332.0 - 332.999

I've been reading personal finance books off and on since starting the blog. I get through a few chapters, then put the book down for a week or so before coming back to it. I have David Bach's "Debt Free for Life" by my bed, Carl Richards' "The Behavior Gap" at my desk, and Ben Stein's "What Would Ben Stein Do?"

I haven't picked up Mr. Bach's book in weeks and I'll probably just return it to the library. Like Dave Ramsey and other financial advisors out there, Mr. Bach focuses on paying off all your debt in the fastest amount of time by sacrificing just about everything else. While this approach may work for some, it's just not for me. Full on deprivation just leads me to overdo it later. Plus, I'm not getting another job to help pay off the debt faster. Fact: I'm lazy. I did toy with the idea for a few weeks, but right now, the hubs and I have something going on just about every weekend until June. I'm hopeful I might be able to pick up a nights & weekends gig during the summer when the hubs is off and we don't have to worry about Molly Monster, but we'll see.

I'd rather work with I've got and learn subtle tips and tricks to save more, but still being able to feel like I'm enjoying life. I know, I know, you don't need money to enjoy life, but it sure does help!

Mr. Richards book is more my style. While it's primarily about investing, there are some snippets of wisdom that have stuck with me. Plus, there's pictures! (Diagrams, really.) One phrase I've been carrying around:

"'Personal finance... is more personal than financial.' It's true. Planning for your financial future is personal. It has to be. A good plan will be unique to your situation, and what is right for your situation may be a disaster for your neighbor. So ponder how the advice you encounter applies to you before you make important decisions about your money."

Last month, I embarked on trying to pay down my debt myself. As we saw at the end of the challenge, it didn't work out for me as well as I'd hoped. My overall debt total only went down a smidge and I was a bit dicouraged. And I had barely anything left over at the end of the month to put in our savings account, which frankly, was stressing me out. I decided to go back to another option I had previously shurgged off: getting a personal loan to pay off my credit cards and starting fresh. PNC offered loans with a starting rate of 8.25% if payments were deducted from my checking account. I applied... and was rejected.

Remember back when I reviewed all the componants of my credit report/score on Credit Karma? One of the biggest black marks on my record was my high debt to income ratio (43%). This was the main reason why I was rejected for the personal loan. Fresh off our anniversary conversation, the hubs told me to re-apply, but to to add him on the loan as well, thereby increasing our incomes while keeping the debts relatively the same. I did and this time we were accepted.

On Saturday, we took a trip to the bank to sign all the paperwork. Our rate ended up being 8.99% which is still half of what the lowest interest rate is on one of my credit cards. I took out a $9,000 loan for four years at $225 per month. There is no penalty for pre-payment, either, which means anytime I have some extra money, I can throw it towards the principal and pay it off faster. Plus, now I know I'll be able to contribute more to our savings account (I already increased the automatic transfer to $100 per paycheck, instead of the previous $50). All in all, this feels like a much better fit for my life than the previous attempt.

And for the credit cards? They're still tucked away. I opted not to cancel any of the cards, since another black mark on my credit report was the "length of time accounts have been opened." Instead, I'll just let them hang out for awhile. Maybe in a few months, when I feel like I have more control over my spending, I'll break them out for one necessary purchase per month, like gas or groceries. But until then, I'll recognize my weaknesses and keep temptation out of my grasp.

I already feel like a burden has been lifted. Even though I know the debt is still there, being able to see zero balances on the cards AND being able to save for any unexpected expenses, instead of having to whip out a card to pay for them, makes a world of difference. And if I ever get tempted to buy something unnecessary on credit, all I have to do is read my own blog.

Anyone else have any similar experiences lately - either with money or something else?

the limit does not exist

Actually, in this case, a limit DOES exist and I am not happy about it.

Yesterday afternoon, I received an e-mail from Credit Card #1 stating they were dropping my credit limit - by $2,000!!!

As you can imagine, I totally flipped out. I immediately called the company and pitched a fit. My main problem with the decision was my new limit ($3,000) only spared me about $200 from maxing the card out. In addition, I've never made a late payment on the card, have paid the balance off before in the past, and used the card actively. So what gives?

The customer service rep told me they had pulled my Experian credit report as part of an "Annual Credit Profile" (which, in the four years I've been with the company, is the first I'm ever hearing of this procedure). Having just pulled my credit report last week, I knew exactly what Experian had reported, and I couldn't see any negative reasons why they should drop my limit that much. The main reason was because my "debt to credit utilization ratio was too high". I know my utilization was a bit high (about 43% - read about it here), but, doesn't knocking my limit down so much make the situation worse since now I'm almost maxed out on one card? Apparently this company doesn't think so.

Other reasons were the length of time my accounts have been opened (nothing to do about that but age) and the amount of my payments (the minimum, right now while on my payment plan) in relation to the balance. Geez. At least I pay my credit cards (and on time, for that matter!).

I had half a mind to tell her to cancel the card right then and there, but then that's not going to help my "length of time accounts have been opened" situation. Instead, I asked her what I could do about it. There are two ways to appeal the decision. The first is to make a large, lump sum payment on the card (not happening, since we're still rebuilding our savings account). The second is to file an appeal based on income. So after work today, I have to run over to the UPS Store and fax over copies of all my assets (savings account, retirement accounts, last paystub) to the company with a request for my credit limit to be restored either to its original amount ($5,000) or another amount. I'm going to ask for my original limit back, but if not, at least increased to $4,000.

The one good thing that came out of this scenario was I'm totally re-motivated now to pay these stupid things off as soon as possible so I never have to deal with a credit card company and their sneaky tactics ever again. Oh, and I found out my FICO score was 709. Still lower than last year by about 30 points, but not as bad as I thought it was.

Anybody else have a similar experience before?

Friday Spending:
$5.97 Dunkin Donuts (breakfast)
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Friday Saved: $0.00

April is Financial Literacy Month

Did you know that? I didn't until I was doing research on a different topic for the blog.

Money Management International is sponsering a Financial Literacy Month Challenge as well as guest bloggers on their Blogging for Change website which highlights each days "step". You can enter the Challenge for a chance to win $500 - you know I did!

I'm a bit behind on the steps, so lets kick this baby into overdrive to catch up, shall we?

Step 1: Commit to Change. Done!

Step 2: Assess Your Finanical Situation. I scored 12 points on their quiz, which "reflects a good effort to manage your money effectively. The 30 step plan can help determine changes that can be made to improve your financial well-being."
Step 3: Clearing Out Financial Clutter. I will give myself a pat on the back for being pretty organized; I usually alway toss receipts (except for major household purchases), I print & save our utility bills for one year to compare costs. I'm hit-or-miss on saving credit card statements. Lately, I've just been reviewing them online.We have a big bag of bills I need to get around to shredding then burning in our fire pit. I need to add our paystubs to the pile now that we've received our tax return. The blog post for day 3 lists an interesting tip about carrying three different registers - one for cash, one for your bank/debit card, and one for credit cards. The author also mentions people who struggle with their finances may need to document their spending for longer than a month (ugh!)

Step 4: Set Yourself Up for Success. I would consider myself the Family CFO, meaning I track and pay the majority of our household bills. Again, I'm pretty organized with our paperwork. We're half & half on automated payments- I should probably work towards full automatic payments. I couldn't view the webcast at work though, unfortunately.

Step 5: Get Copies of Your Credit Report. Done - over 40 pages!

Step 6: Clean Up Your Credit Report. Easy-peasy since there were no errors from the three reporting agencies.

Step 7: Make Your Money Count. Using their Income Worksheet Form, I calculated a monthly take home of $2,553.24 (a bit more than my previous estimates due to knocking down my retirement contributions in the short term).
Step 8: Identify Your Starting Point. I calculated my net worth at $1,130.87. Woo-hoo! In the positive! I didn't have the information on the balances in my pension & IRAs so I just estimated some rough numbers based on my last year & a half of contributions. I did not factor in our joint savings because I haven't recently contributed anything to it (whomp whomp)

Step 9: Passing the Debt Test. I answered "yes" to four questions:

Is an increasing percentage of my income going towards debt payments: yes, but that's because I'm riding the debt meteor

Is my savings cushion inadequate or nonexistent: bats- 1, savings account- 0

Are you at or near your credit limits: depends on your interpretation of "near", but I answered yes anyway

If you lost your job would you be under immediate financial strain: hell yes. this scenario gives me nightmares.

The guest blog posts lists "5 Great Reasons to Have Less Debt". They all sounds fabulous.

Step 10: Set Your Priorities. When filling out the worksheet they provided, I could almost place each priority in the "need" catagory, but I decided to be reasonable. The blog tells you to "market to yourself" what your priorities are instead of letting the mass media market to you which I think is a really interesting concept.

Rank 1 (most important): Paying off unsecured debt; Making on-time payments on secure debt; Maintaining a savings account (all ranked as needs)

Rank 2 (semi-important): Buring a car (still more a want than a need), taking a vacation (want), having money for entertainment (want)

Rank 3 (not as important): Saving money for a down-payment on a house. Obviously, we already own a house, so we don't need a D.P. but we should work on increasing our home equity.

Step 11: Set financial goals. They use the acronym SMART:

S - "A smart goal is specific. It pinpoints something you want to change to achieve." (I want to pay off my credit cards before I turn 30.)

M - "A smart goal is measurable. You can measure or count a SMART goal."

A - "A smart goal is achievable. Setting goals too high can lead to frustration." (going to be hard, but achievable)

R - "A smart goal is rewarding. Reaching the goal should be a reward for your hard work."

T - "A smart goal is trackable. Set milestones and schedules for your goals." (first goal: Pay off Card 3 by July at latest)

That brings us up to date on our steps. Are you motivated to take the Challenge now? I'm actually kind of excited about it. I'm definitely a person motivated by challenges/experiences so this is right up my alley.

Credit Chameleon

On the recommendation of a friend, I decided to check out Credit Karma, an online service that allows you to see your TransUnion credit score (not the same as your FICO score) for free. In addition, you also have the opportunity to see your credit report card so you know what areas you to improve on. I was a bit hesitant to utilize the site, as giving out personal info to unverified, third party companies isn't something I'm usually comfortable with. I familiarized myself with their privacy policy and used Internet Explorer's "In Private" browsing feature which restricts cookies. I was relieved they did not ask for my whole SSN, just the last four digits. Here's how I faired:

Credit Report Card: C (ouch! definitely thought I'd do better than that!)

 Open Credit Card Utilization - C - my utilization ratio (balances divided by credit limits) was 43%

Percentage of On-Time Payments - A - 100% !

Average Age of Open Credit Lines - D - my average is a little less than 4 years, with the oldest credit line being 7 years.

Total Accounts - B - 21 (14 active, 7 closed)

Hard Credit Inquiries - C - 3 in the past two years (most likely all from buying the house last year)

Derogatory Marks - 0

Total Debt: $175,557 (79% mortgage, 16% student loans, 5% credit cards)

Debt to Income Utilization - 62% (just me, hubs' salary not included)

Credit Score: 686 (double ouch)

That score represents an almost 80 point drop from where I was at this time last year. I believe when we started prepping to buy our home, my score was in the 740-750 range. This was the initial kick in the pants I needed to reign in my spending and reverse the downward trend. Checking back in is definitely the boost of motivation I need to keep up the plan.

There's not much I can do about the "length of time" my accounts have been open, save for not opening any new accounts. I'll have to keep watch over the accounts I do have to make sure I'm not charged any kind of inactivity fees - or worse - have cards closed for inactivity. According C.K. accounts open for 8 years or more is what I'm aiming for. Additionally, with the passage of time, the "hard inquiries" on my credit report will disappear as well.

The big area to work on is my utilization ratio. The sweet spot is 20% or less. Now that I have a plan, that number will, hopefully, be achievable in the near future.

What was really cool on the website was the Credit Simulator - Essentially, you can plug in different scenarios and see how it reflects your credit score. For example, if I pay off my credit card debt, my score would rise to 755. If I obtain an auto loan for $12,000, my score drops three points. If I do both those things, my score still rises to 729. Pretty cool.

Has anyone else used Credit Karma (or a similar website)? Raise your hand if you'll have Karma Chameleon stuck in your head the rest of the day. Yep, me too.

Day Twenty Five Spent:
$1.00 vending machine chips
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Day Twenty Five Saved: $0.00