Tag: debt
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To Love, Honor and Financially Obliterate
Posted on July 15, 2010 by Stacy
(photo: lionheartphotography)
“A lot of people wonder how you know you’re in love. Just ask yourself this one question: ‘Would I mind being financially destroyed by this person?’”
I first came across that quote hanging on my friend John's fridge, soon after he started dating fellow friend Fahmi. Since Fahmi was on the verge of trading in her lucrative IT consulting job to head back to grad school, it wasn't an idle question.
Happily, Fahmi got her degree, John and Fahmi got married, and they're now cheerfully bonded and financially stable.
But for an illustrative example of just how literally that quote should be taken, there's the tale of Dawn vs. The Leech.
Dawn (not her real name) has been one of my best friends for a decade. About five years ago, comfortably before the housing boom's peak, she and her live-in boyfriend decided to buy a house together. It was a pretty good deal: a recently foreclosed, two-bedroom place in a Western city for a tad over $100,000. Dawn had a stable job and could comfortably manage the monthly mortgage payment; her boyfriend, aka The Leech, was a contractor who could handle the house's badly needed renovations. They bought the house on an ARM, planning to finish the upgrades and refinance the house before it reset.
You see where this is going.
Over the next few years, Dawn and The Leech got married and worked on the house, but the renovations never quite got done. Time management is not one of Leech's strong suits. To finance the renovations, they tapped a home-equity credit line, which added a second mortgage to the house's debt load.
Then the economy tanked. The Leech wasn't getting contract work the way he used to. At the same time, the ARM on the house reset, and the interest rate zoomed past 11%. Once-affordable payments were suddenly a big struggle. Like millions of other Americans, my friends were being bankrupted by their house. Somewhere in here a third home-equity credit line snuck into the mix.
It's easy to point fingers ("An ARM -- what were they thinking!?"; "Never buy a house unless you have enough money saved to make the payments for uppitygazillion years without an income"; etc etc.), but as they say, hindsight is 20/20.
Here's where the situation gets really sticky. Dawn came up with a clever solution to the ugly financial math: move. She'd worked in NYC before moving out West, and had a job offer that would pay about twice what her local job did. With that extra cash, she could afford to keep up the house payments and also get a rental in NYC. So, after extensive discussions with Leech, she moved back East. The plan was that he would stick around for a few months, finish the house and rent it out, then join her in New York.
It was a pretty cool plan. One that got blown to smithereens a month later when Leech moved his new girlfriend into the house. (Here's the part I like best: He didn't want to get divorced. He was pretty happy to stay married to Dawn, keep her on the mortgage ... and live with the new chick. Logical thinking is *also* not one of Leech's strong suits.)
Now, all of this still could have worked out if Leech had the income to support the house he wanted to stay put in. But he doesn't.
Dawn -- who was far nicer to him than I would have been -- took a fair stab at weaning him off her financial support. They drew up an agreement under which she would keep paying into the mortgages for most of a year, while he got his act together. Which she did.
A year later, shock of shocks, Leech was still broke. He promptly fell behind on the mortgages, obliterating his already-shaky credit rating and Dawn's excellent one.
So Dawn is now caught in an epically nasty situation: She's getting divorced but is still on the mortgages for an underwater house she isn't living in and can't sell without the consent of the house's co-owner, Leech. The full face value of the loans on the house sits at around $200,000. The house's market value is maybe 75% of that.
This has to be a pretty common situation these days, but all the researching Dawn and various lawyers have done turns up basically no good way of dealing with it.
No lender will refinance the house notes into Leech's name alone; it's underwater and his credit is shot to %@$!. The best option is to sell the house, but a) that requires Leech's consent, and b) it's probably going to be a short sale, which won't fetch enough to clear all the notes. The second and third lienholders have little incentive to agree to that -- and even if they do, they could then still pursue a deficency judgment for the shortfall.
So for now, Dawn is stuck taking a credit hit every month that Leech fails to make payments, and remains on the hook for a life-destroyinging giant sum of money. She's been waiting for more than a year for one of the three lenders to finally get fed up and foreclose, but every time that seems imminent, Leech chucks the lender a small payment and manages to stave it off a bit longer.
I know the advice, before you co-sign a whopping loan with anyone, is always to be really, really sure you know what you're getting into. But how can you? Very few people get married expecting to get divorced, and yet, almost half of us do. Neuroscientists keep pointing out that we're hardwired to be overly optimistic, make irrational choices, and stay in bad relationships.
So on top of all the many, many ways we now know that buying a house can turn into a debacle, add this one: That mortgage can be more like a marriage. You might end up bound to the ball and chain till death -- or something else equally unpleasant -- do you part.
A Look Back At 2008
Posted on January 09, 2009 by Him
Whew, 2008 was quite a year. For us, it will forever be remembered as the year that we got married! But what else happened this year for us financially?
Life
To cut expenses, we cut Netflix out of our life. We also cut back on weekend trips. I was officially diagnosed with depression and learned some of socioeconomic aspects of dealing with it. After we were married, our first fight was about...money. It wasn't as bad as the financial infidelity that Her's brother went through.
Budget
After much trial and error, we finally made a budget that we stick to.
Housing
Our crazy but generous landlord increased our rent a whopping $8 per month.
Saving
We started a Big Dreams Savings Fund with the spoils of our wedding and related showers. We've decided that 2009 will be a balls-to-the-wall savings year.
Debt
The biggest news was the huge gift we received that wiped a good portion of the student loan debt. We even succeeded in not taking any more debt for the wedding and the honeymoon. As newlyweds, we've decided that tackling the student loans will be our first financial priority.
Taxes
This year taxes got crazy. I had a hard time dealing with them early in the year but somehow figured it out. But, at the end of this year I went back to a dumbfounded state about taxes. We didn't know if we would have to pay taxes on the student loan gift payment, but it turns out that we didn't have to.
In 2008 we were light on the posts, especially the meaty financial ones. Our main focus was on the wedding and not much else. Since we now have a future together to plan for we have a lot of financial stuff to talk about in the upcoming months. Stay tuned!
Hi-fives for Financial Stability!
Posted on May 02, 2008 by Him
In the mornings as Her and I get ready for work, we listen to NPR's Morning Edition. This morning host Steve Inskeep was segueing into a commercial break, and said something along these lines:
"Next up, there's a new class divide in America. Those who aren't having trouble paying off their debt and those who are..."
Her: WHOO-HOO! (raising hand in air)
Him: Whoo-hoo what?
Her: WHOO-HOO for being able to pay down our debt! (hand still in air)
Him: Yeah! Go us! (slapping hi-five)
It's the little things.
Ten Financial Considerations For Newlyweds
Posted on January 08, 2008 by Him
Somehow sometime during this long engagement of ours I was signed up to receive the "Groom's News" in my email inbox a few times a week. Along with cheerfully telling my how many days until the upcoming wedding and trying to sell me often unneeded high end trinkets and vacations, it points to articles that may be useful to newlyweds. In today's issue was this gem: Ten Financial Considerations For Newlyweds. Let's discuss, shall we?
1. From the beginning, save 15 - 20% of your income. By combining households, you should reduce your expenses a lot which should allow you to save. You should save to build your cash reserves, in your 401k plans and in a mutual fund.
This is a great tip to start off with. We're currently saving about 10% of our gross income, and after the wedding we're likely to increase that. It will be a balancing act with paying off student loans, though.
2. Rather than simply keeping two checkbooks like before you were married, pool your money into one checkbook and one savings account or money market.
We've spoken about how the joint checking account is working for us. We also have an allowance system to give us a little more freedom in making "guilt-free" purchases.
3. Change all of the beneficiaries on life insurance plans, retirement and other plans at work, and IRAs to your new spouse.
A nice reminder. We don't have life insurance, but we do have retirement accounts and bank accounts we'll have to check.
4. Decide how debts accumulated by each individual prior to the marriage (i.e. student loans) will be handled.
Since we've been living together and have had our finances combined for a while now, we've been living the "everything is ours" way of things - even debt - for a while now.
5. Work together on budgeting and tracking expenditures.
We've made efforts to budget in the past - this year we've implemented a new system that closely resembles the 60% solution. We'll detail that in a later post.
6. Discuss your approaches to handling money -- is one person a spender and one a saver? Create some ground rules on handling any differences.
Haha, it's more like "He's a spender, she's a spender." I mean, uh, we love to save money.
7. If both incomes are needed to pay expenses, be sure to have adequate life insurance.
We're definitely going to have to look at adequate life insurance after we get hitched.
8. Be sure to let each other know where important documents are kept.
More importantly, we need to get a safety deposit box to keep all that stuff. That's been on our to-do list for the past 2 years.
9. Consolidate your credit cards to avoid having double the number of credit cards needed.
Not sure if I agree with this one. We believe that we both should have individual credit. We've even opened some duplicate credit cards in order to take advantage of rewards.
10. Make a list of upcoming purchases together and prioritize them. You should decide jointly how to spend your money now.
Of course, communication is key. Her probably wouldn't like it if I just came home with a 52" plasma screen TV, and I don't quite know how I'd react if she brought home a couple pairs of Manolo Blahniks.
This list actually wasn't that bad. It will serve as a good reminder of things to-do after we're married.
Managing Our Debt - A Review Of How We Live With A Large Debt Burden
Posted on December 19, 2007 by Him
photo: iandavid
Over at The Digerati Life, Silicon Valley Blogger muses about handling large debt loads. Her examples include two bloggers who have large amounts of debt: the always controversial Casey Serin and a newer blogger Debt Kid. She also narrates a story of a man she knew who bought a $1.5 million dollar home, but who had a bunch of contingency plans should things go financially awry.
In our own writings, I have to admit that we can be brazenly blase about the amount of debt that we have and how we're tackling it. I feel that we can do this because we've come up with our own action plan to manage our debt. When we first started this blog, we had $18,054.88 in credit card debt, and $135,966.11 in student loan debt. Many people look at those numbers and tend to freak out; we did too. Fast forward to today and we've eradicated all of the credit card debt, and we're working to accelerate the student loan payment. Here's how we've managed this amount of debt without waking up in cold sweats.
1. We have relatively low rent. This was our first step for our finances after college and has been paramount to freeing up cash. Currently our housing costs are 18% of our take home income (about 10% of our gross).
2. We used the debt snowball for debts with balances of under $1,000. We had a few cards with a few hundred dollars debt on them; each of them demanded a minimum payment every month. One of things I do like about Dave Ramsey's debt snowball is that it frees up cash relatively early in the debt payoff. Even though it made more mathematical sense to pay off the higher balances first, when we paid off the lower balances it freed up more cash in that it was one less minimum payment we'd have to deal with.
3. We applied freed up cash towards the higher interest rate balances. When we first started this blog, I was paying off a debt that was at 20.99%. As soon as a few of the lower balance cards were paid off, the extra cash went towards battling the debts with monster interest rates.
4. We took advantage of great credit card deals. I managed to lower the debt of my credit cards to 0% and 2.99%; Her got all of her debt on a card with 0% interest as long as we made 2 purchases a month on it.
5. Since we started this blog, we increased our income by at least 42%. In these two years, I received three pay raises; Her received two. We also have some income from this site. The extra cash definitely made sleeping at night easier.
6. We have an emergency fund. Yeah, it's not clearly defined, but we know that if there is an emergency that arises we can take money from our savings. After the wedding, we plan on having 6 months of expenses remaining in our savings accounts.
7. Once we paid off the credit cards, we took advantage of another offer to put $11,000 on a card at 1.9%. We put exactly that amount of student loan on there, saving us a lot of cash in the future.
8. We have not incurred any new consumer debt. We vowed to never pay another penny in credit card interest and now take advantage of rewards programs.
9. We are a one car family. Shortly after moving to Chicago I sold my car; it was costing me a lot of money to have it in the city. With the car we do have, we minimize our expenses.
10. We continue to look for ways to increase our income, use leverage and arbitrage to get better interest rates, and make solid decent financial decisions.
For us, it was these actions that showed us the light at the end of the debt tunnel.
Are you under a mountain of debt? How have you managed it? How do you let it not keep you up at night?
Our 2007 Goals Status, Part 3: Pay Off Credit Card Debt By November 2007
Posted on December 10, 2007 by Him
This is part 3 of our retrospective look at our 2007 goals. Here's part 1 and part 2.
When we first started this blog, we had $18,054.88 in credit card debt. A year later, in January 2007, we reduced it to $11,560.40. It was our goal this year to eradicate all of our credit card debt by November 2007.
On June 18, 2007, a whole 5 months early, we sent in our last payment. Suck it, credit card interest.
The road to no more credit card debt was an interesting one. While Her had higher balances, I had atrocious interest rates. One of the first things I did was to reduce my retirement contributions to pay off the credit card debt. I eventually played the balance transfer game for the lowest interest rate until all of my credit card debt was at 2.99%.
When both Her and I had paid off all of our non-0% credit card debt, we signed up for rewards cards that we judiciously paid off every month, making sure not to pay any interest charges. We've used those cards to accrue rewards that will pay for much of our honeymoon. It's about time we took back from the credit card companies what they took from us. That last sentence made me sound like a vindictive barbarian. I digress.
Status: Completed.
Good Morning Cleveland!
Posted on July 03, 2007 by Him
If you were up this morning at 5:15AM in Cleveland and listening to WERE 1300 AM, you heard us on the radio!
We were honored to be interviewed by Dawnette Lounds - Culp on the radio show "Your Family Issues." Dawnette is the author of The Face of Child Support and is the founder of PRO-YOUTH, INC, a nonprofit organization that is a positive reinforcement on youth.
We spoke about the topic of hiding debts from your spouse. Despite it being 4:15AM our time, we held together pretty well in the interview. As the show itself deals with family relationships, we were asked on our advice and stories of hidden debt. Dawnette was a very nice and positive host and did a good job of not focusing on the past, but really asking us on how we changed everything for our future.
We wish Dawnette luck in the future as the host of Your Family Issues.
What We Sacrificed to Get Out of Credit Card Debt
Posted on June 28, 2007 by Her
Getting out of debt requires sacrificing the lifestyle you have become accustomed to. It's not easy, and some people find that they are their own worst enemy when it comes to making sacrifices. It's that lifestyle that got you into debt in the first place, after all. Having just paid off ALL our credit card debt, now we can look back on what we had to sacrifice over the last 3 years to get here.
- No using credit cards at all.
- Using our hard-earned savings to pay off credit card debt.
- Extended our engagement in order to have more time to save up.
- Living with family for a while to cut expenses.
- No new clothes except basic necessities.
- No new TV to replace our 20-year-old model.
- No vacations except to visit close family in the US.
- Taking public transit to work instead of driving.
- Expensive entertainment tickets limited to one summer concert per year.
- No classes for our hobbies (such as cooking or art classes).
- No home purchase when all our friends were doing it.
- Selling one car and not replacing it.
- Reducing contributions to our retirement accounts.
- Selling items of value on eBay and at a yard sale.
We are still going to sacrifice much of these expenses until after we're married, so that we can pay cash for the wedding. After that we are looking forward to saving up for a home and being able to afford more fun vacations. There is light at the end of the tunnel!
All Quiet On The Financial Front
Posted on February 28, 2007 by Him
Things are quiet. Very quiet.
Since we've paid off the majority of our credit cards, we are only getting two credit card statements a month. By the end of the year we'll only receive one. Our Saturday morning "pay the bills" time has been greatly reduced since all of our bills are on auto-pay. That's a far cry from the almost 30 bills we'd pay a month a little over a year ago.
Retirement savings to our SIMPLE IRA, 401(k), and Roth IRAs is automatically deducted. Our account are growing in value with little intervention from us.
While I'll be the first to admit that our finances aren't perfect, it is a strange feeling not worrying about money as much as I used to.
Automation is silent. Silence is golden.
Financial Milestone Reached! My Bad Debt Ratio Is Under 15%
Posted on January 22, 2007 by Her
When I first added up all my debt in 2005, my Bad Debt Ratio was over 86%. Today it is 14.88%, slipping under the recommended maximum of 15% for the first time ever!
What is a Bad Debt Ratio?
This is the ratio of your total unsecured "bad debt" (excluding mortgage debt and student loan debt) to your individual (not household) annual take-home income. For example, if you have a $3,000 auto loan and carry a $5,000 balance on your credit cards, and take home $30,000 per year, then your Bad Debt Ratio is
($3,000+$5,000) / $30,000 = 26%.
The Bad Debt Ratio is similar to the Debt-to-Income Ratio. The difference is that the Debt-to-Income Ratio includes "good debt" such as student loans. For more on the difference between Good Debt and Bad Debt, click here.
What is the significance of 15%?
A Bad Debt Ratio above 15% can have a negative affect on your credit score. The recommended Bad Debt Ratio is under 15 % to help you qualify for the lowest interest rates possible when extending your credit to buy a home or car.
How did we accomplish this?
On our reader's advice, we used about $7,000 of our savings to pay off credit card debt this month. Ouch! We still have about $4,500 of credit card debt remaining, but that's all one one card with a lifetime 0% interest rate. We will pay that off this year...the end is in sight!
20/20 - How We Stayed Home To Watch This Crap
Posted on January 20, 2007 by Him
If you're looking for a real review of the 20/20 show (read the 4 parts of it here, here, here, aaaand here) then maybe you should read Boston Gal's, or No Limit Ladies, or Blogging Away Debt, or Frugal Law Student, or Kiss of Debt, or Money Turtle. If you post a review, please email me and I'll include it here.
So we stayed up for a little while last night to watch the TiVo'ed episode of 20/20: Flat Broke: Begging and Borrowing in America. Here are my thoughts:
1. This show is aimed for retarded America. 20/20 is the reason why I try and limit my idiot-box watching to other mindless drivel such as The Office.
2. If my "fashion sense" is as good as Matt Peterson, someone please kill me. See the glorious screengrab below:
All I have to say is...is...is...at least I own my sweater. <latina headbob>OH NO I DIDN'T!!! OH YES I WENT THERE!!</latina headbob>
3. How do I become an intern for 20/20? How much did that person get paid to do this:
Honestly, that person did a great job of stacking all that. Although I can imagine John Stossel walking by and having his 80's mustache knock it over. I hate that guy.
4. Wonder what happened to the Petersons, the ones in debt? Suzie Peterson (but this is the internet, so it could be some guy in his mother's basement) is actually contributing to the discussion of the show on the 20/20 message boards. On one thread she's getting encouragement. But not on the other...
5. I don't really like grocery shipping as it is, but I will NEVER EVER EVER bring a walkie talkie with me to the grocery store. I'm okay with coupons though.
6. Some debt collectors are douchebags. There is a special place in hell for them.
I do think that the good ones are just trying to do their jobs. Some poor business lost money. Someone else didn't pay. According to the show, it seemed like the good debt collectors were willing to work with the debtor to make things work. Poor guys, they're just there in order to keep out of debt themselves.
7. If all else fails and we can't pay our debt, we can always make a sex tape and "leak" it to the internet, then sign up with a porn distributor to make a movie called "Nasty Debtcapades" or "Debtor Debutantes".
Reader Question: Does "Good" Debt Equal "Good" Interest?
Posted on January 10, 2007 by Her
Reader A asks,
Some kinds of debt are good I heard.. like the interest we pay on mortgages and student loans. Is this true? Are you better off paying as you go on these so you get some deductions at tax time or should you pay these off as soon as possible? (I know the interest we pay on car payments and credit card bills is not deductible.)
Thanks for asking, A! Here's what we think.
"Good Debt" vs. "Bad Debt"; What's the difference?
"Good debt" is generally considered to be an investment in who you are and who you will become, so mortgages and student loans are typically considered "good debt." "Bad debt" comes from paying for today's wants with tomorrow's cash, thereby jeopardizing your ability to meet your future needs. Think credit card debt.
Interest Deductions and Taxes
Both good debt and bad debt accrue interest. There is no such thing as "Good Interest." While tax deductions help minimize the hit on your wallet, no tax deduction will ever completely offset the interest. Let's use student loans for a simplified example. Let's say you borrow $5,000 at 5% to get a degree in order to qualify for a promotion and a pay raise at work. That's good debt. After the first year of repayment, you have paid about $250 in interest. At tax time, you are allowed to deduct that $250 from your gross income. In essence, the government pretends that you never earned that $250 and therefore do not owe taxes on it. If you are in the 25% tax bracket, then you will owe $62.50 (25% of $250) less on your taxes. So this year, you will have spent $250 and saved $62.50, resulting in a net loss of $187.50. On the other hand, that promotion and raise allowed you to earn an extra $1000 this year, which greatly outweighs the cost of the interest. (For the details of this please refer to this IRS publication)
I'm not sure how this works for mortgage interest since we don't currently own a home, but think it works somewhat along the same lines.
So when does it make sense to incur good debt?
You should never incur any debt for the sole purpose of reducing your taxes*. There are plenty of better ways to reduce your taxes, such as saving for retirement in an IRA or 401K, donating to charity, or taking advantage of flexible savings accounts offered by your employer. However, it does make sense to incur good debt when you can reasonably predict that incurring the debt now will allow you to earn more money later. In the case of student loans, most students graduate with about $20,000 in debt. But a college degree can boost your income over a lifetime by as much as $1 million! This makes a college degree worth the initial expense.
But even good debt shouldn't be your first choice...
Debt and interest have to be repaid. There are often better ways to achieve your goals than by accruing debt. Options include deferring your purchase to have time to save money; or looking for other sources of funds that don't have to be repaid, such as grants, scholarships, or first-time home buyer programs. And any time you incur debt, you should always try to minimize both the amount you borrow and the interest rate you pay.
The Bottom Line
If you can reasonably predict that getting a degree or purchasing a home will increase your future net worth, then it may be worthwhile to incur good debt. But first you should look at other options, and know that there's no such thing as "Good Interest." If you must incur a debt, your best option is to pay it off as quickly as possible.
*Is there an exception?
There are exceptions to every rule, and you may have heard of people who strategically make only the minimum payment on a mortgage in order to achieve a complicated tax strategy. Generally, this is a solution only for those who are in a very high tax bracket, who have exhausted all other means of reducing their taxes, who have favorable mortgage interest terms and are investing an equal or greater amount of cash in a high-interest investment. Even then, this strategy is risky and should only be undertaken with help from a certified financial planner.
Future Outlook: Some Random Thoughts
Posted on November 29, 2006 by Him
A few months ago, Her posted that we'd be free of credit card debt in 24 months. That was almost five months ago, so that would mean we have 19 months to go to pay off our credit card debt (I am a math GENIUS). Since then, we've quietly decided to put more money into credit card debt, upping our contribution to our credit cards from $500 extra a month to $700 extra a month, for a total of about $900 going towards credit card debt per month. After the holidays, we probably will allocate a little more. That will accelerate our credit card debt reduction by at least 7 months or so, leaving us credit card debt free in December 2007 at the latest.
So what are we going to do with another $900 a month in 2008? Here are some random thoughts.
- Pay more towards the student loans. Obviously.
- Max out Roth IRAs for both of us. The 2008 maximum contribution is $5,000. That would mean $833 per month would be diverted to those accounts.
- Save for a house.
- Buy a pony.
It is quite liberating to think of what could be done with extra cash. I guess this is a taste of that so-called "financial freedom." That's good stuff.
Debtfolio Alpha: Debt Management 2.0 - First Look
Posted on November 13, 2006 by Him
A few weeks ago we got an email from Peter Glyman, co-founder of Debtfolio.com, asking us to check out his new service. The Millionaire Artist already posted about it, and not only that, she actually met the co-founders! Since all of the cool kids are doing it, and registration is open to everyone, we thought we'd review their site in some detail. A simple caveat before you read further: their site is in the alpha stages of production, so I already know that it's going to be rough around the edges.
All of the images below are thumbnails. Please click on them to open the larger sizes in a new pop-up window. Yes, pop-up window, so please allow pop-ups for our site. Thanks.
First things first, registration.
Straightforward? Sure, to experienced internet users. Please, please, let the user know which fields are required. I'm looking at you, "referral code."
Next you're asked to choose between their two products: a credit card debt analyzer and a credit card chooser.
The credit card chooser is exactly that - a place to choose from different credit cards. Pretty self-explanatory, so I won't take the time to review it.
The most interesting part of Debtfolio is the credit card debt analyzer.
Here's the tour. Match the numbers in the full-size to the numbers below.
1. It seems like this site looks to grow to be able to track all of your debt. Only credit card debt can be analyzed at this time.
2. These cards can be dragged to area #4 to see how having a card with 0% APR effects the debt repayment schedule. You'll see what I mean.
3. This area is where all of your current credit card information is entered.
4. In this area you can change the payment schedule by either inputting a one-time lump sum payment, or by allocating an amount to be paid each month.
5. These boxes tell you how much the modifications in payment effects your payment schedule.
6. As you add credit cards and change your data, you'll see changes on this graph.
Ah, it'll be easier if I take you through the process...
First, I add my credit card info...
Oh nos! A glitch!
"Monthly payment should minium 2%" Uh, grammar police anyone? Minium? Do you mean alu-minium? Condo-minium?
Also, what's with my minimum payment having to be >2%?!? For some reason CitiBank's minimum payment is less than that. Oh well, I guess I have to put 2% as my minimum payment...
Finally, I got my card added. Apparently Debtfolio assigns a rating to credit cards, up to a maximum of 5 stars. This particular card only got three stars. You see on the right the graph is all filled in, letting me know that if I only pay the minimum amount on this card, it will take until July 2014 and cost $5,193. That sucks.
This is the part that makes this service shine. You can see everything you need to know about your credit card debt. Nicely done.
Let's add the rest of our cards with balances...
Holy crap, if we pay only the minimum, we will pay off the debt in...THE SAME AMOUNT OF TIME IT TAKES TO PAY OFF ONE?!?!? That's weird. But it'll cost us a buttload more, to the tune of a total of $13,835, or $1,612 in extra interest. It would be pretty useful if we could see how much extra on top of the total debt we would be paying. I know, I know, I can just subtract the total cost from the total current debt balance, but I'm lazy. And this is the interweb - I shouldn't have to think!
Let's see what happens if I made a one time payment of $3,000 to our debt...
According to the analyzer, we would save $726 and pay off our debt 10 months sooner, with a final payment date of September 2013. The graph now includes a green line beside the original blue line that tracks the new payment schedule. Nifty.
I wonder what would happen if we decided to pay $700 each month (which non-coincidentally, we're doing now)...
WOW. Doing that saves us $1,142 and pays off our debt 77 months sooner, with the final payment date of February 2008. But wait, is that $700 in addition to the minimum payment, or is it just a total of $700 a month? There's no clear indication, but it seems that it is the former and not the latter, so in essence this program does the debt snowballing for you. Some clarification would be nice.
The last thing that I'd love to show you is how you take a 0.0% APR card from the top (#2), and put it in the "Work the Numbers Box" (#4), and see how the numbers and graph change. Unless you watch their informational video, that feature isn't that obvious. Well, in order to get a nicer screenshot without the blurry text that says "Drag card here to save" (which is a bug), I closed my browser hoping to just log back in. When I logged on, lo and behold, NONE OF MY INFORMATION WAS SAVED. WTF?!? What was the point of registering?
Okay, this was longer that I expected. To wrap up:
Pros:
- Easy interface
- Great visualization tools
- Good way to see the impact of extra payments
Cons:
- Minor technical glitches
- Can't save your information
- Only does credit card debt
The one thing that I disagree with this product is the promotion of credit card use. Yes, 0.0% APR balance transfers are a good tool to use to fight credit card debt, but this may be too great of temptation to some. Also, not all of the credit cards offered are ones that would necessarily help out. I understand that these guys need to get revenue somehow, and is apparent by their splash screen asking you to choose between the analyzer or the credit card picker, but in the end it almost seems like a conflict of interest.
This product has great potential. I would love to see them activate the other options - especially the student loan analyzer. I wish them luck and will keep you updated when the beta version arrives.
Warning: Danger Ahead
Posted on October 18, 2006 by Her
A lot of our readers want to know how I got so deep in debt. Didn't I see the warning signs? Couldn't I see there was a problem before we had a net worth of nearly negative $100,000? Unfortunately, it's easy to be blind to what you don't want to see. To help others who might be heading down that same road, I've come up with a list of "warning signs" that I should have paid attention to long before the debt got so out of control.
1. You treat yourself to something nice on payday because you know you won't be able to afford it later in the week.
2. You don't know the total amount of debt you owe.
3. You don't know the exact interest rate on every balance you're carrying.
4. You need credit cards to get by.
5. You know that credit cards should only be used for emergencies...but lately there's been an emergency almost every day.
6. You feel anxious or worried about paying your bills.
7. The financial image you project to friends and family is different than your real financial status.
8. You hide purchases from others.
9. You don't know your net worth.
10. You're upset by the amount of interest that accrues each month.
11. You're ashamed to ask for help from family or friends.
12. You would rather not look at the bills.
13. You need to juggle payment dates and paydays to be able to pay the bills.
14. You are losing sleep over financial worries.
15. You can't imagine life without debt.
16. You spend a lot of time opening mail and paying bills because you have a lot of accounts.
17. You can't afford to save for retirement or plan for big purchases.
18. You sometimes consider cash advances or loans to be income.
If these sound familiar to you, check out our "Debt Diet" plan. It worked for us, and it can work for you too. It is very difficult at the beginning but it gets easier, we promise!
Debt Collection: A New Perspective
Posted on September 07, 2006 by Her
Can you imagine owning a business where your customer's aren’t paying, your bills are piling up, and you're terrified you will either lose your customers or go bankrupt? This is the other side of the debt collection industry, and it's a new perspective for me. Check out this great article from the LA Times, "It May Be Past Due Time to Call in Bill Collector." It's a real eye-opener!
Less Debt Equals More Time, Happiness
Posted on August 22, 2006 by Him
When Her and I first moved in together, we would get tons of mail. Credit card offers, store catalogs, and oh yeah, bills bills bills. We'd open up everything, shred the crap, and put the bills next to the computer so that we'd pay them the next time we sat down and worked on our finances. Between the two of us, we had about THIRTY different bills we were paying every month! That's about a bill a day. Just the ritual of opening up everything was quite exasperating, knowing that every open envelope was more cash out of our pockets.
Fast forward to last week. Her and I were a little worried that the "to pay" pile next to the computer was...empty. Sure we had paid some bills at the beginning of the month, but we were sure there was more coming. Day after day, we'd get the same crap, but no bills would appear. We were worried that we would end up forgetting to pay one of the bills because it would never arrive. At the end of the week, two managed to trickle in.
So what happened? When we sat down to look at our financial spreadsheet, we realized that we have now lowered the number of bills we pay per month from almost thirty to about ten. In the last two years, we've either paid off or consolidated much of the debt that we already have.
Psychologically, this has had a great effect on us. Our morale has been boosted, and overall we now spend less time opening envelopes and more time doing stuff that is important to us. Now we spend about a half our time taking care of this stuff when it's bill paying time. We still have a long way to go to eradicate the debt, but having everything streamlined sure makes things a lot easier.
It does feel weird though, to not have to spend an hour or two in front of the computer every Saturday morning to wade through our financial sludge...just about as weird as finding out all my pants are now loose because of our concurrent weight loss.
Just think, in ten years we'll be better looking and richer than all you bitches! BWAHAHAHAHA!
Where NOT to Ask for Financial Advice
Posted on July 27, 2006 by Him
Recently on Slashdot, a reader asked this question:
"I am a rising junior in college and decided to take out loans to cover all my costs so I could graduate with money in the bank. My tuition bill is minimal as I have a nearly full ride, but living is always expensive. With that said, I feel like my thousands sitting in the bank could be doing work for me instead of collecting dust till the day I graduate. I have been researching how I could best invest my money so I have immediate access to it if needed, but still do better than a mere savings account. There seems to be a lot of mixed advice and some obvious scams out there. So I ask Slashdot, what is the best plan for a college student to do with his money?"
Of all places to ask a question like this, why on a tech oriented website? I don't ask computer advice from a financial planner.
Some of the comments surprised me with suggestions of frugality, as I assumed the audience was a tech-savvy gadget-hungry kind of people. There's a lot of good advice, but then there's also a lot of bad advice.
What would your advice to this kid be?
June Net Worth
Posted on July 11, 2006 by Him
| May 2006 | June 2006 | % Change | ||
|---|---|---|---|---|
| TOTAL NET WORTH | -$90,945.05 | -$84,918.71 | 6.6% | |
| Assets | ||||
| Savings | $5,824.10 | $9,821.97 | 68.6% | |
| Cash* | $550.00 | $550.00 | 0.0% | |
| His SIMPLE IRA | $3,695.59 | $4,186.59 | 13.3% | |
| His Roth IRA | $6,174.57 | $5,981.17 | -3.1% | |
| His HSA | $454.41 | $837.09 | 47.5% | |
| Her 401K | $6,625.53 | $7,189.46 | 8.5% | |
| Her Roth IRA | $1,504.00 | $1,546.25 | 2.8% | |
| Upromise | $62.97 | $8.85 | -89.9% | |
| Automobile | $10,090.00 | $10,115.00 | 0.2% | |
| Household Items** | $25,000.00 | $25,000.00 | 0.0% | |
| TOTAL ASSETS | $59,981.17 | $65,236.38 | 8.8% | |
| Liabilities | ||||
| Credit Cards | $15,777.77 | $15,210.22 | -3.6% | |
| Student Loans | $135,148.45 | $134,944.87 | -0.2% | |
| TOTAL LIABILITIES | $150,926.22 | $150,155.09 | -0.5% | |
Yeah, GO SAVINGS GO. Bonus-a-roo, bitches.
My HSA went up because my employer loves its employees, and funds our HSAs 100% of the maximum amount in quarterly installments. Unfortunately, that money will soon disappear to pay the remaining deductable for my new knee.
UPromise balance is now in our HSBC account.
Our investment accounts are doing surprisingly well. Except for my Roth IRA though, reporting its second loss in two months. Boooo.
Out car seems to be an appreciable asset. GO CAR.
*Cash: This variable doesn't change month-to-month since that's about how much we have in our checking account, couch cushions, wallets, etc., at any given time. I'm thinking this category may just disappear in future iterations.
**Household items: I'll repeat what I said last month: We know we're going to get shit about this category again, so in the next month or so I'm going to actually try an assess what all of our crap is worth, along with asking you guys whether or not it should be included. Until then, it stays. Anyway, we like the fact that we can get a little help from it, you know?
Zero Credit Card Debt In 24 Months
Posted on July 11, 2006 by Her
The end is finally in sight! This weekend we created a credit card debt snowball repayment plan and discovered that we can pay off all our credit card debt (almost $16,000 currently) by the time we get married! Here's how we are going to do it, using the snowball method. For the next three months, we'll pay $500 a month on our highest rate card. After that it will be paid off. For the next six months we'll put the extra $500 on top of the minimum payment for the next highest rate card, for a total monthly payment of $606. Then that one will be paid off. For the next seven months we'll pay $677 toward the highest card, followed by six months of paying $766 on the highest card, until we conclude with three months of $800 payments on the last card.
Incredible to think that in two years we can finally be rid of credit card debt! I'm so happy we have a real plan now. The end is in sight! And after we finish paying off credit card debt, we can finally think about new goals, such as aggressively paying off my student loan debt or saving up for a home! I am having a lot of fun imagining what we’ll be able to accomplish with an extra $800 a month.
75 Cents at 18.99% Please
Posted on July 01, 2006 by Him
Coca-Cola is going to roll out vending machines that accept credit and cards. Not just that, but a touch less way to pay for a Coke using a credit or debt card.
Because, you know, that's exactly what we need. An effortless way to spend money, or worse, go in debt for a refreshing, calorie-ridden, obesity causing, tooth decaying carbonated beverage.
If it were beer though, you bet your ass I'd be all over that.
(via Digg)
Almost Seven Months of Making Love, Not Debt - A Retrosepective
Posted on June 26, 2006 by Him
It took a lot of badgering to get Her to buy my idea about starting a personal finance blog that deals with money and relationships. Her finally bought it, and on the first day of 2006, we wrote our first post. Ironically, the current majority of posts on this blog are written by Her.
Back then, we were merely beginners in the game of personal finance. We erroneously included our non-wealth building life insurance as a part of our net worth, putting our net worth in the positive. When we realized the error, we truly realized how much work we have to do, not to mention how much we are in the negative.
Since then, about seven months have passed. We've been steadily making our way into the positive net worth, but more importantly, we're steadily getting out of debt. It is easy to see that from the numbers, though. Here's a smattering of things we have also improved upon since we've started this blog:
-- The interest on my credit card debt now ranges from 0% (until April 2007, and will be paid off in September 2006) to 2.99%; a far cry from the 12.99% to 20.99% that I had. For all of our credit card debt, we're paying 5% interest or below.
-- Her dropped the interest rates on her variable interest rate student loans by a few percentage points.
-- We've maximized the use of coupons.
-- We haven't accrued any new debt. Anything that we put on a zero balance credit card is paid off ASAP, and only put on that credit card to reap the rewards. We're still committed to not going into more debt for the wedding.
-- We have both received raises. (hmm, I realized that our income isn't up on the site anymore...we'll have to look into changing that)
-- We've planned to get out of all credit card debt by the time we get married.
-- I sold my car a few months before I started this blog. Now we only have one car that we seldom drive, saving us tons of money of insurance, maintenance, gas, and other automobile related expenses.
-- Most importantly, we've been able to manage our debt so that it is not a barrier to the things we like to do everyday. This past weekend we've enjoyed the first of three summer music festivals, Intonation Music Fest. We're headed to Cirque Shanghai, Ravinia twice, and other Chicago Festivals this summer. By squeezing our budget on most days, we've figured out how to enjoy life and pay off debt. We're only in our 20's once, so we figure we'll enjoy it while we're living in a big city such as Chicago and can physically and mentally tackle everything. We figure that we'll be out of debt by the time we have kids, and then we'll have no time for all of the things that we're doing today.
We've been at this for seven months, and we're exited to see our progress. We can't wait to see what's coming up.
Carnival of Debt Reduction XXXVI
Posted on May 22, 2006 by Him
Welcome to the 36th edition of the Carnival of Debt Reduction! If this is your first time here, please follow the signs on the right directing you to a proper welcome page.
This edition of the Carnival of Debt Reduction is all going to be in form of haikus! For those that don't remember, a haiku is a Japanese poem that has three lines that are 5,7, and 5 syllables each, respectively.
Also, there were a few submissions that didn't quite fit the theme of "debt reduction." Those particular entries won't get a haiku, but will get a mention at the bottom of the entry.
Without further ado, here's some debt reduction haikus!
Make up, food, clothes, wow!
Twelve-hundred five dollars spent
Husband not gorgeous
(We're In Debt)
This blog, two entries.
Sell laptop, tickets. Less gas?
Yarmin kicked off show.
(We're In Debt)
Restaurant closed down
Used other people's money
Big hole to dig out
(Joel Maxwell)
People have much debt
Budget. Second job, maybe.
Pay your debt promptly
(Debt Free)
Have credit card debt?
A little D-O-L-P
Credit cards vanish
(SuccessMinders.com)
Mortgage need rescue?
Con artists want your money.
Beware of scumbags!
(Pacesetter Mortgage Blog)
Debt collectors suck.
Shady business practices.
Negotiate sum.
(Free Money Finance)
Buy now, pay later.
Emergencies arise!
No money to pay.
(The Get Rich Project)
Credit counseling
Not non-profit anymore.
Need help? Be careful.
(Young and Broke)
Yodlee, great service.
Track all financial tidbits.
Even all your debt!
(Savvy Saver)
Debt-free, not just money.
Think big and positively!
Personal growth helps.
(Blogging Away Debt)
Refinance mortgage?
Tradeoff: interest, type of loan
Decide best for you.
(Searchlight Crusade)
Good debt or bad debt?
Many types can be either.
Credit, cars, still bad.
(Mighty Bargain Hunter)
Bankruptcy for debt?
Probably not a good choice.
Consider options.
(Journey to Financial Freedom)
Debt payment is tough.
Easy to get discouraged!
Be patient, steady.
(Financial Reflection)
Radio, Netflix
Cancel services, pay debt.
He's in debt no more.
(No Credit Needed)
These didn't quite fit the mold, but you may also find them useful:
Christine Kane argues that wisdom trumps being an expert.
Paul's tips has 10 good rules-of-thumb for investing.
Canadian Financial Stuff thinks about how much money his kid is eventually going to cost.
New Homes Blog offers 5 rules to follow when buying an off plan property.
No Credit Needed Network is giving away a copy of Dave Ramsey's Best Selling Book, Financial Peace University for one lucky person who signs up to the network.
___
EDIT: The comment form has been fixed. If you have tried to leave a comment before, please do so again. Sorry about that.
Spent $100, Saved $1,326.76
Posted on May 04, 2006 by Her
Tonight we added an extra $100 to my monthly student loan payment. The interest rate on my loan is relatively high and cannot be consolidated because it is a private loan. I knew that paying some of it off early would save me years of interest charges, but I had no idea how much until I sat down and did the math tonight. That $100 would rack up $1,326.76 in interest over the life of my loan! That's a LOT of wasted money!
After seeing that amount, Him and I decided that we will pay $100 more than the minimum on my student loans every month. We are already paying at least $200 extra on our highest rate credit card in an effort to pay it off quickly. We both recently got raises so this is an effective use of the additional income.
That's Right BusinessWeek Readers, We're Actually Poorer
Posted on April 05, 2006 by Him
In the BusinessWeek article that mentioned us a few weeks ago, the author incorrectly stated that we were $98,615.39 in debt, when in fact, -$98,615.39 was our net worth at that time.
The actual amount of our debt at the time of the article was $154,020.99.
Yes, I actually emailed BusinessWeek in order to have them correct that.
Lo and behold, they did.
Thanks BusinessWeek.
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