I had a chance to listen to Clark Howard a few nights ago. I'm pretty sure it was Thursday. I don't get a chance to listen to hime very often, because I have to be a bit west of my house for the station that carries his show to come in clearly.

Anyway, he was talking about the settlement between the 5 big motgage holders and 49 states (all but Oklahoma) so, this is my interpretation of his explanaition, from informstion I heard 4 days ago.

Apparently the 5 big mortgage holders that were part of the settlement represent 60% of the home mortgages in the country (no, our morgage holder is not one of them). And they have 12 months to work with their mortgagees.

The banks need to make one of two offers to their mortgaees - either write down their principal balance or allow them to refinance even if their house is underwater. Oh, and they need to supply mortgagees with one point of contact at their bank.

And, I guess the settlement may be expanded to include other banks in the next several weeks.

This settlenment may never include my bank. I'm holding onto the hope that this settlement wil ultimately break the log jam that is the housing market, and after some time our house will sell for something that resembles what we owe. That's my hope anyway.

I'll be taking some time to follow this settlement, and learn more about the specifics.

For the month of January I will spend each day -

$2.48 on credit card interest

$3.16 on credit card plus auto payment interest

$20.65 on credit card plus auto payment plus mortgage interest.

I've been calculating these values for, I beleive three months now. My jaw still drops each time I calculate them.

A summary of some of my personal finacial calculations that I've talked about in previous entries.

Credit card debt to retirement savings ratio: 16.1%

Non mortgage debt to income ratio: 13.1%
Total Debt to Income ratio: 32.6%

Daily Interest Expense (December 2011):
Credit Cards: $2.60
CC + Auto: $3.23
CC + Auto + Mortgage: $21.09

As of this month, to remain current on our credit card payments, the minimum payment is $549. What we will probably end up paying is about $630, or about $80 over minumum. Note that I've slowed down payback a bit this month, mainly because of extra Christmas spending and keeping some cash in reserve for the home heating bill. We also need to pay property taxes in February. (Never a lack of places for cash to go).

If we paid only minimum payments on CCs, it would take an estimated 28 months to pay off CCs. It's hard to estimate that because minimum payments can change (hopefully down) month-to-month.

If we paid the $630 that we'll be paying this month, it would take 24 months to retire the CC debt.

If we bumped that up by $100 to $730 per month, every month, it would take 21 months to pay off. Not a huge change in terms of months to pay off, but a difference in $160 in accumulated interest, as compared to a $630 payment.

I think we can manage an average payment of $730 per month over the next 12 months. Hopefully some months substantially over $730, no months less than $630, and definitely no months less than $549!

I started to actively log my family's debt progress last Novemebr in the SA forums. I thought it was time to check progress made over the past 12 months.

Mortgage debt on for sale house decreased by $2,600.

CC debt decreased by $8,684.

Automobile debt increased by $6,362.

Mortgage debt on house we currently live in unchanged (this is family borrowing, and we plan to start moving on it during the next 12 months).

Total debt decreased by $4,954.

Average interest rate (all debts) Nov. 2010: 7.02%
Average interest rate (all debts) current: 6.19%
Average interest rate (CC) Nov. 2010: 10.66%
Average interest rate (CC + auto) current: 5.88%

So, it's an improvement, a step in the right direction, blah blah blah. Obviously, we would be in much better shape without the auto loan. But, I still stand by our decision. It made sense at the time.

What I'm happiest with is the decrease in average interest rate over the past 12 months. A function of attacking high interest debt, and of course the credit card company with the big balance dropped the rate by 4 points in June.

$5,036

That's what I came up with when I ran a tax estimate on the Turbo Tax web site.

I even adjusted my withholdings last February, so I kept more of my money, and my refund wouldn't be so big.

That's based on my income, my tax withholdings, also I estimated a $3,000 loss on our rental. The big kicker is four child tax credits.

We'll be getting another tax credit that wasn't part of the estimate, because we used energy efficient materials when we had the roof put on. That might be $500.

A 5K tax refund will help a lot.

It won't be used for a cruise.
It won't be used for a new plasma TV.
It won't be used as a down payment for a 25K car.

It will be used, in one form or another, to reduce debt (or toward an EF).

Now to begin planning on how best to place that money for financial security.

Dec 2011 Debt
Mort 1 - $103,968
Mort 2 - $70,000
CC 1 - $7,832
CC2 - $2,577
CC3 - $1,902
CC4 - $1,556
Van Loan - $6,362

These are my updated numbers. $1,013 of debt paid off, as compared to November numbers!

Credit card debt is $628 less than November.

I could have paid off an approximate additional $300 in debt, but the reality of Christmas season, and winter heating has set in. We also got our property tax bill yesterday. Due in February.

My daily interest expense (for the month of Novemeber 2011):

Credit cards - $2.73
Credit cards plus van - $3.50
Credit cards plus van plus mortgaqge - $21.63

After the six month introductory 0.0% rate is over on my transferred balance on CC 5, that will increase by aother $0.86.

Six months ago, the ineterest rate on one of my CCs dropped from 12.9% to 8.9%. I calculated an estimate of what the current balance would be if the interest rate had not dropped.

Balance in June: $8,775

Avereage monthly payment since June: $204.17

Current balance if $204.17 payments had been made at 12.9% int.: $8,098

Actual current balance: $7,931

Diiference: $167

Monthly difference: $27.83

The $27 per month difference is not life changing. My balance would still be rounded to $8,000 with or without the 4 percentage point drop. But, the rate drop is helping, and I'll take all the help I can get!

I started getting (more) serious about paying down debt last October. So, I was curious how much I had paid in interest on non-mortgage debt the year prior to getting serious compared to how much I've paid the year since. Here are my approximations. I think they're pretty close.

Nov. 2009 - Oct. 2010: $3,480 spent on interest.
Nov 2010 - Oct. 2011: $2,090 spent on interst. Of course, Oct. is a projection.

I then projected an estimate for the next year, based on current balances and payments. My total projection for the next year is: $1,240 spent on non-mortgage interest.

Each year, according to my estimates, I'll have spent about 60% of the previous year's total.

One thing my previous year's estimate does not include is late fees and bank over-draw charges. So my 2009-2010 estimate is probably even greater than $3,480.

(Opps! Accidentally published with no text)

Here's my new month debt update.

Current Debt
Mort 1 - $104,555 $738/mo. 6.25%
Mort 2 - $70,000 $0/mo. 0.00%
CC 1 - $8,239 $170/mo. 8.90%
CC2 - Balance transferred to CC6 @ 3% balance transfer fee.
CC3 - $2,964 $140/mo. 5.25%
CC4 - Paid in Full
CC5 - $2,456 $195/mo. 5.32%
CC6 - $2,060 $60/mo. 0.00% through January 2012
Van Loan - $6,925 $210/mo. 4.02%

That's $923 principal paid this month. We've slowed down debt repayment due to saving for the roof. Payments made this month are only about $125 more than minimum due. Next month, we might pay nothing more than minimum due because we would like to get the roof done this fall, before the snow flies. Not sure the roof can take another freeze/thaw cycle.

I was clicking around on the website for one of my credit cards - the big one with the $8,500+ balance. I found a page that listed the amount of interest I paid last year - $1283.46.

The page also listed the amount of interest I've paid year-to-date - $714.40. That prompted me to project the amount I'll pay for the remainder of the year. I project another $251 in interest - if I only pay the minimum due. Totalled together that's $965.40.

Or $318.06 less than last year on that card.

Or 75.2% of what I paid last year on that card.

Two things have happened with this card: 1) of course, I've been paying down the balance, and 2) the interest rate dropped from 12.9% to 8.9% in June.

Of course - reality is that I'll still have paid a thousand bucks in interest on this card by the end of the year. That sucks, but things are moving in the right direction.

Here are a couple more financial ratios that I've calculated.

The first is the minimum payments for all non-mortgage debt (credit cars plus van loan) that we owe divided by monthly (after tax) income. So, it's not necessarily what I pay, because I've been paying more than minimum, but I's what a bank would calculate if I went in for a new loan. My non-mortgage debt payment to after tax income ratio is: 13.7%.

The second is the same calculation, but I include my mortgage debt. That ratio is: 33.4%.

I would feel a lot better if that first calculation was less than 9%, and the second calculation was less than 30%. Actually, I would feel a LOT better if the first calculation were 0. There are, of course, two ways to improve those calculations - boost income or reduce debt (or stretch out payments, but I don't want to go there).

I've read that mortgage companies will approve loans that make your total debt to income ratio up to (and even beyond) 40%. That's scary. Things would be pretty tight if 40% of our income were going to debt repayment.

After yesterday's post, I found myself fixated with my debt to retirement fund calculation. I ran a projection. I assumed my monthly contributions to my retirement fund plus modest gains (thanks again, congress) plus my projected decrease in CC debt.

I project that by March 2012, my ratio should be 14.6%. Of the three factors I mentioned, (contributions, fund growth and CC reduction), I have control over two of them. My contributions are pretty much fixed at 15% of salary. I could increase contributions, but I probably will not. I have absolutely no control over the market. The one factor I can really work on is CC reduction.

Let's see if I can continue to whittle down on CC debt, and meet my short-range goal of a 14.6% CC debt to retirement fund ratio.

This isn't a real financial benchmark ratio, as far as I know. But, 5 years ago, it was about 100%. In other words, I owed about as much on credit cards as I had saved toward my retirement - $30,000.

I calculated this ratio again, and it is now 20%, even with the pathetic performance of my retirement fund over the past several weeks (thanks, congress). Or, for every dollar I have saved towards retirement, I owe twenty cents in credit card debt.

Of course, my goal is to have that ratio down to zero.

Beginning of the month update on my debts.

Mort 1 - $104,748 $738/mo. 6.25%
Mort 2 - $70,000 $0.00/mo. 0.00%
CC 1 - $8,553 $176/mo. 8.90%
CC2 - Balance transferred to CC6 @ 4% balance transfer fee.
CC3 - $3,092 $140/mo. 5.25%
CC4 - Paid in Full
CC5 - $2,639 $195/mo. 5.32%
CC6 - $2,172 $60/mo. 0.00% through January 2012
Van Loan - $7,111 $210/mo. 4.02%

Difference from last month - $997.

Last October, my credit score was a fiasco. It was 580. I asked on the forums how long it would take to raise my score up to a respectable level. No one could really answer the question.

Well, I applied for a new credit card for a balance transfer. Apparently part of the new credit card reform law is that credit companies need to provide you with your credit score. Mine is now 667.

So, over the course of 9 months of faithfully paying bills on time, and whittling down debt, my credit score has improved by 87 points. That's close to 10 points per month. Maybe by the end of the year, I'll be looking at a 700 credit score.

I've posted the same question in the forums, but I thought I'd also post the same question here:

I've posted in the forums previously about a house that we own that we no longer live in. My family moved 3 1/2 years ago, and the house has been on the market and unsold ever since. We owe about $105,000, and my best guess is (with input from our Realtor) that it's worth somewhere between $95,000 and $105,000 at this time. The house is located in a small villge in the northern part of Michigan. The list price on the house is $109,900, which when Realtor commissions and closing costs are added in, puts us about $4,500 in the hole.

One week ago, we had new renters move in. They are interested in buying the house, but are not in a financial position to do so right now. We struck a deal with them to remove the house from the market for 12 months. They are paying $100 per month above what we asked for rent in exchange for us removing the house from the market (we had been asking for $800 in rent, and they are paying $900 per month.) Also, when the 12 months is up, the (presumed) $1,200 they've paid in addition to the rent will be put toward a down payment.

So ... on to my question. Would it be a good idea for us to refinance our loan while we wait? We are paying $6.25% interest. The original amount borrowed was $120,000, and we are paying $738/mo. Int + Prin.

There is of course no guarantee that our renters will buy the house in July 2012, but I'd like to use 12 months as my planning horizon.

Over the next 12 months, I will pay $6,500 in interest on the loan as it currently is.

If I were able to refinance for 5.25% (one point lower than current), I would save $158/mo. in mortgage payments and $1,000 in total interest payments, assuming a 30 year refi.

Or we could refi at a 20 year payoff, keep our payments approximately the same, and bite off more principal each month.

What are mortgage rates these days? What can I expect for closing costs? Clearly, I don't have 20% Loan to Value.

Any thoughts would be appreciated.

Thanks

I applied and was approved for a new credit card yesterday. Yikes! I haven't had one of those in three years. I'll not use it for any purchases, only a balance transfer of CC#2 - the 16.99% APR monstrosity.

Some stats: My credit limit will be $5,000. So, less than half of the limit will be taken up by the transfer. The balance transfer charge is 4% of the amount transferred. The six month introductory APR is 0.0%. Then, it increases to a rate between 9.99% and 20.99%. Ouch and ouch. I don't know yet what the APR will move to, but will find out when I receive the card and details in the mail.

Some calculations: Best case scenario is to have the entire balance paid off by next March - With a 9.99% APR. If I (we) can do that, I project that we can save $127 over what we would have paid in interest by keeping the balance where it is. If the interest rate spikes up to 20.99%, and I don't have the balance paid off until next April, we'll save $43 over keeping it where it is.

If the balance is not paid off until May 2012, at a 20.99% rate, I will go backwards $24. If the rate goes to 9.99%, I have until July 2012 before I go backwards.

It may seem like an awful lot of hassle just to save $127 over the course of 8 months. It probably is. But, I feel as if I've waged an all out war against credit card debt, and every small victory is a step closer towards my ultimate goal of being credit card debt free.

I will shred the card as soon as it arrives in the mail.

Long story short - we have a house that we no longer live in that has been for sale for nearly four years. We're probably $5-10,000 under water. It's listed as Mort. 1 under my info on the side bar.

We had renters in that house from last October until about a month ago. Our new renters are moving in this Saturday. The rent covers about 3/4ths of our PITI.

I don't like being a land lord - always wondering if the payment will come, if the check will clear, etc. I just want to sell the house and be done with it all. Our new renters are interested in buying, but are apparently not in a financial position to do so at the time.

So, we're doing the back ground check, and signing the lease agreement, and crossing our fingers that at a minimum, they pay every month and maybe just maybe were aquainting ourselves with the future owners of our house.

The interest rate that we pay on CC 1 dropped last month. It was 12.9% APR prior, and it dropped to 8.9% APR. That's about $30 less in accumulated interest per month. We didn't even have to call to ask for the rate change. I guess it has to do with the fact that we've faithfully paid that card, and all of our other obligations each month since October, and our credit scores are improving as a result.

An 8.9% APR is still highway robbery, but it sure beats 12.9%!

It's been a while since I've posted an entry. I'll give an update on our total debts.

Mort. 1 - $104,941 $738/mo. 6.25%
Mort. 2 - $70,000 0/mo. 0.00%
CC 1 - $8,666 $176/mo. 8.90%
CC 2 - $2,278 $57/mo. 16.99%
CC 3 - $3,309 $140/mo. 5.25%
CC 4 - Paid in Full
CC 5 - $2,822 $195/mo. 5.32%
Van Loan - $7,296 $210/mo. 4.02%

I feel as though we're making good progress on credit card #2 with the exorbitant 16.99% APR. My goal will be to have it completely paid off over the next 12 months, while making minimum payments on everything else.

Keep in mind that the $XX/mo. figure above is the minimum amount due for each account. So, CC 2 is $57/mo. minimum due, but in May, we paid $134, in June, $143 and this month $230.

To bring you up to speed from our last chapter, DW and I started married life together in 1996. I was 23, she was 21. We were carrying total debt of about $13K between CCs and SLs.

This next chapter of our life can be summed up best with the following phrase: FINANCE IT!

We bought a car in 1997. FINANCE IT!

We bought an $87K house in 1998. We had a pittance for a down payment, but the mortgage payment was going to be very similar to our rent payment. FINANCE IT! with an FHA loan.

We needed a water softener for the house. The well water was rusty. FINANCE IT!

We needed a tough and rugged Cub Cadet riding lawn mower for our 1.5 acre lawn. FINANCE IT!

We needed a glass top stove. FINANCE IT!

The very old and undersized furnace for our house gave up. We decided we needed a much bigger high efficiency furnace. FINANCE IT!

We needed a new computer somewhere in there. FINANCE IT!

I needed another beater vehicle to drive back and forth to work. It cost $2,100. We didn't have the cash. FINANCE IT!

Between all the financing we did, we kept up on the payments. By the end of year 2000, we were making a combined approximate $80K. But what we did do is allow credit cards to make up the cash flow shortage. We also ate out. A LOT. We were busy professionals, and it was just easier after a long day to pay someone to make the food and wash the dishes. I guess we really didn't need that glass top stove after all.

I'm not really sure where our CC debt was during this period. My head was snugly buried in the sand. But, my best guess was that it was about $25K. Somewhere in there, a payment or two or three WERE missed. The interest rate on one of the card skyrocketed to 25.99%

We did start to get somewhat serious about debt repayment at this point. We stopped buying things. We didn't really stop going out to eat. But between 2000 and 2002, we started to retire some debt. A lot of it was done by shuffling debt to lower introductory rate cards, and home equity loans. But we also took bigger chunks out of the debt each month.

Then enter the next phase of our life: kids

DW and I met at Michigan State University. I was a junior, she was a sophomore. We both come form rural communities in Michigan. We both have frugal parents. DW's 1,500 acre - 160 dairy cow family farm is debt free. My folks have had their home mortgage paid off for for more than 10 years. They are 60 and 62. But we're from a different generation, aren't we?

I got my first credit card when I was 22. I "had" to get one, you see. I was getting married. It all started when I was buying the engagement ring. I was a college student. I bought it for $1,000 - no financing for 12 months. The salesman said "at the end of the 12 months, just slap your balance onto another card". Yeah, right! I'll have it paid off by then. Well, I didn't. I'm not sure what the interest rate would have been on the ring, if I had kept it financed with the jeweler, but I was enticed to open up a credit card at that point. I don't even remember how much of the ring balance was left to transfer, but it seems like it was around $300. What I do remember very clearly was that the minimum due on my first bill was $20. $20! You've got to be kidding me. I know I paid more than the $20, but I sure didn't pay it off the first (or 13th) month, whichever way you want to look at it.

I also started to accrue Student Loan debt in this same period. My first two years of college, I managed to pay as I went. Between what I had saved up in high school, what my parents gave me, and different student jobs I worked, I kept up with the tuition, books, housing and beer money. Then, when I was a junior, I was tapped out. Mom and Dad still helped. I still worked. But I had to borrow some money. Over the next two and a half years (I graduated in 4 1/2 years) I borrowed a total of $8,000 in subsidized student loans. Not bad and not all that great either.

DW had a grand total of $0.00 in SL debt. She got a full-ride scholarship to MSU.

Then comes the wedding. This was 1996. You hear about weddings that cost $11,000 or $20,000. Not us. We spent more around $3,500. It was a nice wedding. It was at my in-laws farm. We rented a tent and roasted a pig. Parents picked up a chunk of the bill, but a large chunk on - you guessed it - credit cards.

When it was all said and done, we started married life out with about $11 or $12K in debt, including credit cards and student loans. Our assets consisted of two beat up cars and two college educations. No worries - we're about to hit the job market. We'll have these bills paid in no time!

Sometimes when I think my credit cards, I assign certain personalities to each of them.

Let's take CC 2 - It has the lowest balance of any of my debts, but also has the highest interest rate at 16.99%. When I envision that debt in my mind, I come up with sort of an imp or a gremlin. He is green with a sinister smile and razor sharp teeth. He jumps around a lot and chews stuff up and just plain creates a mess of things.

Then there's CC 1 - Also a high interest rate - 12.9% and a fairly hefty balance at nearly $9,000. When I think about him, I see a slow moving giant with a big club. He kind of swings that club around a lot and crushes my finances.

CC's 3 and 5 have lower interest rates - in the 5% range, They are like two overgrown, clumsy kids, kind of tripping on things an knocking stuff over, but creating spills that I can tend to. I'd just rather be doing other things with my time (or money) so to speak.

Not sure if this sounds weird or not, but I sure like knocking teeth out of the gremlin, giving the giant a bit of a smaller club each month, and helping the kids learn to mind their manners!

What to do with my income tax refund? With federal and state combined, it's about $6,200. (and before you ask, yes, I have changed my withholding allowances so that I won't be getting such a large refund next year).

Well, Bob, you just started a blog about your personal journey toward debt reduction, didn't you? The answer is simple: pay off your 16.99% CC, and put the rest toward your 12.9% CC.

Well we need a new roof. It isn't leaking - yet. But the shingles are curling, and everytime the wind blows hard we get a new crop of blown-off shingle pieces on our yard. And it's been at least 25 years since the roof was last replaced. So, it is time for a new roof, before we damage the inside of our house.

The estimates should start coming in this week. I hope $6,200 is enough. It's a fairly simple roof - not a lot of peaks and valleys. And the pitch isn't very steep. But the cost of materials is way up - thanks Col. Gadaffi. So, we'll see.

As to the diversion from debt reduction. We're not going on vacation, or buying new clothes or any of a number of other things we've been putting off. We're buying a new roof to protect our investment in our house. Please forgive me.

I'll begin my first blog post by summarizing a recent post I made in the forums.

Debt is Nov. 2010

Mort. 1 - $106,600 $988/mo. 6.25%
Mort. 2 - $70,000 0/mo. 0.00%
CC 1 - $9,376 195/mo. 12.90%
CC 2 - $3,530 $150/mo. 16.99%
CC 3 - $4,330 $140/mo. 5.25%
CC 4 - $1,090 $310/mo. 5.78%
CC 5 - $4,255 $225/mo. 5.32%

Current Debt
Mort. 1 - $105,500 $738/mo. 6.25%
Mort. 2 - $70,000 0/mo. 0.00%
CC 1 - $8,934 $183/mo. 12.90%
CC 2 - $2,848 $68.50/mo. 16.99%
CC 3 - $3,862 $140/mo. 5.25%
CC 4 - Paid in Full
CC 5 - $3,336 $195/mo. 5.32%
Van Loan - $7,894 $210/mo. 4.02%

Debt to Asset Ratio - 77.6% (or I owe creditors more than 3/4ths of the value of my total assets)

Non-Mortgage Debt Payment to After Tax Income Ratio - 18.1% (or nearly 1 out of 5 of my after tax income dollars go toward paying off credit cards and a vehicle)

Total Debt Payment to After Tax Income Ratio - 33.5% (or just a smidge more than 1 out of 3 of my after tax income dollars go toward paying off all debt)

The house that mortgage #1 is held against is for sale. We no longer live in it. It is rented out for $725/mo. It is more than 200 miles away from where we live now.

The house that mortgage #2 is held against is where we live. It is my family's original farmstead. We borrowed money from a couple of family members, and we'll need to repay it after house #1 sells.

And then there's the credit card debt. Nearly $19,0000 worth. We're working away at knocking that out. And the van loan.

Well, this is a start. Nothing in the way of new info that I haven't already included in the forums up to now, but if I keep up with this blog, I'll try to not only keep track of where I'm going, but how we got here in the first place.