Scott On Money

You’ve seen me talk previously about dragging my credit score down by refinancing opening a slew of credit card accounts and creating huge balances to take advantage of 0% credit offers.

Today I got my credit score again and it popped up more than 15 points. Why? Time. All those accounts that were opened over a 5 month period have aged another month and the scoring model has decided that I’m now a few percentage points less risky as a borrower.

Remember to give yourself a big discount on your car or home loan by paying down credit balances and not opening accounts several months before you plan on getting a loan.

The time factor is huge. About a month. Over fifteen points.

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Federal Surplus?

You will not hear it in most other places so listen up. The US ran a surplus of forty billion dollars in January. According to this MarketWatch article this doubles last year's January income.

As the article notes the pain is not over. January’s are big months due to the income tax schedule.

Cutting the deficit is big news. Some other key points you need to know:
- Katrina spending had a huge impact.
- Government spending continues to grow.
- Tax receipts continue to grow without tax increases.

Forty billion. Wow.

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If you have debt, especially high interest credit card debt, you have a problem. Your financial well health is being drained away.

A common suggestion offered to people for getting their debt under control is to put together a budget. This helps identify costly holes that your money uses to escape.

Unfortunately the concept of a starting a budget frightens, intimidates and bores many folks. If you fall into this camp it is okay. There is a smaller step you can take to help you get your situation under control.

Spending Log
1- For one week sit down every evening and write down everything that you spent cash on that day. You only need to track cash because everything else should have other records.
2- At the end of the week sit down with your cash list, checkbook, credit card and bank transactions and add them up. If you have online access to your bank and credit cards this will be easy. If you don’t have online access to your accounts just wait a few weeks until you have all your statements.
3- Multiply your cash items by 4. We only tracked these expenses for a week to limit the amount of work you have to do.
4- Add in your big monthly bills like your mortgage, car and utilities.

Now you know approximately what you spend. Look through it. Is there anything that stands out that you are really not happy about? Is there a restaurant you grab lunch at because it is near work that isn’t very good but is quite expensive? Did you buy a bunch of music that you really don’t listen too that much?

Use these items to identify a few simple areas that you can save some money and get started.

Smile when you write a bigger check to the credit card company. You are building your financial health and that should make you happy.

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Refinancing. Check.

0% Chase card. Check.

0% Citi card. Check.

Bill Me Later account. Check.

0% USAA credit card. Check.

If you look at my credit moves over last six months you might guess that I was trying to drive my credit score down. It is not true. How my credit score changed is an important lesson.

When I was considering how to leverage my credit I first decided I wanted to keep my credit score as high as possible before refinancing because the rate and fees there are so large. This made me put the refinance effort first. I also knew that I wanted to be taking more advantage of my credit. This made me examine 0% credit card offers.

I was actually a little bit surprised after refinancing the house, applying for getting, and maxing out two credit cards how little my credit score actually moved.

But I find now, after the inquiry for Bill Me Later, the new account opening and the inquiry for the USAA credit card my credit score finally taking the serious hit that it so justly deserves (Just kidding, I think thousand of on time payments over tens of years counts for a bit too). Because of the inquiries and the new account opening my credit score plunged over 10 points on a single day. I found this out thanks to the myFICO ScoreWatch service.

I my credit score to fall given all of the activity that I’ve instigated and had been quite surprised the previous months that I hadn't seen more of a move in my score.

It's easy to see from this example that it takes quite a collection of individual events to move your credit score dramatically. I consider this all an interesting experiment in what moves credit scores. I'll I will not be applying for new credit in the near future. We'll see how quickly it takes for my credit score to bounce back to where it was before. The hope is by late this year my credit score will have rebounded again giving me the opening to start new 0% accounts and keep leveraging my credit to help earn income.

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I’ve read and written many articles on techniques for eliminating credit card debt. But there is a simple first step that you must take to be successful. Forget about it and all the other techniques combined will not help much.

You have to stop build credit card debt. If your credit card debt is out of control you have to regain control. It may sound really hard, but it is something you must do.

Start by laying out a budget. List all income you receive. Now try listing out you major expenses. Just start with anything that is 10% or more of your total income. Look for a way to make your income more than your expenses without using credit.

My Christmas wish for you this year is that you can find a way to take this important first step. If you do you’ve taken a huge leap towards being debt free.

Good Luck!

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Many of us take the time to exchange gifts with the special people in our lives. If you and yours have this tradition, and you are in serious debt consider whether you can use this time to pay down your debt.

Consider asking those that you normally exchange gifts with that you have a very close relationship with to contribute the money that they would normally spend on your gift towards your debt. Keep in mind that this will be a very sensitive topic.

Let the people you ask know how important paying down your debt is in your life.

Only ask if you are very close with the person you are asking. Some people might be offended by the request.

Respect their decision, whatever the conclusion and let your friends know you respect their wishes either way.

If your loved ones agree honor their gift by applying it as agreed and working hard to pay down the debt.

Be thankful for the blessing you receive. With hard work you will overcome your debt burden.

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Do you have trouble paying off your debts because you keep spending try this tactic. Only carry $20 cash with you. Only cash. No credit cards and no debit cards.

You will have limited your ability to act on your impulses. Little changes like this can help you get control of your finances.

The best place to get deals on computers and software was swap meet style shows. There were so many “great deals” that I found I had to set a budget beforehand and only bring the money I could afford to spend. Why? Our impulses can be powerful.

Leave your credits cards at home and you’ll find it easier to pay down your debt and overcome your impulses.

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If you have bill pay and you have debt you have a great way to get out debt. Setup a weekly bill pay of $7 dollars to your highest rate debt. Keep making your regular payments.

Bill pay makes the task effort free once you set it up.

By having regular and manageable extra payments you’ll pay down your debt years faster. Invest in your debt free future!

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If you are paying more than ten percent on your credit card balances you have to get the rate down. Your first step will be to try transferring your balance to another card with a lower rate, preferably 0.

You may have credit so damaged that you can’t get a new card. In that case call your credit card companies and ask to be put on a payment plan with a lower interest rate.

Credit card companies may well turn you down, but you don’t know until you ask.

Here are some points to remember:
• If you’ve been a long time member remind them of that.
• If you carry a balance and pay on time your are likely a profitable customer remind them of that.

As with all negotiations:
• Be polite, if the person you are speaking with has discretion you want them to use it in your favor.
• If you are not getting anywhere ask for a supervisor. The supervisor may be better able to help but the customer support person may not tell you that.

If you negotiate your rate down this will help you eliminate your debt much more quickly. Whether or not this works you should find a way to pay down your debt faster.

Good Luck!

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Making extra payments is a powerful way to get out from under a mountain of debt. Even small amounts pay off dramatically.

Search hard to find one dollar a day to set aside for paying down your debts. Drink water at a restaurant instead of having a drink. Clip coupons. Work overtime one night a month. Whatever you want to do.

If you paid thirty extra dollars a month on a five thousand dollar balance at eighteen percent interest you would pay it down four times faster, paying of the debt twenty years earlier. Twenty years.

Find that dollar!

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I have to use credit cards. I am not a spendaholic. I don’t pile up tons of credit card debt. But I have to use the plastic.

Why?

I keep my money longer. I earn money on the money that I keep. I have more flexibility if my life hits a rough spot.

I get protection from merchants. Some merchants don’t care about their customers. When I use my credit card I have an 800 pound gorilla on my team. When I call attention to the fact that a credit card company is on my team businesses become far more cooperative.

I get protection from criminals. If someone commits fraud with my checking account I have to duke it out with my bank to keep from being held responsible for the fraud. With my credit card I simply let the credit card company security department take care of it.

I get perks. Rental car protection, flight insurance, cash rebates and so on. My checking account and the Federal Reserve don’t offer these deals.

Don’t pile up credit card debt. Don’t spend money you don’t have. Do use your credit cards wisely.

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I was out getting dinner the other night and I noticed a yellow Lamborghini parked at Denny’s. I thought about the person that owns that car and where they were eating. For those of you that may not know the car likely cost over one hundred thousand dollars. For those of you that don’t know eating at Denny’s will cost you eight to ten dollars.

I think about cause and effect. Did this person live a frugal life and set aside money to fulfill their dreams? Did this person as a kid have a yellow Lamborghini on their wall? Did this person decide to eat at Denny’s instead of pricier dinner options to save to make their dreams come true? Could be.

Did this person go into massive debt to buy a Lamborghini on impulse? Are they forced to eat at places they don’t like just to stay above water and pay off their debt? Will they be able to keep up with the bills if they lose a job or have health problems? Could be.

I present two completely different speculative, lives. Which would you choose?

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Ten dollars a month is all it take to pay of your credit card debt a lot faster if you are paying the minimum. How much is a lot faster?

If you have a five thousand dollar balance at an 18% interest rate and paid the minimum it would take about 26 year to pay it off. If you add an extra ten dollars over the minimum each month you’ll pay off the card in less than eight years.

You heard right, paid off in eight years, 18 years faster than the minimum payment.

Never pay the minimum. Always pay more. Stretch, scrimp and save get at least ten dollars a month to knock out your debt. Every dollar counts. Every dollar you pay off today counts way more than the dollars you pay in 5 or 10 years.

Good Luck!

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You know it does. It is so easy to ruin the best thought out plans. Your transmission breaks down $2,400. Water heater busts $400. You just closed on a new house and lose your job.

While each of these events is unexpected the fact that these things happen is not. So how do you deal with planning your financial future when fate is hanging around waiting to yank the rug out from under you?

Have a fund for the unexpected. What kind of things can disrupt your financial plan? Figure out what kind of money you need to deal with the occurrence. I try to have six months of expenses set aside. I used to think three months was okay until I had a time where I couldn’t find a good job for four months. Open an account with easy access and a high interest rate and starting saving. If you don’t have a fund set up for these unexpected events you will find yourself pulled under by high interest credit cards.

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Today I receive the Citibank card for the zero percent offer. I activated the card and called them up to request checks so that I could get the money over to my money market account. The operator started the process and then remembered that, as of yesterday, they will not send blank checks any more.

I was a bit disappointed so I thought I’d call Novus(the Discover card people) to see what they would do with an overpayment figuring they might send me a check that would let me get the money to Emigrant Direct. While I was thinking about this I was registering for the Citibank card site. I clicked on the balance transfer button and they will let you send yourself a check!

Bingo! That is exactly what I wanted.

We’ll see how long it takes to get the check here. The site said about two weeks.

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I recently started fishing for a 0% offer. I intend to move the money over to my EmigrantDirect account for the length of the 0% offer and then pay it off.

I had been waiting till after my loan funded.

So I did some research and finally decided on the Citi Platinum Select Card. I saw several other cards that had rebates but I wanted to keep it simple and this card has 0% on transfers and purchases.

This requires careful work to avoid wiping out any gains:
1) Make sure the way you move the money does not incur fees and/or rates. If you get dinged for a cash advance fee you’ll wipe out a lot of gain.
2) Don’t do this for spending. The money should be set aside in a high rate savings account.
3) Make sure you pay of the card by the end of the 0% offer or you’ll be slammed with a huge interest rate. I’m going to probably pay it off one month early (two if I’m doing with another card.).

I’ve only carried a credit card balance once before but 5.15%-0% is cold hard cash. I’ll let you know how it goes.

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Thanks to Pragmatic Finance for hosting the Carnival of Debt Reduction this week.

My contribution was on bad debt. Free Money Finance has a post debating the existence of good debt.

I strongly believe there is good debt and bad debt. If I can use debt to help me achieve my financial goals without undue risk then I will use it. Obviously if you don’t feel safe holding debt or don’t have the desire to manage the process by all means don’t do it.

Never use this as an excuse. I believe debt is far too often used without a thought and that can’t be good.

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It is easy to find people talking about getting out of debt. Searching for the phrase on Google gives you about 90 million results. But should we always be trying to get out of debt?

The answer depends on the kind of debt. Any debt that is not contributing to you’re financial progress is bad debt.

If debt is being used to buy things that you couldn’t otherwise afford and don’t need it is probably bad debt.

This bad debt can come in many forms. It could be using credit cards to buy expensive meals, the latest clothes or whatever your particular vice is. It could be buying a new car every two years. It could be taking out a home equity line of credit to rollover your credit cards so that you can spend more.

Use debt wisely. Look for good rates and put the money to use for things that help you achieve your financial goals. Take out a loan for an investment property. Buy the furniture that you need and can afford with cash today on the zero percentage rate card you have and put your money away in a high rate money market (be sure to pay it off before the zero percent expires).

Before you use debt ask yourself these two questions:
Will this debt be used for something I need?
Is this debt contributing to my financial progress?

If you can’t answer yes to at least one of these questions don’t do it.

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My recent refinancing experience has provoked a slew of misleading offers. I was expecting some offers based on previous re-financings. But this has been crazy. I had not been keeping count of all offers but yesterday was so absurd I counted them up. Seven offers in one day mentioning my refinance.

These aren’t the first offers. I know for example that the loan company itself has offered me mortgage life insurance three times since the loan funded. The volume of offers is just amazing.

These offers are almost all highly misleading. They start with big, bold text Important Notice and Complete and Return. The list the lender, property information and loan amount. It seems they are trying to create the impression that these are forms from my lender that I must fill out and return. They do disclaim any associate with my lender in a small footnote, but that is not what is at the top of the offer and it is not what is on the outside of the envelope. Assuming I wanted mortgage life insurance I wouldn’t deal with a company whose opening tactic is to mislead.

Always be suspicious of your mail!

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All public companies in the United States publish balance sheets every quarter. Analysts and investors use these documents as a guide to the health of the company and compare them over time to track and predict the company’s progress.

For our purposes we’ll build a very simple balance sheet.

First list your assets.  These are any investment accounts, retirement accounts, savings or checking accounts.  Add these up.

Now list your liabilities. These are home and car loans, credit cards, student debt, etc. 

We’ll throw in a twist by listing the rate (interest rate, rate of return, rate of depreciation) beside each account.

Here is an example:

Assets

Liabilities (debts)

Total -$2,500

What do we do with this?  We try to get rid of our debts that have higher rates than our investments.  If our investments have lower rates of return then that money is better spent paying down the debt.  Before we rush to do that we should see about adjusting the rates.

Can I get a better rate of return on my investments? 

Can I get a lower rate on my credit cards? 

We’ll cover these topics in another post, for now we’ll assume that this is the best we can do.

At first look we might decide to take the money from our checking, money market and E*Trade accounts and pay off most the BofA Visa with the nasty 14.5% interest rate.  This is the right idea but we want to make sure we have a cushion to pay our bills, fix our flats and make sure we avoid deadly late fees.  Let’s say we look at our bills and decide we need three thousand dollars which leaves us with about $3800 to pay down the BofA Visa.  This will save you over $150 the first year (depending on where we pull the money from). 

It is important to put your finance on paper like this (I do it monthly) to look for opportunities to reduce debt and make sure that we take advantage of the money we have. Make your money work for you!

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