Credit Card

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Scion Xa Series 2.0Lately I’ve been toying with the idea of paying off my auto loan with one of those checks from a credit card company boasting a 3.9% rate for the life of the balance.

My current auto loan rate is 5.35%. Not great, but not that bad either. Total balance right now is just over $8k. I don’t have a payment due until 2008 though I’m still overpaying what my regular statement would require each month.

Currently, I get dinged for around $1.20 in interest each day on that loan. That sucks.

Using the promo check, and for simplicity sake ignoring the transaction fee I’m sure is in the fine print, I’d get hit for around $0.89 per day.

Over the span of a year, and, again, for simplicity sake, assuming the balance never dropped, that’d work out to a $113 savings (or 31 cents per day).

Not having the paperwork in front of me, the transaction fee attached to the convenience check is probably $99 — if not 3% which is a staggering $243 — no matter how you slice it, it’s not worth the hassle and I’d likely ending up paying more, even with the lower rate.

Wacky how that works.

Dragging DebtI’d have to to estimate that it was about 5 years ago when the light bulb went on for me. Carrying debt wasn’t the way to go.

Then, credit cards were the *only* thing I considered to be debt. And I carried a lot of it — probably just shy of $30k. Since then, my definition of debt has been expanded.

But my own debt wasn’t the switch that illuminated the light bulb…

At one of my jobs, there was a “privileged” group that was supplied with a company car for personal use. More accurately described, they each got a HUGE SUV. It was kept pretty hush-hush — but when a fleet of similar SUVs are all parked in the lot, all next to each other, well, let’s just say, word gets around.

There was a lot of thinly veiled animosity and jealousy hanging in the air for months when it all came to light. But for me, well, I thought to myself, you know, if I happened to be offered a big shiny SUV, I’d be offended. Yes — I said offended. I don’t need one. I can supply that myself, thanks…

Sure, it would be nice to have my car payment subsidized. It might even be nice to have an SUV in the winter — but at what cost?

Not only would my employer have me held hostage by my paycheck, but also my vehicle? That’s too much weight for me.

I mean, in that situation, if you lose your job or want to leave for whatever reason — you’ll lose your transportation too. That’s a *huge* hit. With out the job, you really have nothing. The way I see it, those folks are now “owned” by their employer — much like how one’s debt (credit card, student loan, mortgage, auto) owns them.

Maybe it’s a pride thing, but I prefer to know that my things are actually mine. These folks can walk around like they’re the greatest thing since sliced bread, but in the back of my mind, I’m thinking, “Hey, you don’t even own your own car…”

I know, in the grand scheme, we’re all prisoners of our paycheck (or employer) in some regard, but even without that paycheck, I know that I’ve still got a lot of stuff in my back pocket, or I will, once I can put the debt behind me. It’s mine. I own it. My employer can’t take that away from me. And that feels pretty good.

All the more motivation to pay down the debts…

I don’t want to be held hostage by anyone or anything. Now to initiate some extra e-payments to Chase, Citi, and Bank of America!

Storage UnitThis past weekend we spent a few hours over at the storage unit we’re renting for around $140/month.

Earlier this month, I vowed to clear it out this month so as to stop paying for it. It’s really the only sizable monthly expense left that hasn’t been cut.

Well, it became apparent that, this late in the month, it’s not going to happen before the September rent is due. Even an amount like $140 in the wrong direction hurts when you’re trying to pay down the credit card debt like crazy. Grrrr…

We did, however, make *some* progress. Three full contractor bags worth of stuff went to the dump. The storage space is still filled to the ceiling, but that was still quite a step for me.

One of the stranger things I threw out was a box with piles and piles of Columbia House and BMG catalogs from the late eighties and early nineties. Vanilla Ice on the cover of one, Shanice on the cover of another. They were all stacked neatly — like I treasured them. Seriously, why did I hang on to stuff like that? Ridiculous.

Also thrown away were tons of computer programs on the old 5.25inch floppies. Sure, I’d like to go back and play the original Space Quest again, but in the 20 years since I last played it, it hasn’t been enough of a draw to actually do it. And so, into the garbage it went.

One suggestion my wife had, for things that should really be thrown out but still brought back memories, was to bring a camera and take pictures of the items before tossing them into the garbage bag.

I’m not quite there yet — maybe when I go through the boxes a second time to lighten the load even more before bringing it all back home.

Looks like we’ll be paying for another month. Sigh.

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Harry PotterIn an effort to figure out where my “missing” money is going I went over last month’s credit card statements to try and see if I’ve been charging more than I’m aware of.

According to my records, last month, I sent $2021.65 to the credit card companies. That number is a lot higher than I expected, actually, so I feel pretty good about that.

But that large payment only brought my total balance down by $944.41. That’s disappointing.

What did I spend the difference of $1077.24 on? Well, here’s the breakdown:


$400.00 – Auto Insurance Deductible
$200.00 – Dentist
$140.98 – Storage Unit
$128.49 – Gasoline
$ 74.98 – Finance Charges
$ 54.14 – Personal Business Expenses
$ 42.39 – Target Shopping Trip
$ 20.76 – Business Expenses
$ 15.50 – Movie w/wife

The top two expenses, the Auto Insurance Deductible and Dentist that total $600, are both one shot deals, not something that will come up month after month. Just omitting that from the total and it all makes sense. If I’d had to guess how much I spent per month on the credit card, I think I’d have said around $500.

Going line by line from there, the Storage Unit *has* to go — that’s a wasted $140/month. My wife and I have made it a goal this month to spend a weekend or two clearing it out. We’d originally taken it out as a temporary storage place to replace our attic storage while we were having the roof done back in December. Well, it’s August now.

There isn’t really anything I can do about the Gasoline, but that is about $30 higher than normal. I think it’s because I burned an entire tank of gas re-acquainting myself with the car after it came back from the Auto Body. Hey, it’d been over 60 days since I’d driven it…

Finance Charges…well, at least they’re dropping. Again, not much I can do about that except continue to pay down the debt.

I also can’t eliminate the Personal Business Expenses. They’re usually hosting and licensing fees due each month. The $54.14 last month is actually on the low end; at times it swells to over $300 in a month. But that’s the price of doing business and though it can get expensive, I’ve always run a profit.

The additional $20.76 of Business Expenses was for my day job. I had a project I was working on and the company didn’t have the supplies needed on hand so I had to go out and purchase them myself. An expense reimbursement form has been submitted, so now I’m just waiting for the check.

Home Hair Cut The $42.39 expense at Target was for one of those hair cutter clipper sets. My wife gave me a “home hair cut” last weekend and it turned out alright. One more haircut, and they will have paid for themselves! Woo-hoo!

And the last line is the $15.50 I spent to go see the Harry Potter movie with my wife. That requires no explanation.

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401k Nest EggOver the weekend, while my wife babysat the contractors installing our new doors and I “hid” upstairs, I did a little research on the benefits of increasing my contribution to my 401k.

Somewhere online, Bloomberg’s or something, I’ve seen a retirement gauge that indicates that if you have $60k in there at age 30, you’re in great shape.

Well, that’s where I am. And that doesn’t even include my wife’s savings.

But elsewhere, using silly retirement calculators, the end result for, say, retiring at 65 is all over the place. From a number that makes me very happy to a number I’m not sure will cut it. And I’m not planning on working until 65… so that number *REALLY* won’t cut it.

Right now, I’m contributing just under 5% of my gross income to my employers 401k plan. That’s…disappointing. In the past, before I bought my house 5 years ago, I was contributing 15% and that’s what I should be working my way towards again.

For my employer’s 401k plan, the match is 33% up to 15% of your income. So the 15% mark is the ceiling to make the most of the company match. By up’ing (is that even a word?) my contribution to take the most advantage of the match, my take home pay, using some really simplified calculations, would decrease between $325-350 each paycheck.

Can I afford that?

Sounds do-able. Especially when you look at the return.

Playing with the calculators out there, at my current rate of under 5%, and never getting another raise, I’ll hit the one million dollar mark when I turn 55. Jumping up to a 15% contribution, at age 55, it will be over double that! Now we’re talkin…

Is hitting a million dollars in my 401k by age 48 worth around $700/month? Toss in the company match, and it’s really like paying $700 to get over $900 back. That’s one hell of a deal. And that doesn’t even take into account the rate of return.

But again, can I afford it?

Right now… well… I’m not so sure.

I know lots of financial advisors say you should pay yourself first and I agree with that to a certain degree. And, yes, we could get by just fine with a hit like that to our take home pay.

But with the debt we’ve taken on in the past couple of months to finance the siding project and the possibility that the largest client for my side business might not renew my contract, well, I’m feeling especially vulnerable these days.

That monthly $700 (and then some) would undoubtedly be going towards debt. Taking it (the $700) out of the picture, yes, we can still make the minimum payments on all of the cards. But the balances won’t fall fast.

I’m not willing to do the math, but I’m sure that in the end, it would be advantageous to send it to the 401k now and pay down the debts slowly, but for my own peace of mind, I think I need to knock down the balances a lot before I make a move that large.

Add to the fact that we may not have the income we’ve grown accustomed to this fall, and it’s a little unsettling.

Will we be able to down balances like we have in the past? What if a tree falls on the house? What if the fridge dies? What if one of us loses our job? What if my auto insurance rates triple because of the accident? What then?

In any of those cases, I’d rather have a lot of available credit to fall back on over a fat 401k balance that I can’t access until I’m old and grey.

Maybe I’ll just jump to 10% for now. Eh, that’d give me $1.5 million at age 55. And that wouldn’t be so bad.

With the renovation work at the house still ongoing (an attic window, the basement hatch, and some last minute touch-ups left), we still haven’t made the last payment to the contractor. Progress has been very slow for the past few weeks,

It’s tough because now, over month later, I’d like to have begun putting a real dent in the debt we took on to finance the project… but there is still one payment to go.

Seems like it’s something that would be easy to work around but I’m generally of the type that likes to pay all of my regular monthly bills and then send every last remaining cent, down to a $1000 buffer, to the credit card companies. It’s a method that’s always worked for me in the past.

With a $4k bill looming, I’m not comfortable doing that.

I know, I know… I could make my “new” buffer the $5k mark, but with things still up in the air, I want to make sure I have as much cash on hand for those last minute unexpected expenses. You know, like the additional $2500 we paid to have the porch rebuilt.

I want the house to be done.

I want to write that last check to the contractor.

And I want things to get settled so I can put my head down and start paying it back, aggressively, like we did with the last loan (for the roof) where we paid the last $8k off in a couple of months.

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Cutting the CardsNow 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.

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NHL Credit CardA number of PF blogs lately have been posting the question, “How many credit cards do you carry?” or “How many is too many?” I’m not sure there’s a correct answer to either question, but it made me think about how many I still have now that I’m more in tune with where my money goes.

This is a list of my open credit card accounts as of June 2007:

Bank of America Business MasterCard — Originally an MBNA account before they were bought out by Bank of America, I opened this account in March of 2005 when I started to divide my personal and business expenses and keep track of them separately. Turned out to be a great move as it was shortly there after I realized how much money I was bleeding on business expenses. This is currently the only card I carry, but I rarely pull it out.
Credit Limit: $22000
Rate: 9.9%

CitiBank AT&T Universal MasterCard — I opened this account in April of 2007 utilizing a 0% for 12 months offer. I wrote a $6000 check to myself, which I originally dropped into my ING Direct savings account to jump on the “arbitrage” bandwagon. Shortly afterwards, I pulled the money out to finance the siding project. As the original plan was to make money on this card, I do not carry it in my wallet.
Credit Limit: $6800
Rate: 0% until April 2008, then 13.81%

Chase Bank Visa Card — This was one of my first credit cards. I opened the account in 1998 and it was one of the cards that I ran up a considerable balance on before I got my act together. The highest it ever went was $12905 and that was in October of 2005. By August of 2006, I’d eliminated the balance, but continued to use the card for gas and the occasional purchase. Balance was always paid in full each month. In June of 2007, I took advantage of a 4.9% for the life of the balance offer to fund the siding project. As a result, I no longer carry the card for expenses.
Credit Limit: $19200
Rate: 4.9%

Bank of America NHL MasterCard — Another of my original credit cards originally opened through MBNA in 1997 for a free t-shirt. This is also another card that I ran up a 5-figure balance on. In May of 2004, it topped out at $10915. By November of 2005, I had wiped the balance out. Now I have my internet service provider automatically bill to this card each month, and like clockwork, I pay back the $42.95 automatically on the same day using an autopay set up from the MBNA days. I do not carry this card and have not carried a balance since November of 2005.
Credit Limit: $22800
Rate: 20.99%

Bank of America Platinum Plus Visa Card — Originally opened in March of 2005 as a failed plan to use balance transfers to consolidate balances at a lower rate. At first I transferred $5000 to this card. Evidently, not having learned my lesson the first time, I transferred another $5000 to this card in March of 2006. Luckily the rate was only 6.25% for both transfers. I wiped out the balance, which topped out at $6925 in March of 2006, in January of 2007. I do not carry this card and don’t ever plan to use it again.
Credit Limit: $14000
Rate: 18.24%

Bank of America GoldOption Loan — This was a loan for $10000 I took out in December of 2002 to, again, consolidate a few balances and put some much needed cash in my hands. At the time, it was LendingTree.com that found me the loan at 9.9%, and when the big check made out to me came in the mail, it was from MBNA. After a couple years of paying it down in regular $226 intervals, MBNA sent me a credit card attached to the account and started treating it like a credit card. With each month, the rate would rise another half percent or so. Not cool. I made my final payment in March of 2005 when the rate had climbed to 13.24%. I do not carry this card and don’t plan to ever use this line of credit.
Credit Limit: $13700
Rate: 24.99%

I guess I didn’t realize how many I still had even though I only carry one. I also didn’t really know, deep down, how much credit was actually available to me. Kinda scary, really.

Thank heavens I didn’t dig the hole any deeper than I did, around $26k, before figuring that I’d better start to climb back out.

Can You Dig It?

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