Bob B.'s Financial Soundingboard

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.

We made the 136 mile trip to our old house this weekend. Our new renters moved in. We met them, signed two copies of the lease, and collected their rent plus security deposit. Fortunately, their check cleared. They also seemed like genuinely nice people.

We weren't aware of it, but there were community-wide garage/yard sales going on. We had some items that we had left in the house. Things like my wife's antique sewing machine collection, a changing table, an antique buffet, and an antique rocking chair. These are all items that we 1- don't have room for now and 2- have gotten by without for 3 1/2 years. So ... we put them all out in the front lawn, put prices on them and sold everything but the rocking chair. We paid for the gas for the entire trip, plus a bit more.

We certainly didn't sell the items for nearly what we could have, but they are now sitting in someone else's house collecting dust. My wife didn't want to get rid of the rocking chair unless it sold for at least $75. So, we brought it back home with us, and she'll give it to her brother.

As I mentioned in my previous blog, we have renters moving in this weekend. That will help the cash flow quite a bit. I also mentioend way back in April on this blog that we need a new roof.

A couple of things have happened since then. First, the estimate for the roof was about $1,500 more than we expected, and our other renters moved out. The money we had saved for the roof had to cover the shortfall created by the lack of rent plus the return of the security deposit.

If we start saving our rental income, I figure that we might have enough money saved up by October for the roof.

After we have the money saved up, I'd also like to establish a $1,000 EF, plus we have to keep $800 in reserve for the renters if and when they need their security deposit back.

On the bright side, we have been cash flowing each month since last October.

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.