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Wednesday, June 9, 2010

Let's talk about debt -

Let me start off by saying I have not kept up with the new credit card regulations – this is all from my experience back in the late 90s – early 2000s. I don’t claim to be an expert. I am not a fan a Dave Ramsey in general, but I can appreciate some of his methods. If you want expert advice – run to your local public library and borrow one (or ten) of his books. Notice that I said library – there is no need to spend money and buy his book when you can borrow it for free. Put that $15-$20 toward your debt and not in Dave’s pocket.
Do you owe money on anything other than your home? Do you spend more than you make? Can't seem to "catch up" with the bills? Do you have a budget? Do you know how much you make and how much you spend each month? Do you know where your money is going? Are you saving for retirement? Do you save money at all? Mr. Paisley and I used to eat a lot of spaghetti because it's cheap - been there? Ramen Noodles? Yep, we did that too. In fact, Mr. Paisley and I sat in the back yard after work and stripped copper wire that his boss would send home with him from the job site...why were we stripping wire? Because it was going for about $.30 a pound and we didn't have any money left to pay his $150 car payment. 

That right there is the color of money...that was the last load of copper we ever turned in...roughly $5,000 worth.  Now you know why people steal it...alas, since Mr. Paisley changed jobs 2 years ago, we don't get copper scrap anymore. His company recycles it and the money goes back into the company. It was good while it lasted!

My mad money saving skillz came about started to develop shortly after realizing that I had well over $10,000 A LOT in credit card debt and I was hardly out of college. Remember my previous post saying I’m brilliant, just slow? Yep…this is another of those AH HA! moments. I wasn’t making any headway on the credit card debt because I waited until just before the due date to send my check (yes check…this was a long time ago – before online banking! LOL). One day it dawned on me that I should send them money every time I got paid. Duh…brilliant! That way I couldn’t spend it on other things before that bill was due. Genius. Amazing how fast I got it paid off after that. The savings on interest alone was insane. Once that clicked, I was on a mission.

I got my credit
debt paid off. Part of that involved credit card hopping and consolidating balances on my own. I have never used one of those debt consolidation places – I don’t trust them. I’ve heard too many stories…and I wanted to keep my stellar credit score…well…stellar. I would never dream of filing for bankruptcy. I bought the stuff. I did so willingly. That makes me responsible for paying for it. Even if it takes five years and costs three times as much as it did initially. There are always 0% interest credit offers out there…assuming your credit is pretty good. There is always a fee associated with doing credit card balance transfers. Usually it is a percentage with either a minimum and/or maximum that will be charged. Chances are, the transfer fee will be a fraction of what you would pay in interest over the course a few months. You have to be diligent and committed to do this and make it work. Know when the 0% rate expires. Three months before that, start looking for a new 0% offer (assuming you haven’t paid off what you have transferred). I never switched to one that was less than 12 months.  Sometimes you can find one that is 1.5% interested until the balance is paid off – this is also a great deal…no hopping involved, just make sure you stay current with your payments. I’ve yet to see any offer that didn’t have a penalty for late payment. Generally your rate will jump to something ridiculous like 24% and then you're are in worse shape than when you started.

If your amount of
debt is relatively small, divide it up into $x per month to pay it off before the promotional interest rate expires. 

Example: I owe $1100. I have 12 months of 0% interest. I want that card paid off the month before my rate expires so I will send them $100 a month and in 11 months that debt is erased and I didn’t pay any interest on it.  

Not everyone can get a credit card with a 0% offer and $20,000 limit that will allow them to consolidate everything like I did – especially now. I’m sure the credit companies have done some serious tightening on their qualifications for credit applicants due to the recent economic downturn. If you can consolidate – do it – it’s just easier to have one, than five. If you can't consolidate, figure out how much you owe in minimum payments, and how much extra you can afford in addition to that amount. Add the additional to the card with the lowest balance, pay the minimum on the rest. As soon as the lowest balance is paid off DO THE HAPPY DANCE! Then add that payment to the minimum payment on the next lowest balance card - and continue paying the minimum on the rest. When the next one is paid off...DO THE HAPPY DANCE! again. Continue moving the increasing payments to the additional balances and you'll get them paid off much faster than you think!

Now stop using the credit cards unless you REALLY have control over yourself. It doesn't take long to run them back up again! (really, it doesn't, ask me how I already know the answer though. Yep, I did it TWICE before I got my act together).

Do not add to your debt while you’re doing this. I found that giving Mr. Paisley and myself an allowance made bill paying much easier (as well as balancing the account). Every Sunday (or payday) go take out your allowance in cash. For us it was $100 each for the week. As long as you have cash in hand, you may not use the debit card. Gas, lunch, random ice cream purchase, birthday card – it all comes out of the allowance cash. In the Paisley Cottage – that was no questions asked money. Do what you want with it. Spend it, save it, give it away – whatever, just don’t use the debit card. Have you looked at your account online? Are there 100 debit transactions each month? Too hard to keep up with. Much easier to see that $200 was taken out plus the weekly credit card pay off amount. No surprises…you know there’s always that one place that only runs it’s debit transactions once a week so you may use your card on Monday  but the debit charge may not show in your account until a week from Tuesday. Surprise! By then you probably forgot you used it anyway. This will also keep you from over drafting your account…and getting all those associated fees. With fewer transactions you can also easily spot fraudulent activity. You KNOW you weren’t using the debit card…

I have continued with the methods I learned on my own to this day. We still use ONE credit card (Visa) for lots of things. Now with online banking it’s a breeze to keep up with. I get the benefit of the points and protection by using the card and I don’t run up debt because I pay it off each week. Yes, I said each week. I get off work an hour earlier than usual on Fridays. When I get home I check the balance on the credit card – then I log into the Paisley checking account and set up a payment for that amount. If it’s $50, I pay it. If it’s $350 I pay it. Most credit card companies (especially the MasterCard, Visa, AE, Discover) are a two day wire transfer. Some store credit cards are five days and the bank actually cuts and mails a check (and I don’t have to pay the postage or buy checks – more money saved – I do write a check every now and then, but I’ve had this current account for 10 years and I’m still using the original box of checks). I also have a store credit card that I use (it's one of the few places I shop for clothing for myself) - I set up the payment for it the same day I use it. The only reason I use it is because they always send coupons with the monthly balance change, no statement, no coupons.

With my points that I get for using the Visa credit card, I keep a stash of gift cards in the house. Both cards to use as gifts and cards for Home Depot and CVS – two places we spend a lot of money anyway. Now I’m MAKING money by using the credit card. I’m not paying interest because I continuously pay off the balance…I use it to buy stuff I would normally buy anyway (probably with coupons too) and I get points for doing so. I get at least 1 point per dollar. If I use it at specific stores (like Sears) or certain types of stores (like grocery stores or gas stations) I get 2-10 points per dollar spent. Some months there are promos and it’s even more than that or there’s a bonus of 50 or 100 points. Either way, I rarely pay for gift cards anymore. Imagine that! USING my credit card has DECREASED my gift budget! 

Of course you also need to know WHERE your money is going. HOW MUCH comes in, HOW MUCH goes'd tedious - but try to keep track of ALL money earned and spent for one month. Make a spreadsheet, jot it down in a notebook, it doesn't really matter how you keep track, but every time you spend money, make a note. (Target - $112 - cereal, shoes, book, DVD, Wii Game...whatever, if it's the grocery store, you don't need to break down what you bought - it's food or cleaning supplies or diapers or whatever else you buy at the grocery) at the end of the month, juggle it all around and figure out how much you spend on food, home much on entertainment, how much on transportation (gas, oil change, insurance - whatever comes up that's related to the vehicles that month).  This can be a real eye opener and you will most likely find plenty to cut from your budget that can be contributed to the debt pay off fund. If you find that you're spending $500 a month on food for 2 either need to stop going out to eat or you need to learn how to shop.

Stay tuned - Coupons 101 is coming to a blog post near you!
It's all about restraint, balance, control. This mode of thinking is why Mr. Paisley and I were able to afford to buy a vacation home.  Reward sweet reward! 

The Total Money Makeover: A Proven Plan for Financial FitnessThe Financial Peace Planner: A Step-by-Step Guide to Restoring Your Family's Financial HealthHow to Have More than Enough: A Step-by-Step Guide to Creating AbundanceFinancial Peace Jr.: Teaching Kids About Money! : "Cool Tools" for Training Tomorrow's Millionaires!