bugs to work out to organize the menus for a month at a time, but I’m getting there.

It’s Payday Today

Ξ January 24th, 2008 | → 3 Comments | ∇ Debt Payments |

Today is Payday and I worked some good overtime during the payweek.

After paying my mortgage payment and my insurance premiums and taking out for our living expenses, I actually have money left over. I have a whopping $1488 left over.

So let’s do this.

I transferred $542.00 into my savings account bringing my new balance to ONE THOUSAND DOLLARS!!

My Emergency Fund is now COMPLETE!!

(happy dance)

But what is this???

There is still money left over. In fact, there is still $946 left over. Something is going to get paid off today.

Let’s see. Who looks lucky? I want to put it all on my B of A account, but there is a debt that I have where you have to mail the payment in every month. It’s a major pain, because I usually don’t have stamps around the house, and they have mailed my payment coupon later and later every month until finally it is getting here so late that I only have one or two days to make the payment after I get the coupon. It drives me nuts. So then what are my choices? Let’s get rid of this sucker once and for all.

I’M MAD AS HELL, AND I’M NOT GOING TO TAKE IT ANYMORE!!!

Fry’s Electronics. Wonderful Products. Competitive Prices. Bad Debt.

Balance Owing: $632.71

Today’s Payment: $632.71

New Balance: ZERO! PAID IN FULL! KAPUT!
Goodbye Fry’s. Don’t let the door hit you on the way out.

That leaves me just over $300.00 in cash. Normally I would want to pay on another debt, but Sunday is my son’s birthday. I am going to keep this money out for his birthday. Last year we were paying off debt and the birthday’s were all very small, and I told him that I wasn’t going to spend a lot of money on birthdays, and he was very good about that. But at the time, I promised him that it would just be that one time. And since I promised, I will keep this money out for his birthday.

On another note, my birthday is tomorrow. I will be 29 again. And what do I want for my birthday?

Well, I just got it. I want to have a fully funded Emergency Fund. That’s my birthday gift to myself. $1000.00 in savings. And I got one less credit card, to boot.

That’s the best birthday present I have ever gotten.