Finance

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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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July 2007 Net Worth
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.

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As mentioned earlier in the year, I found out the hard way that insuring a newly purchased older home is near impossible.

Now that we’re in the final stretch for the exterior renovations, it’s time to start thinking about acquiring some conventional homeowners insurance.

Currently, my carrier is a state run plan, called a FAIR plan. Most states have them, and I’ll be the first to tell you, they’re anything but FAIR. The premium is generally double what you’d pay to an insurance company you’ve heard of, and you coverage is half what a real insurance company would carry.

Illinois’ FAIR Plan website looks to be one of the best in the country, so I’ll use their definition:

The FAIR (Fair Access to Insurance Requirements) Plan Association offers property insurance to qualified applicants who are unable to buy insurance through the standard insurance market for reasons beyond their control.

The FAIR Plan may be an answer for responsible property owners or homeowners who are having a problem obtaining property insurance in the standard market.

Many insureds use the FAIR Plan as a temporary market for a year or two until they qualify for coverage in the standard market.

It’s been nearly 5 years since Allstate cancelled my policy. Surfing the web, I’ve yet to find a “successful” journey from the depths of the FAIR plan. Seems once you’re categorized as high-risk, it’s damn near impossible to get normal coverage. I’m hoping I can blaze a new trail.

One thing I have read is that when an insurer cancels your policy, they must send you a letter explaining why they’ve cancelled you. Over the weekend, I peeked into the old filing cabinet in search of the old Allstate folder.

I was skeptical that I’d still have the letter. At the time, it was like a punch in the stomach. I’d just paid my first ever mortgage bill, I had no money left to my name, and now suddenly, I was about to let my insurance lapse before the second mortgage payment. I thought I’d likely thrown it out in anger.

To my surprise, there it was…an interesting read. It almost made me more angry seeing how trivial all of the ‘problems’ were. I kept thinking that they were nailing me on the electrical system, but in fact, there is no mention of that.

Here is what the letter listed:

  • The roof of the dwelling is damaged and lifting/buckled.
  • The soffits/fascia/eaves are damaged and needs paint.
  • The renovations are not completed.
  • The detached structure has dry rot, glass broken, trees overhanging and needs paint.
  • Your chimney is crumbling, separating, in need of tuckpointing.
  • The foundation of your dwelling or garage is crumbling.
  • The siding or frame exterior of your dwelling is damaged, has peeling paint.
  • One or more of the trees on your property poses a risk to your property because it is overhanging.
  • The windows of your dwelling or garage needs paint.

According to much of what I’ve read, technically, if I correct Allstate’s laundry list of problems above, they should take me back. That said, since they burned me so bad back then in 2002, they’re not exactly my first choice.

Cancellation Letter from Allstate.  I’d love to know why they didn’t even sign it.Oh, and Allstate is no longer issuing homeowners policies in my state because we’re apparently in a hot hurricane zone.

Um, yeah… One, Hurricane Gloria in 1985 — 22 YEARS AGO!? — and it was just a heavy rain, but whatever…

A little back story first… when Allstate sent out their inspector, I was having a cable line added to the second floor of the house so I could have cable internet in my home office. Being broke at the time, the cheapest route, rather than snaking it through the walls, was to have the electrician run the line in one of those PVC tubes up the side of the house.

Apparently, while the electrician, a fellow in his 70’s, was working on the side of the house, the Allstate inspector stopped by and asked to go inside the house. The electrician said, “No.” When I arrived home that evening, the electrician explained to me that he’d had a “run-in” with an aggressive insurance inspector trying to enter my home.

I thanked him for not letting the inspector in my home. I was never made aware that an inspector was coming by, and thinking about it, I never recall having an insurance inspector ever enter our home when I was living with my parents. I was thankful that the electrician hadn’t let some stranger in my home without me there.

Then the cancellation letter came and it all became clear. I’d guess that the insurance inspector thought the electrician was the homeowner and refused to allow him entry. Ticked off, he essentially checked off every box on his standard form, in an immature “I’ll show you!” act of rage.

Windows need paint? Um… they’re vinyl windows. At that time, they were only 2 years old. That aside, you don’t paint vinyl windows.

Renovations incomplete? Um, okay, the contractor was there working on them at the time you stopped by without notice.

Trees overhanging the home? This is New England. I challenge you to find a residential home within a 100 mile radius of my home that doesn’t have a tree limb near the structure.

Those boxes were checked out of spite. Pure spite.

The rest of them… I could call legitimate… at the time. Which is why I didn’t dispute the letter.

The roof was old. The roof was ugly. But you know what? It didn’t leak. But I still spent $14k replacing a roof that didn’t leak.

The chimney was crumbling…we had it removed entirely.

The foundation was crumbling…we had it repaired.

All of this business about needing paint and peeling paint — well, vinyl siding is taking care of that.

All of that aside though, it is a little troubling that your insurance company can essentially cancel your coverage because your house could use a new coat of paint.

I can understand the “crumbling” brick work being a bit of an insurance problem, and realistically, that is where their list should have begun and ended. And I would have taken care of that immediately, but to pile on all of the additional cosmetic issues seemed a little unjust.

Especially when they agreed to insure the home for the closing, and then cancelled the policy less than 30 days later.

Hopefully we’ll have normal insurance in the coming months…

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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.

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Countrywide Home LoansLast week I mentioned that I’d set up an autopayment through my checking account to throw additional principle at my mortgage.

My lender, Countrywide, offers a few different auto-payment plans of their own, but they CHARGE for it?!

Bi-monthly payments get you a $4 service charge per payment. Total damage: $96/year.

Bi-weekly payments also have a $4 service charge attached. A worse deal, coming to $104/year.

Weekly payments have a $2 service charge. Even still, that works out to $104/year.

Makes you wonder why they don’t just come out and say there’s a $100 charge for the service… Oh yeah, because then they wouldn’t have any takers… The funny part is that they describe it as a “nomimal per draft fee”.

Maybe I’m just cheap, but $100 is hardly insignificant. Especially when just slightly more than that amount goes to the principle with every regular mortgage payment I send in. Countrywide claims that enrolling in one of these plans is like making 13 payments per year. But… subtracting interest and escrow, they’re taking one of those payments right back out in fees… It’s a terrible deal.

So, last week, I came up with the brilliant scheme to initiate payment from the opposite side — through my checking account at Bank of America by utilizing their BillPay system.

To test things I set up an automatic $25 transfer to go to Countrywide each Monday. This morning, on the Countrywide website, my transaction history indicated a $25 reduction in my principle. Woo-hoo!

Now, I don’t think this would work for paying my mortgage each month, since the payment went towards the principle only, but that was never really the plan anyway. I’ve no problem mailing a check in each month, but this will allow me to paydown the loan even faster without a fee or a noticable void in my wallet.

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fin_2007june15.gifNot much movement on the bottom line so far this month.

Lots of movement within though, as I’ve been moving money over to my checking account from credit cards and my ING Direct account to pay the last two-thirds of the home renovation that should be complete over the next couple of weeks.

That’s when the bottom will fall out and I’ll be right back where I was in January 2007 hovering around a net worth of $50k and carrying a lot of credit card debt.

The difference this time? I have a nicer house, I have a savings account generating interest, AND, best of all, all of the credit card debt is at a low rate.

Though it’s now very unlikely that I’ll reach my 2007 goal, I’m still feeling pretty confident.

Back in September of 2004, my various credit card balances put together topped out at over $26k. And all of it was sitting there at 15.99% or higher. Oddly enough, I was never in a panic mode.

The situation I’ll find myself in later this month is nothing compared to that. My income has increased a bit since 2004 and my expenses have definitely decreased since 2004. (Oh, and have I mentioned that I own my own plane now too?)

This time, I should be able to chop the balance down over a few months, rather than a few years.

Just a bump in the road.

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Yesterday morning the materials for our home improvements were delivered and are in piles all over the yard — the work should start very soon.

So it seemed appropriate that I’d start paying back all of the money we borrowed today. All of it is still sitting within the grace period, but I’d like to get started on chipping away at the balances.

First, I added my Bank of America checking account to the CitiBank card so that I can make automatic payments though their website. That’s the card that’s a 0% until May of 2008, so it’s not really a high priority, but after the promo rate expires, it will jump up to 13.81%. I’d prefer to have it’s balance at zero, or worst case, under $1000 for when the rate goes up. As of this morning, I have to wait 6 days for them to “verify” my checking account before I can schedule any payments.

Then I transferred $8k from my ING Direct savings account into the checking account for the next payment to the contractors.

Next, I set up a bi-weekly automatic payment of $150 to my business credit card. Right now, that’s the only credit card I still carry in my wallet — it’s not being used at all for the renovation. I generally only charge about $200/month on that card — though it should go up some because I’ve never used it for personal expenses. It will now include gas, the storage unit rent fee, and the occasional expense when I don’t have cash on hand to cover it. The automatic payments alone will cover all charges plus some. And I intend to continue mail monthly payments in whenever I’ve got some left over after paying the BIG credit card bills funding the renovation.

Then, because Bank of America boasts a list of “common payees in your area”, I also added Countrywide Home Loans to my list of payees and set up an automatic payment. Countrywide has always offered an automatic payment plan, but they also charge a $4 fee each month to participate.

That’s not about to happen, but I wonder how it works if I initiate it from the bank’s side instead. We’ll see — to test it out, I set up a $25/week auto-payment to begin on Monday.

I’m very interested to see where the $25 goes. Obviously, I’d prefer it be treated as additional principle, but the bank website doesn’t give you the option of choosing how the mortgage company processes it. Deep down, I have a feeling I’ll be canceling the future auto-payments on Tuesday.

And I know many PF experts say it’s foolish to pay down your mortgage, but I’m currently sill paying PMI at a rate of $85/month. I’m not that far off from eliminating that, and $25/week isn’t going to kill my budget, but it could take a couple of years off of the PMI charges. That, and regardless of what anyone says, the idea of potentially paying off my house by age 40 is very appealing.

(Oh yeah, for those interested, I did manage to pick up the private plane I purchased over the weekend yesterday. Yes, it’s totally awesome!)

Slow day at the regular paycheck job.

Currently, I’m redesigning the company’s website, which is a nice needed change of pace from the regular daily grind. Unfortunately, it’s something I work on whenever I get a chance or things slow down, which isn’t very often.

It’s been a very productive day so far though — I’ve figured out how to prevent Firefox from looping an Adobe Flash file, when every other browser out there loads and displays things fine. It’s something I’ve been planning on sitting down and figuring out for a few weeks, but I finally did it this morning. I’d had a feeling it was something simple… and it was.

I’ve also filled in the content to two sections worth (16 pages so far). As I’m using a PHP template for this site, this part is really repetitive and *really* boring allowing my brain to ponder other things. If you hadn’t guessed, this is the project that isn’t bringing in any income that I’ve mentioned a few times in previous posts.

On the brain right now? Well, with the pending siding project nearing fruition, I’m starting to look even further ahead. The next potential obstacle to overcome for our homeowners insurance problem is the original knob and tube wiring throughout the house.

I removed some myself this past weekend, but it was all in full view. It’s the stuff behind the walls that’s out of my league. And lately, I’ve really been wishing that we had light switches like a normal house. (Most rooms have a pull chain fixture in the center of the ceiling.)

The greedy side of me would also like a sub-panel installed in the detached garage so we could have power out there again, but that’s just like extra frosting.

This week, I’ll dig up the number of the electrician, John Cyr, from when he upgraded the 60amp fuse box to 200amp service three or four years ago. He also wired a new outlet to the dryer and washing machine at around the same time.

Deep down, I know it’s not the type of project I can get a quote on, it’s understandably, as they say in the business, a “Time and Materials” type of project due to the number of variables hidden behind the plaster, but I think he charged me fairly for work done in the past.

That, and I learned a ton just from watching him and being a “stand-in” assistant. I’d be comfortable with him working in my house, really the most important thing, so I’m hoping he’s up for the project and some quick easy money for a job he can work on at his own leisure.

This will kill any chance of reaching my 2007 financial goal, but as long as I finish the year higher than I started, I’ll still be satisfied.

Saturday’s Cessna purchase is still ongoing as well. I was unable to pick it up today, but the plan is for a fellow from work to help me lift it into my wife’s truck tomorrow morning. The weather isn’t likely to cooperate, but I think it should be okay. For whatever reason, I’m pretty excited about getting it home.

Now I can honestly say that, “I own my own company, I drive a BMW, and I recently purchased a private plane.”

Hey — it’s true in a wacky sort of way.

All that’s left is for me to turn my house into a palace — and we’re working on that!

Can You Dig It?

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