Posts Tagged debt
Reaching Our Savings Goal
As of today, our savings account has just over $2,000 in it, a goal we’ve been working towards for nearly a year. I’ll get to how we did it in a moment, but first some history.
Last September, I began the long process of getting our finances under control. We had several thousand dollars in credit card debt that accumulated over the course of our marriage. For a long time we were living paycheck-to-paycheck and usually needed to put a little more on a credit card at the end of every month to cover expenses. It seemed that no matter how good things looked at the beginning of the month, the well was dry before the end. As mentioned previously, one of the most helpful instruments in correcting this course was Mint’s budgeting tool. Seeing how much money we were wasting on eating out and unnecessary shopping was eye-opening, to say the least.
I decided that I was fed up with living like that and that we were going to change, no matter what it took. We took a couple major steps to getting our credit card debt into a manageable state. These steps are not recommended by most people smarter than me, but at the time, I didn’t know any better. We took out a loan on my 401k and opened a new credit card that offered 0% interest for 12 months on balance transfers. We paid off some of it and moved the rest to the new card. Again, I don’t necessarily recommend these steps, but at the time I was desperate. We then stripped as much out of our monthly expenses as we could and were able to budget $300 per month to get the credit card paid down as quickly as possible. I’ll be honest, we were fortunate to hit this goal much sooner than originally anticipated, due to a substantial tax return that we weren’t expecting. The final nail in the credit card coffin came in May, when the final payment was made, bringing the balance to $0. I must admit, it was a pretty liberating feeling as I had not personally lived without credit card debt for almost ten years. I kind of wish I would have had someone take my picture as I clicked the button to make that final payment. Oh well.
Once this obstacle was out of the way, the next step was to divert all of the money from the credit card payment into our savings account. Most financial experts and blogs will emphasize the importance of establishing an emergency fund while paying off your debt, so that if something does come up, you aren’t just adding fuel to the fire. Because of the aforementioned 401k loan and tax return, we were able to create a small buffer in our checking account. This would hold us over, but it wasn’t quite the emergency fund we wanted and needed. So for the past three months, we’ve been putting the $300 that was previously budgeted for the credit card payment into the official emergency fund. So how did we hit our $2,000 goal so soon, you ask? Well, I get paid every two weeks, which means that twice a year I get an extra paycheck. When first setting up our budget in September, I determined it was easier to budget based on two paychecks each month, and this semi-annual “bonus” could be used for whatever was needed most at the time. In this case, all of it went into our emergency fund, helping us cross the savings finish line that much sooner. While a large portion of our debt was able to be squashed thanks to the 401k loan and the tax return, we wouldn’t be where we are now without lots of discipline and the right tools.
This doesn’t mean we’re done saving, however. A portion of that $300 will continue to go into the emergency fund, while we’re also saving for a couple other specific goals. I’ve already increase the amount of my emergency fund goal in Mint to $4,000. The journey isn’t over, this was just a big milestone.
Monday Money – August 1st, 2011
Posted by Mathew in Monday Money on August 1, 2011
Going to try a regular feature here. Monday mornings tend to have an influx in articles and blog posts, since most journalists and bloggers try to take some time off on the weekends. Every week, I’ll post a roundup of some of the articles I’ve found interesting and helpful.
Our First of the Month Financial Routine | Frugal Dad – Read about Frugal Dad’s beginning-of-the-month routine. Some neat ideas I’m interested in trying out.
New Report Reveals Consumer Confusion in the Credit Score Marketplace | MintLife Blog – With more and more websites offering “free” credit scores, it’s important to know what you’re getting.
“Piggybacking” can pose a serious risk | Ask Liz Weston – Things to know about adding an authorized user to your credit card.
The Federal Debt: When Compound Interest Is Crushing | The New York Times Bucks Blog – The harsh reality of compound interest.
If you’ve found any useful or interesting articles around the web, share them in the comments.
How Debt Impacts Your Net Worth
For many people, the word “debt” always carries a negative connotation. This post by Credit Sesame on the MintLife Blog puts the concept of debt into perspective. If used properly and under the right circumstances, debt can actually increase your net worth. From the article:
Don’t blame debt. It’s not debt that is bad. It is how you use it that matters.
Here are some tips on managing your debt so that it doesn’t end up hurting your net worth.
-When financing, investments are the only thing that can have a positive impact on net worth
-Never finance any item that is consumed immediately (e.g. dinner, vacations, etc.)
-Durable consumer purchases (e.g. TVs, cars, iPads, etc.) can never improve your net worth because they depreciate
-Always factor finance costs into the cost of a financed consumer purchase
-Debt used to finance consumer purchase should be repaid before the you stop enjoying the benefit.
Be sure to read the full article. Also, Mint has some great tools for tracking your net worth. Read my previous post explaining why I use Mint to manage and track my finances.
via How Debt Impacts Your Net Worth | MintLife Blog | Personal Finance News & Advice.
Get Out of Debt Now
It was only about a month ago that my wife and I paid off the last of our credit card debt. It was the first time we’d been without any credit card debt since we were married (I brought some debt with me into the marriage, and we accrued more along the way). It was a lot of work and we had a very tight budget for quite some time, but it was a relief I can hardly express in words. If it weren’t for
my kids waking me up regularly, I would say that I sleep much better at nights.
The current economic and political climate, as well as the projections for the near future, have convinced me of one thing – there has never been a better time to get out of debt and build an emergency reserve of cash.
If you have any amount of debt, take a look at this and start your plan to get rid of it, today.
via It’s Time to Build Cash and Get Out of Debt | Frugal Dad
What I Use: Credit Cards
Posted by Mathew in Accounts, Credit Cards on July 23, 2011
Over the next several days, I’ll be detailing all of the tools I use in my financial ecosystem, from accounts to services. I’ll explain what I use and why.
Before I mention the cards I use and why I chose them, I’d like to cover the basics of why you want a credit card and how they should be used. Unfortunately, it took the greater portion of my adult life to gain an understanding of the right and wrong ways to handle credit cards. When used correctly, they can provide huge benefits, such as extended warranties, cash back bonuses, protection from theft and a good credit report. When used incorrectly, you’ll usually only end up with stuff you couldn’t afford and a crushing burden of debt. I know this from experience.
Credit cards should only be used when you have the money to make the purchase in the first place. If you can’t pay for something with your debit card or cash, you shouldn’t be buying it. In a later post, I’ll detail how I manage our budget, and how you can track credit card purchases just like all your other expenditures. In short, if you count your money as spent, regardless of how you spent it (check, debit, credit card, etc.), you can avoid racking up unnecessary debt, and reap the benefits that credit cards have to offer.
I’ve chosen cards which provide the most benefit to me and my family. Interest rates play no part in my decision making process, because we will not be carrying a balance from month to month. Each billing statement is paid in full immediately and I intend to never pay another credit card finance charge for the rest of my life. If you’re not in a position to pay your balance in full every month, the benefits of using a card will be negated (and then some!) by the finance charges you’ll be paying. It’s simply not worth it to use a credit card in that situation. If you’re currently living in credit card debt, look for an upcoming post where I’ll provide solutions to get out.
On to the cards. In order to get the largest return, you’ll most likely need multiple credit cards. I’ve selected, what I believe to be the two best cards with respect to cash back rewards.
Credit Cards: Chase Freedom & Discover More
Both of these cards offer the following benefits:
- Cash back on all your purchases – Chase Freedom gives 1% cash back on everything. Discover More only gives 0.25% until you’ve spent $3,000 in a calendar year, after which you get 1% for the rest of the year.
- Rotating categories that provide 5% cash back – Throughout the year, you’ll be able to get 5% on gas stations, grocery stores, restaurants, etc. This is where you’ll get the most benefit from having two cards. For example, Chase might offer 5% back on grocery stores in the first quarter of the year, while Discover has the same promotion during the third quarter. For six months out of the year, you could potentially get 5% back on all your groceries. Not a bad deal, right? You can view their discount calendars here: Chase, Discover.
- Bonus cash back when shopping at certain online stores – Discover offers up to 20% back and Chase offers up to 10% back. You usually need to click a link in your card account before making your purchase, in order to get the bonus.
- No annual fee – Most people will dismiss an annual fee altogether. As long as the benefit you’re getting from the card is greater than the annual fee, it can make sense. I’ve read that for people who travel a lot, the American Express Starwood is, by far, the best rewards card, and it has an annual fee. But with the cards I’m recommending, you don’t have annual fees to worry about.
As you can see, the main goal here is to get some money back on things you’re buying anyway. 1% or even 5% cash back won’t end up being a ton of money, but it will add up, and these days, it helps to save any way you can. Also, it should be apparent why it doesn’t make sense to carry balances from month-to-month on these cards. If you don’t pay your statement in full each month, it won’t be long before the amount of interest you’re paying is greater than the rewards you’ve earned.
There are other reasons to use credit cards, as well:
- Insurance coverage on car rentals – Don’t pay extra for insurance when you rent a car, just pay with your credit card. Almost all credit cards offer this.
- Extended warranties on purchases – In addition to the cards above, we also have an American Express card. They will double any manufacturer’s warranty, adding up to one year. I believe all AMEX cards offer this, but it’s not as common with other cards, especially rewards cards.
- Damage & theft protection for your cell phone – If your phone is lost, stolen or damaged, the card issuer will replace it, as long as you’re paying your cell phone bill with your credit card. You’ll typically have to pay a small deductible, usually around $50. Only a handful of cards offer this.
- Piece of mind – Card skimming is all too common these days. If someone skims your credit card, it’s the bank’s money they’re spending. If they skim your debit card, you could be completely broke until it gets sorted out with your bank. I’d prefer to not even carry my debit card around, but in the rare instances I need cash, I don’t really have much of a choice.
We do use a couple other credit cards on a regular basis. As I mentioned above, we have an AMEX card that is used to extend warranties, usually on larger purchases, such as electronics. We also have a Target REDcard because it gives a 5% discount on nearly everything in the store. We do a lot of shopping at Target, so it makes sense to get that 5% discount all the time.
Other cards may make more sense for you, but the Case Freedom and Discover More seem to offer the greatest benefit in cash back rewards. If you’re only going to get one, I’d go with the Chase Freedom, as it allows you to earn 1% on all purchases right from the start, while Discover More requires you spend $3,000 first.
