Saturday, August 30, 2008

Weekend Update

My entire purpose of this blog is to track my progress out of debt, especially in consideration with the income that I had starting out.  True, my income has increased since I started my climb, but the debt is still there – only one of the four major debts that I have is over 50% paid off.

And then there’s the house.  It is an absolutely wonderful looking house.  One that would serve our needs possibly for the rest of our lives.  We would be able to pick the colors, the layout, everything.  It is a shiny new object that flashed its smile so beautifully that it captured the heart and ideas of my wife, and gave me a fever.  Unfortunately, the cure was not simply more cowbell.

My readership, though small in number, can be quite eye-opening.  First, Jim posted his thoughts on the news.  And I was taken back.  I really hadn’t opened my eyes to see what I was actually saying.  Then I turned to another reader and directly asked for their opinion – what they would do in my shoes.  Of course, I realize that perspectives are different, and that I might not take the same course of action that someone else might, but there is strength in numbers.  There is a certain validity to multiple people holding the same opinion.  Not that it is necessarily right, but it certainly carries more weight.

Then there is the hesitance of the man who would make money from the transaction, the lender.  If he is hesitant to grant the loan, and he has a vested interest in selling the loan, then I should allow that to weigh in.  His reluctance seems to be in stark contrast with his own goals.

I even went to two other lenders, one with a specific mortgage company, and one who basically shops mortgage companies, and both informed me that the deal was doable, but not, perhaps the wisest move I could make.

As long as nothing goes wrong, and nothing big happens for a while, we would be fine with the loan.  Or if our emergency fund was sitting around $10k higher than it is, we would be fine.

So I signed the note that canceled the deal.  We may or may not be out our $500 earnest money check, and we may or may not be able to go back in January and work a deal.  Most of it will depend on how much progress we can make.

The important thing is, the advice of my readership to take another look at what I was doing helped me out of an emotional decision.  Sometimes these mistakes are costly, but better $500 now than a foreclosed home later.

So, Jim, David & Miss Kate, thank you.  Thank you for your thoughts and your willingness to speak up.

Friday, August 29, 2008

September Goals

As I alluded to in my final August Update post, I am planning on shifting my debt reduction strategy. I want to keep the same intensity (or increase it), but I found something out through the house deal that I didn’t realize. Typically, credit cards report the minimum payment to the credit reporting agencies as the “monthly debt obligation”, but American Express doesn’t do that. In fact, it looks like they report about twice the minimum payment. So, in an effort to keep up the progress I’m making, but multiply the effect, I’ve decided to shift my efforts to the other credit card.

So, starting out September with $7,112.07 on my American Express, I want to drop that amount to an even $4,600, or by $2,512.07. (I’m attempting to get the card lower than my other one) There are only four Thursdays in the month of September, so my goal is pretty aggressive, especially considering that I don’t have any extra consulting work coming in, at least, that I know of. My wife is looking for some extra work, and I’ve started applying for night and weekend work to try and catch up, but that’s still over $80/day worth of debt reduction, more than I’ve ever been able to do before. I also don’t have the Revolution Money Exchange or any other “hidden” pockets of money where I can make up for lost time.

I’ll continue to provide weekly updates on our progress, and we’ll see just how far we can get!

Thursday, August 28, 2008

Fourth Week of August Update

I really wanted to get my response to “The News” done before I did this, but there are several things still in process with it, and the story isn’t over.  Suffice it to say that I really appreciate my readers’ comments, and for helping me to see what I was doing – acting in an emotional state.

I don’t necessarily see getting a house as “wrong”, but it is important for me to see getting a house for what it is – a major roadblock to our getting debt free, and a very strong want – not a need.

I’ll continue to keep you updated as things happen.

Now on to the debt reduction stuff.  This will conclude the August updates, because I am shifting my strategy a little, even though I will still be VERY focused on debt reduction, especially over the next 4 months.

So, here are the final numbers:

We started the month of August with $6,551.07 worth of debt on our lowest balance credit card.  By the end of the first week, that number had dropped $444 to $6,107.07.  The second week, we were able to increase the amount to $445, bringing our total to $5,662.07.  By the end of the third week, we dropped an astounding $642.94 to bring our total to $5,019.13.  For the fourth week, we dropped an additional $315 to $4,704.13.

So, from start to finish, we were able to pay $1,846.94 off in 28 days, which brings our total to $65.96 per day.

When we started the month, my goal was to get to $5,000, and we beat that number by almost $300.

So, what a successful month!  I like the idea of goal-setting my debt reduction each month, so this is liable to be a regular feature…

Tuesday, August 26, 2008

The News

Well, on Sunday, we went and signed the builder’s contract to get started on the house we’ve selected…  We filled out a prequalification worksheet for the builder’s suggested mortgage company, but then I also had a couple of lenders that I wanted to get involved into the mix, just to have several different eyes looking at it.

I haven’t gotten the information to the lenders I’ll chase down on my own, but I got a call yesterday from the one the builder suggested.

Apparently, right now, we wouldn’t qualify for the house, because our DTI (debt-to-income) ratio is too high.  About 8% too high, to be exact.

I think he’ll put the prequal through anyway, but we basically have to eliminate our credit card debt (at least the highest balance card), and have several thousand in the bank by the time we close, or we’ll have trouble getting the loan.

So, over the next 4 months, I’ve got to make $12,000 worth of progress towards debt elimination/house savings.

As noble a thought it was to go ahead and get the lower balance credit card knocked out, apparently the way the higher balance card (American Express Blue) reports my debt obligation is inflated.  Right now, they are reporting my monthly minimum at over $350 (about 5% of the existing balance) vs. what my minimum payments actually is (about 2% of the existing balance).  This is unfairly inflating my DTI, and is the major source of the problem.

So, in order to rectify this, I will be slowing to minimums on my lower balance card, and start attacking the American Express as much as possible.

Also, to help this process along, my wife and I will more than likely be putting in applications at various retail stores in the area for extra work.  If we can really push here in the next few months and make the progress that we need to make, the sacrifices that we make now will be completely worth it.

Also, I’ll be talking with the other two before the week is out, and game plan with them.

I pretty much know now what has to be done.  The thing left to do is actually do it.

Thursday, August 21, 2008

Third Week of August Update

I’m both excited and disappointed with this week.  If we hadn’t gotten our unexpected check, we might not have put anything against debt, with the extra trip out of town, etc.  Of course, my wife didn’t work last week, so that means that this week, there was no money to send from her income.  And even though the Revolution Money Exchange money came in, we had several expenses that required attention – gas, eating out, etc. took a lot more than I thought it would.

So, here’s our progression so far:

August Start:  $6,551.07

1st week: $6,107.07

2nd week: $5,662.07

3rd week: $5,019.13

So, total progress made:  $1,531.94, or $72.95 per day.

Without the extra $600, our debt would have decreased by less than $43.  I also thought that I was going to make the $5,000 mark this week with the extra, but it didn’t quite make it.  A statement came out, charged me interest, and pushed me just over the mark.  Next week’s update should have us down below that, although I’d like to see next week with somewhere in the range of $4,500.  My wife will get paid on Monday for this week, so that will help.  and I’ve got another week’s worth of debt reduction to go against it.

When we started, back in January of 2007, we were paying very, very little more than the minimums.  Since that time, We’re now in a position where we can make payments at about $100 per week over the minimums.  That means that our total debt reduction strategy is somewhere around $300 per week.  If we stayed on this plan, we could be out of debt in just under 3 and a half more years, making my $78,000 debt paid off in a 5 year plan, or at a rate of over $15,000 a year.

Of course, the house, if it goes through, will change all of that.  But still, it is exciting to see how close we are right now…

Wednesday, August 20, 2008

How much money does it take to be “rich”?

I heard this question posed on the radio the other day, and have been thinking about it pretty extensively since.

Some of the responses were “cute” answers:

  • One dollar more than what I owe to others
  • Money doesn’t determine rich, circumstance determines it.  As long as you are surrounded by those you love and are comfortable, you are rich.

Some of the responses were what one would expect:

  • $1 million dollars in the bank
  • $500,000 invested with no debt

Richer than me is simply having no credit card debt.  But what does it mean to be truly, and more importantly, achievably rich?

First of all, I think rich means that I have no debt.  To clarify further, I would own dependable vehicles, have no credit card debt, and have 6 months to a year’s worth of expenses in the bank.  I think that would be baseline rich, as in, just barely making it to the category of rich.

To carry the idea further, I would have investments that would eventually be able to take care of basic expenses from the interest earned on them.

Everything on top of that just gives fullness to the richness…  :-)

If I had to put a dollar to it, if I was given $200,000 tax-free, I would achieve the “baseline rich”.  Another $500,000-$1,000,000 would take care of the rest of that.

So, how much money does it take to be “rich” to you?

Tuesday, August 19, 2008

Federal Housing Tax Credit for First-Time Home Buyers

I found this website yesterday, and have been looking through it to find out more about this credit, and it really has a lot of information available.

One of the most interesting things that I found was located at question #21 of the FAQs:

Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2008 tax return?

and the answer is:

Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the future home buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the down payment. Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

Basically, all I have to do is adjust my W-4 to an insane exemption number, and I’ll get a portion of the money without having to wait on filing my taxes next year.  This will give me a good jump-start (roughly $2,000-3,000) to apply to closing costs, down payment, moving, etc.

My current plan is to adjust my W-4, and take the excess out of my account, and store it in a savings account.  This extra money won’t go against debt, but it won’t be spent, either.

What do you think?  Would you take the exemptions and start building up a down payment?  Or would you pay down debt?  Or would you leave things as is, and just take the entire credit at tax time?

Monday, August 18, 2008

The Unexpected

Over the past few weeks, I’ve had several phone conversations with a friend of mine that I’ve done some consulting work for in the past (he lives out of town, so on-site service is difficult).  One weekend, he brought his computer by the apartment, and I worked on it.  Got everything transferred in about 30 minutes.  Add to that another hour or two of phone consulting/troubleshooting, and I’d spent a little time on his stuff, but not exorbitant.

Once he got everything working, he called me for my home address so he could send a check to compensate me for the time I’d spent.  I was thinking that the extra $50 or so would go straight against debt, and thought no more of it.

This weekend, with the funeral and everything else going on, we ended up not getting the mail checked for several days until late Saturday night.  And, there, in the mail was a check.  But it wasn’t $50.  It wasn’t even $100.  It was $600!!

Incredible!  and well timed!  We’ve focused so heavily on debt reduction this month that I was going to have to float a few payments – the electric bill came in for about $50 higher than I had money budgeted for it, and my wife’s cell phone bill came in, and we had to pay the startup, plus 2 months worth of charges.  As well, we were able to cover the added expense of two unexpected trips in a week’s time.

As it sits, we’ll still be able to reduce our debt by $450 out of that check, so that’s where we’re spending the money… 

But the basic idea I’m attempting to communicate is that it is good to have a plan for the unexpected, even if the unexpected is good.

Thursday, August 14, 2008

Second Week of August Update

This week was a lot tougher. While we still were able to squeak out some debt reduction, our progress was hampered. My wife had her two sisters in for the week, on into the weekend, and so we made the 3 hour trip to return them on Sunday. Of course, we ate lunch on the way ($25), and then we called some friends of ours that live that direction, and had dinner with them ($30). And there was the gas to get us there and back (about $50). So Sunday saw $100 over our normal budget disappear. Also, on Saturday, we wrote a $500 check for earnest money on a house. That will hold the lot until we figure out the specifics. (They don't cash it, just hold it)

I’m not exactly sure if now is the right time to be buying a house, but it seems to be as good as any economy-wise, and, although it will slow our debt reduction to a crawl, it will also keep us motivated to reduce our debt as quickly as we can between now and then.

Plus, the house is a new one, so it will take 4-1/2 to 5 months to build, so we have some time to really buckle down and focus.

So, with all of that said, here’s the new numbers…

We left the credit card with a balance of $6,107.07 last week. Today it is sitting at $5,662.07, for a total difference of $445, or $63.57/day.

When we started the month, our credit card had a balance of $6,551.07, so we’ve paid it down $889 in 14 days, or $63.50 per day. There were several cheats that I employed this week to keep the balance coming down, however. First off, we used a vehicle reimbursement check to jump start, and my wife got paid early for some of her work, so we lumped that in as well. I’ve got the $200 set aside for the refrigerator, so we don’t have that to worry about.

Now we come to the rest of the month. On Monday night, we got a call from my wife’s parents letting us know that her grandmother had passed away. This will mean another trip for the funeral. Also, my wife is a nanny, and they are on vacation this week, so while she’s been able to work on the apartment, etc., there isn’t any income along with that.

I have some money that I’m transferring from Revolution Money Exchange (for referrals, etc.) and Prosper to be able to push against debt on, but this is only about $200 all together, and once we do that, the stream is dried up.

It will be interesting to see what we can do in the next 7 days. It looks like we will get to $5,500 pretty easily, which is exciting, but I’m really, really wanting to get it to below $5,000 if we can swing it.

Wednesday, August 13, 2008

UPDATE: Revolution Money Exchange

Part of my plan on paying down debt was to transfer the money that my wife and I have made on referrals and opening our account at Revolution Money Exchange. As I mentioned about 2 weeks ago, my account was locked for fraud protection, and I couldn’t get anybody on the phone to see what was happening. Fortunately, 15 minutes later, my account was unlocked. The result, however, was that the funds never transferred. So, on August 1st, I requested another transfer of $50 to my verified bank account. The process is supposed to take 2-3 business days, and so I attempted to contact them again to see what was happening yesterday. I found out that there was no problem with the transfer, so it had to be something internal, but the finance department had already closed, so I would have to make the call today to find out.
I did so, and after about 10 minutes of being on the phone and on hold, we got the situation worked out. They informed me that it would take about 5 hours for the funds to show up in my account. However, to this point, no funds have hit my account, so I’ll be calling them again tomorrow morning.
As with any new system, there will be hiccups. I completely understand that. Two weeks ago, I got an answering machine. Yesterday and today, I got very courteous customer service reps who were able to assist me in a timely manner, and, when necessary, explain the direction I would need to take when they couldn’t resolve the issue. I am somewhat leery of trying a new system, but Revolution Money Exchange seems to be a decent alternative to PayPal, provided they actually transfer the money.
Also, I have yet to receive my MoneyExchange card, which will allow me to use the funds in my account as a debit transaction at several stores, including CVS and Walgreens, which is something that I don’t believe PayPal does… And I get a $10 bonus every time somebody signs up for the service (however, you no longer get the $25 bonus for signing up... :-()
As soon as they’ve completed the bank transfer, and I’ve had a chance to try out the “debit card” part of the system, I’ll report back, but so far, I’m impressed with the courtesy of their customer service reps, and that’s refreshing, even if I have to deal with the occasional bump.

UPDATE 8/14/08 7:15am: The account updated this morning. And that, honestly, could be the way that Wells Fargo handles the transaction, vs. Revolution Money Exchange. So hopefully the next transfer I request will happen in a more reasonable timeframe. I really can't complain too much, though, since this is all referral and sign-up money... :-)

Monday, August 11, 2008

NOW! vs. later

Growing up, and even still today, I heard about people giving advice to begin saving today, rather than putting it off until later.  But I’d never really thought about it until I started talking to my 16-year-old brother, and giving him the same advice…

If he makes a commitment to start saving $10/week now, in a year, he will have $520, even if he makes no interest on it.  If he socks it away in a “horrible” 3.5% APY savings account, he will be losing a little due to inflation, but he will still be ahead of where he would be if he waits to save…

If he waits a full year, even if he finds an investment vehicle that he can get 12% return on…  it will take him over 5 years to recoup the $520 he saves this year, even if he’s only getting 3.5% on that money…

Sure, compounding interest helps…  but what helps even more is getting started now, rather than waiting until later.

How does this relate to debt reduction?  Well, I started down the negative equity path very early in my twenties, and I’d accumulated about 8 years worth of debt before I started slowing down.  I actually didn’t start paying debt down until January 2007.  Somebody who didn’t jump into debt $8,000 the first year after they moved out is not only in $8,000 better shape, they are in $8,000 + the interest on the $8,000 + the amount they could have invested + the interest rate on the investment.  It probably looks more like $12,000.  That is HUGE!  Just one year of overspending set me back that much, and I have a similar story for several more years in there.

The key is, the sooner you begin to make a move in a positive direction, the better off you will be.

Friday, August 8, 2008

Debt Collectors

I've noticed that debt collection agencies are beginning to put the burden back on the person.  They have an automated line dialing a number several times a day, leaving recorded messages...  Which, I guess, is fine.  But the fact that I had to sit on hold for 10 minutes to inform them that they had the wrong number got irritating really quickly.

Perhaps I’m wrong, but I really don’t see this technique as helping an agency collect a debt.  If I know I’m behind on a debt, and have no intention of collecting, then I’ll simply not answer the phone when the call comes in.  And even if I answer, since the call is a recording, I’ll just not take the initiative to call them back.

On the other hand, I can see where it would help a company weed out wrong numbers quickly.  I spent the time to call them, sit on hold, and inform them that they were repeatedly calling the wrong number.

Thursday, August 7, 2008

First Week of August Update

Well, we are now 7 days into August, so I figured I’d do an update on the credit card reduction, just to see how much I’ve accomplished so far.

The credit card I am working on paying down started the month with more than I thought: $6,551.07.  Right now, the card is at $6,107.07, so I have paid down $444 in 7 days, or $63.43 per day.

That’s good, but the first of the month is always where I get my big debt-reduction push, so I expect that number will begin to drop off as the month progresses.  As I mentioned earlier, I’ve got to set aside $200 for the refrigerator, so that will slow the reduction down a little, but even with that, I hope to get the card down to $5500 this month anyway, meaning that I will have put a (personally) astounding $1050 against that single debt this month.

I plan on doing another update on the 14th to see how much progress is made the next 7 days.

Wednesday, August 6, 2008

Reason #4 why I like living in Texas…

There are really many reasons why I enjoy living in Texas as opposed to other states, but this article makes me very happy to be located in a pro-business state…

I wonder what would happen if people started electing the representatives that actually looked out for their constituents.

Tuesday, August 5, 2008

The best of intentions...

Well, August is already beginning to shape up as a bad month financially. Not really from the perspective of losing ground, it just looks like there isn’t going to be much in the “gaining ground” side…

I helped a friend of mine move over the weekend. He was leaving his house behind due to foreclosure, but, fortunately, had a good place to go and wasn’t all that broken up about it. He did, however, have an extra refrigerator. So, since we are looking for a house, I told him that I’d buy it. So there’s a couple hundred that wasn’t in the budget…

Now we come down to the real expense. It is beginning to look as if we have found a house that we’d like to have built. It will require a $500 deposit, and then it will take about 4-1/2 – 5 months to build. During that time, we will more than likely put our debt reduction on hold, and begin storing up cash. We’ll see, though…

These are some exciting times, to be sure. I’m in the process of reworking our budget to see what kind of difference the payment will make in our finances…

More updates soon!

Friday, August 1, 2008

Revolution Money Exchange… Developing…

My account with Revolution Money Exchange has been suspended due to suspicious activity.  Yesterday I sent a request to send the money that my wife and I have made for signups, etc. to my bank.

I called to the company to see about getting it unlocked, but couldn’t get anybody on the phone.  So I left messages, then emailed their customer service.

I’m wondering if somebody tried to hack into my account, or if they just don’t want to pay the money…

I’ll keep this post updated as I get information…


UPDATE (3:40pm):  My account has been unlocked, but I must resubmit my requests to withdraw money.  This time, rather than transferring the entire amount, I’m requesting $50.00.