Credit Card Debt: Plan of Attack

Now that the money needed to complete the siding project has hit the credit cards, and the first statements have all come in, it’s time to start paying things down.

It’s tough to figure out exactly how to attack it — I’m got a number of spreadsheets set up displaying all of the different scenarios based on who gets paid what and when.

For simplicity sake, I basically have around $7k on each of three credit cards. One is at 0% for another 8 months. The second is at a fixed 4.9% and the third, which is the card I carry, is at a fixed 9.9%.

Obviously, the third card at 9.9% is the one I should attack most aggressively. And ideally, I wouldn’t carry that card — adding a bit to its balance each month.

But that’s where the problem lies.

Card one at 0% was a balance transfer — the purchase APR is something ridiculous, so that card’s out for routine expenses like gasoline.

Card two at 4.9% was also a promo balance transfer rate. The purchase APR on that card is 17.99%. That’s a lot worse than the 9.9% on the card I’m using.

Now I could always apply for a new card, but I’m not real keen on adding yet another card. That, and I’m not sure I could get a fixed rate lower than 9.9% anyway.

Adding to the dilemma is the fact that I still want to be contributing to my ING Direct savings account.

Mostly due to the fact that once the contractors from the siding project are gone, I want to call in an electrician to do a little rewiring, then have a whole room redone — sheetrock, ceilings, floor refinishing.

Nothing huge financially, compared to the last two projects we’ve done, but I don’t want to pile it on as additional credit card debt. I want to pay for it with cash on hand from the savings account.

The problem is that my ING Direct only grows at a 4.41% rate. So, really, it would save me more money to abandon the savings account in favor of paying down the 9.9% credit card balance.

Taking the $2500 that I have in savings right now and throwing it at a $7000 balance is, in fact, the smartest thing to do.

When you do the math, the savings account right now will earn around $9 each month. The $7000 balance will cost me $58. Total, that’s a $49 loss each month.

Wiping out the savings account and paying down the balance will earn me nothing in the savings account and cost me $37 each month.

Okay, that’s a $12 difference. I realize I’ve over simplified the numbers in this case — in addition to the big payment, I’d also continue to aggressively pay in down, but is a $12 savings each month worth more than $2500 in your back pocket?

I don’t think so.

So I guess the plan is to continue aggressively on the 9.9% card, throw $250 each month at the 4.9% card, and $100 each month at the 0% card (while keeping in mind that it will jump to 13.49% in 8 months). If I don’t wipe out the 0% card before the promotional rate expires, well, I’ll have totally failed in saving any money, but I’ll worry about that in about 6 more months — and then go aggressively at it.

Looking at my Microsoft Money file, over the past three years, I’ve averaged credit card payments of $2196/month. With monthly payments like that, I should be able to payback my current debt in a flash, right?

Wait a minute! With payments like that, how could I possibly be in debt in the first place? Well, the problem was that I was also charging $1536/month. And when I started keeping track of my credit card balances, I was already $23k in the hole. Ouch.

The good news is that, until I charged the siding project, this year I’ve only be charging an average of $811/month. That still seems high to me, now that I look at it, but it still means I’ve cut my spending nearly in half.

The bad news is that I’m not paying back as much as I have in the path. I think this is due to the fact that I was putting so much into the savings account at the start of the year, and building up my checking account balance as well to pay for as much of the renovations as I could.

I hope that now that I’m not “saving”, I’ll resort back to my old ways and start averaging payments in excess of $2000/month to the credit card companies. And if I can cut that $811/month down some (I’ll look into what the hell I’m spending that much on later today), I should be able to snowball these debts down Dave Ramsey style, wiping out the 9.9% card first, and then the 0% card just before its rate jumps.

Posted on July 13th, 2007 at 8:40 am by Brainy Smurf
Credit Card, Finance | 1 Comment »

What’s the best kind of stuff? FREE STUFF!

Last week in the mail I received a copy of BMW Magazine. It’s come in the mail sporadically, I guess, since I bought my BMW.

I never paid much attention to it.

Actually, I take that back, I believe I planted my very first issue on my coffee table, displayed prominently at a ‘casual’ angle (like the one pictured) back when I was single and living in an apartment to give off the image of being a high roller. Sadly, I’m the only person who saw it sitting on that coffee table.

Anyway, it’s certainly not something I’d ever subscribe to on purpose and I can honestly say that since that first issue, I’m not sure I’ve taken the plastic wrap off of another issue… until this past weekend.

My wife opened it up and started flipping through. Wow. Can’t say I’ve been exposed to many magazines that have Cessna advertisements in them. Not that I need a new Cessna or anything…

How about an article about installing a clear floor in your private jet to showcase your 7-series in the cargo hold? Seriously, this stuff should be in a Bentley Magazine.

I guess I don’t consider your typical BMW owner (or Mercedes, Porsche, Lotus, etc…) to be in the same class as folks who own private jets large enough to park a car in. But hey, if someone out there wants to group people like me in there, I’m not going to complain. No matter how far from the truth it is.

So, you know those annoying thick paper stock cards magazines have in them that “force” you to flip to certain pages? Well, BMW Magazine has them too, but get this… One of them was to request your own free DVD of Al Gore’s movie, An Inconvenient Truth direct from BMW.

Postage-paid even. I mean, this is really free. No strings attached. I don’t even have to test drive a car or anything?!

Now, I’m not really on the forefront of going green or anything, and I’m sure the movie has been on Discovery Channel a few times at this point, but I still haven’t seen it. And I am kinda interested in seeing it. And for free? On my own time? You can’t beat that.

So, apparently ownership does have it privileges. Now I need to add trying to dig up all of the back issues I never opened to my list to see what other freebies I can get…

On a related note, I still haven’t gotten my BMW back. Apparently BMW no longer manufactures the wheels I had and it’s holding things up. Bummer.

Posted on July 12th, 2007 at 9:34 am by Brainy Smurf
Bargains | 1 Comment »

Lists

Back in high school, I had a friend who, each Sunday, would make up a list of what she was going to do each night.

Going to the mall would be Monday night’s activity. Tuesday would be to go to the driving range with Brainy. Wednesday, there was a hockey game. Thursday would be the night to go out to eat then stay in to watch her favorite tv show. Friday would be a movie. Saturday would be an all-day hike.

I used to think she was nuts. Always busy. Always had something to do, somewhere to go — no downtime. None. It had to be exhausting.

Then I tried it about 5 years later.

It was awesome. Each day, I’d sit at work not wondering what I was going to do when I got home, instead I sat there looking forward to something I’d already planned out. Most of the time, I head out and do it straight from the office.

Sadly, for reasons I’m unsure of, it only lasted a few weeks.

Fast forward 10 years… These days I often find myself overwhelmed with things to do — and no “list” or scheduled agenda to adhere to.

Most nights, I come home from work, eat, and veg on the couch watching the news for a few hours before getting things done. And more often than not, I never get to the projects I have in my imaginary list that’s floating around in my head.

A common question that I ask my wife each day, morning actually, is “What’s for dinner?” I know she hates it. It’s like it puts pressure on her to think of something that I’ll like each day, and I can understand that considering my limited tastes. It’s like a last minute project…every day. That’s never any fun.

This past Sunday, we made a list for the whole week. I know what’s for dinner tonight. I know what’s for dinner tomorrow night too. And I’m looking forward to taco night on Friday!

Rewind to last week, at this hour, I’d have been sorta in limbo about what was for dinner that night. Friday, well, I can’t say I’d have even thought about what would be for dinner more than one day in the future.

This new way of doing things is certainly an improvement. And financially it will be an improvement too. My wife knew exactly what to buy at the grocery store this week and we’ll end up throwing out a lot less than we usually do. Not that we threw out a ton anyway, but every now and then the ground beef goes bad, you know what I mean? That shouldn’t be a problem anymore.

From here, now I just have to expand the list to include not only dinner but activities too, so I can get some of these great ideas out of my head and actually done… before I forget about them entirely.

Posted on July 10th, 2007 at 11:40 am by Brainy Smurf
Life, Motivation | No Comments »

July 2007: Quest for $1,000,000.00 Dollars

Not as bad as I thought it would be…

The siding project is nearly finished and there is one more $8k payment due at completion. That will wipe out my cash reserves entirely. I think that’s when it will set in — all gains to this date so far are gone in the span of a month. But… the house looks nice!

The big movers this month, again, were the savings account and the credit cards. Both are 100% to finance the home improvements.

My 401k also tanked this month. Actually, dropping less than 1% isn’t that big of a deal, but with all of the volatility lately, it seems like it’s swung a lot further than that over the whole month.

Something very strange, and something I’ve never seen happen, was that the trade-in value of one of my cars actually went up! It’s a model year 2005, so it’s not like its hit a “collector” status or anything. Maybe the value of cars getting 45mpg is going up? I dunno, but I’m not complaining. It’s likely a fluke. And probably one of the reasons many people don’t include their vehicles in their calculations.

My sneaky plan to pay down the mortgage has already made a noticeable difference in just two weeks. I’m not about to get more aggressive than $25/week because I know paying down your mortgage is kinda stupid at the point I’m currently standing, but even an insignificant amount like $25 is truly putting a dent in it. To think, year to date, I’ve only knocked off a little over $1000 on the balance, but just last month with a couple of $25 payments, it took off nearly a quarter of that. That’s HUGE and it costs nearly nothing to me.

In the end, once the renovations are complete, overall, I think my net worth will have dropped around $16k. Not too bad considering we’ve spent right around $26k on renovations, but it still feels like a kick in the stomach.

I’m trying my best to look at it like a 6-month setback. Hopefully I can keep on the same track (of debt re-payment) that I’ve been on since January, but it might be tough over the next couple of months as I’m not real comfortable being cash poor. And as I said, when we write that final $8k check, we’ll be broke.

Posted on July 6th, 2007 at 8:30 am by Brainy Smurf
Finance, Net Worth Updates | 2 Comments »