Debt Tsunami

The next time you have a few minutes google debt + natural disaster of your choice. It's kind of fun. But not right now, you're busy reading my blog.

The final installment of our debt elimination journey has us riding the waves of the Debt Tsunami. Adam Baker claims it's the "ultimate method to pay off debt" by tapping into our emotional connection with our credit cards. This sounds like it's about to journey into "My Strange Addiction" territory. The Debt Tsunami is "about paying off your credit cards in order of their emotional impact" regardless of their balance or interest rate.

Mr. Baker contends that the snowball and avalanche methods won't work if they don't correlate with your specific personality type. For example, "logical" people usually prefer the avalanche method because it makes sense to pay off high interest cards first. The method assumes you are a mathematical person who can detach yourself from the emotional side of debt. The snowball method works if you're someone who's motivated by little victories. But what happens if you're neither (or both) of those people?

In the argument for the tsunami, Mr. Baker references two scenarios which both involve money lent by a friend or family member. This scenario doesn't apply to me at all, so I have some trouble identifying with the "emotional side" of my debt. But I'll try. Let's go through his step-by-step strategy:

1. Create the initial burst of energy. Oh, look, "start a blog" is one of the options. (double check!)
2. List your debts from smallest to largest including interest rate



can i put "creates awesome tables in paint" on my resume?

     3. Focus on the emotional connection with each debt. Apparently I should be closing my eyes and imagining what it'll feel like to pay off each debt, but I'm at my desk, so that's not going to happen. Other questions to focus on:     
      a. How long will it take to pay off?
      b. On what did you spend the money? .
      c. How much of a burden is this particular debt in your financial life?
      d. Is it secured or unsecured?

   4. Reorder your list based on potential emotional impact - Mine would be in order: 1, 2, 3, 4. There is a caveat here - "order the debts by how awesome it'll feel to eliminate them combined with how easily you can actually get that result." Eliminating Card #1's debt is not going to be easy, so there's a wrench thrown into my list.
   5. Head immediately towards shallower water: "The only way to build momentum is to go as fast as you can towards shallow water." Here is where we reduce spending & budget better in order to apply more money towards the debt payments.

While I appreciate the ideas behind the Debt Tsunami, I don't think it's right for me in its entirety. Instead, I'll combine it with parts of the Avalanche & Snowball theories to create my own Debt Meteor program (kudos to my co-worker for that one). I'll tackle the balance on Card 3 first, since it has both the lowest balance and the highest interest rate, but one of the lower emotional connections. Then we'll move onto Card 1, which has the higher balance, interest rate, and emotional impact. From there we'll go to Cards 2 & 4. I'll tweak the plan if and when it's needed, since I need to set myself up for successes, not failures.

Which program works best for you? Anyone else inspired to create their own debt program this weekend?

Day Eighteen Spent:
$28.56 gas
$5.00 lunch
$32.10 daycare for Molly
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Day Eighteen Saved: $0.00

Debt Earthquake & Aftershocks

Two other ways frequently mentioned in eliminating debt are balance transfers and loans. Neither of these choices are optimal for my personal situation, but maybe they will help you out.

The first option, balance transfers, is pretty simple- Apply for a 0% interest card (and be approved) then transfer your high-interest balances over. Assuming you pay off the balances before the promotional rate expires, you'll have saved a good chunk of change in interest. One cavat to look out for is the fee associated with transferring the balance, usually a flat fee or a percentage of the transfer.

MyMoneyBlog.com lists the following as the Best No-Fee, 0% APR Offers for 2012:

1. Citi Platinum Select Mastercard - 0% APR for 18 months on transfers and purchases. Transfer fee is 3% of the balance
2. Slate from Chase - 0% APR for 15 months on transfers & purchases. Slate is one of the only cards with no transfer fee
3. Discover More - 0% APR for 18 months on transfers and 6 months on purchases. More cards are also part of cash-back program
4. Capitol One Platinum Prestige Mastercard - 0% APR until June 2013. Balance transfer fee is 3% of total with no minimum to transfer over. The annual APR's are also lower (depending on your credit score, of course)

You can read the full list here. I just opened a balance transfer card in August 2011 (Card 4 on my list) so obviously, opening another line of credit is going to hurt me more than paying off the existing cards . Card #2  just sent me a letter in the mail offering 0% on balance transfers; However, that would take up most, if not all of my credit line on that card which isn't a good idea either. If you only have one or two cards with high balances, can sock extra money into payments, and won't be tempted to use the new card, then this might be an option for you.

The second method would be to take out a personal loan to consolidate the debt into one monthly payment. Generally speaking, the loan rates at the bank tend to be lower than credit card rates. They dip even lower if you have a credit union nearby.

I decided to call up PNC and find out what kind of terms they were offering for a $10,000 unsecured loan. Since I'm already a customer with the bank, they offered me an APR of 8.99% if I have the payments automatically deducted from my checking account. The base APR is 9.24% - still not too shabby. There are no pre-payment penalties associated with the loan, which is good. A three year plan would cost me $318.00 per month and a four year plan would be about $250.00 per month. This would almost seem like a great option if I didn't already have that one card with 0% interest. Plus, another unsecured debt would not look good on my credit report right now.

Some websites even suggest taking a loan out from family members or friends, but I'm of the mindset not to mix business with pleasure. Has anyone ever loaned money to a family member and actually had it all paid back? I know if it's not going to affect my credit score negatively, I would be lax in my re-payment efforts. No need to create unneccessary family drama - we do that well enough on our own.

Just in case the past three days didnt't have enough natural disaster analogies for you (spoiler alert), tomorrow, we'll look at the Debt Tsunami! Hold onto your surfboards.

Day Seventeen Spent:
$5.00 Sally Beauty Membership Renewal
$1.07 Dollar Tree (makeup remover cloths)
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Day Seventeen Saved:
$5.79

Debt Avalanche

It seems that the majority of debt reduction plans all have some kind of destructive nature theme going on - like the "debt snowball" is really a snowball packed with ice that's going to impale your credit card debt and the "debt avalanche" is going to bury your debt in a pile of who-knows-what.
The second program I'm going to look at,"Debt Avalanche", focuses on paying off high interest rate cards first instead of paying off the cards in low-high order. The premise behind this program is by paying off the higher interest cards first, you'll save money since the interest charges won't be as large.

Sounds promising. Here's my table (click to make it larger):

According to a Snowball vs. Avalanche calculator, paying down the debt in this fashion will save me $55.00 in interest. Meh. Pretty unimpressive, in my book, but I guess any savings is good savings when it all boils down, right?

In both scenarios, I'd be paying off Card 3 first, which fits in nicely with how I planned to do it anyway. So you don't have to go back to Friday's post, the plan for Card 3 is: First payment comes out on March 14 for $134.79 and I'll be paying $100.00 towards that card each month while paying the minimums on the other cards. Barring any emergencies, I'll make a double payment on the card this month and have the whole thing paid off in the next three months.

These two programs seem to encapsulate the most popular ways to pay off debts. Tomorrow, I'll look at two other options that I'm fairly certain I won't use, but we'll discuss because I like to hear myself type.

Day Sixteen Spent: $0.00

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Day Sixteen Saved: $0.00

Debt Snowball

The premise behind Dave Ramsey's "Debt Snowball" is a fairly simple one: pay off your debts from smallest to largest. According to Mr. Ramsey, "Paying the little debts off first shows you quick feedback, and you are more likely to stay with the plan." The idea is to apply each debt's minimum payment to the next as you work down the list in order to eliminate the debt faster. "Payments Remaining" is the number of payments remaining on the debt when you get to that item. "Cumulative Payments" is the total number of payments made (aka a running total).

As a side note - Mr. Ramsey encourages each participant to have $1,000 in savings before starting any kind of debt repayment. Although throughout the blog, I keep my spending/saving separate from the hubs, I did count our joint savings as my safety net in this exercise. Since one of the goals of this journey is to save more money, I will work on a separate personal savings of $1,000 as well.

Here is my debt snowball (click on it to make it bigger):

First impression: Wow. Almost six years to pay it all off.

You'll probably note that there is only a month & a half payment left on Card 4 by the time I get down to it. I currently pay $150 per month towards the balance because it is a 0% interest rate card. If need be, I may adjust that number in the future once I'm being charged interest, depending on how far along I am on the other balances.

Mr. Ramsey also encourages you to list all debts, including student loans and mortgages on the debt snowball, but since revolving debt is my immediate focus, that's all I've chosen to include on here. I accepted long ago that I wasn't paying my student loans off until my 40's and the mortgage... well, that's 30 years for a reason.

Overall, I think the Debt Snowball is one of the easiest plans out there and I'm partial to it; However, tomorrow we'll look at another option and compare. I know my sister-in-law, Stephanie, has used this plan with success. Anyone else out there have a plan you recommend?

Day Fifteen Spent:

$22.00 Lunch (treated co-worker for birthday)

Day Fifteen Saved:

$5.00

A Dollar Does It

Apparently three days without blogging has distressed a few of my readers. My apologies. To make up for it, I will try to post two smaller entries today. I do the majority of blogging at work, so some days it's important for me to get some actual work done. Gotta keep the man off your back!

First, lets chat about weekend spending!

Saturday Total Spent:

Lucky's Bed&Biscuit: $21.67 (Molly nail trim & ear cleaning)

Sunday Total Spent:

Family Dollar: $5.35

Acme: $16 ish

For some reason, our last two dogs (Molly & Wheatie) hate to have their feet touched. They immediately pull away even if you touch the top of their foot. Unfortunately, that means at-home nail clippings are out of the question, especially for Molly, who is extra wiggly.

In the spirit of supporting our local businesses, I chose to spend a bit more money & took her to Lucky's Bed & Biscuit, instead of our local Petsmart. Just a personal choice, though, and one that might change in the future!

Then we went for a 3 mile walk at the Barnegat Branch Trail, which was completely free! Afterwards, we did nothing all day, which was also free.

Sunday started my first phase of spring cleaning. I decided to tackle the kitchen and commenced with the sweeping, mopping, and scrubbing of it all. We took a quick trip to Walmart where I scooped up a $5 candle (Raspberry Sangria) to help the kitchen smell like spring (it worked). During the cleaning, I decided I wanted to de-scale our Keurig. I looked up the instructions on Keurig's website, but unfortunately, I didn't have enough vinegar in the house. A quick trip to the dollar store fixed that.

I never used to shop at the dollar store, but lately, I've found that they have a great selection of products at competitive prices. Did you know you can also use coupons at some stores? I just learned that! Definitely have to keep that tidbit in reserve for the future. On this trip, I picked up a gallon of white vinegar for just $1.25. I also purchased my favorite dishwasher detergent (which I can't seem to find anywhere else) - Palmolive ECO+ for $2.50. My last purchase was a pack of glitter Easter eggs for $1.00. You'll see what I did with them later.

Not only did the vinegar aide in cleaning the Keurig, it also helped me clean out the oven! I found this "recipe" for a natural oven cleaner - even though I don't have borax in the house, I decided the powerful combo of baking soda & vinegar would probably do the trick. I painted the mixture all over the inside of the oven with an old paintbrush then let it sit for about an hour. With just a scrubby sponge and a little extra elbow grease, I was able to get rid of any burnt-on food with no toxic fumes making us sick or hanging around our food. I've also used the baking soda/vinegar combination to clear out the sink and tub pipes. It's such a multi-purpose cleaning tool and so inexpensive!

Sunday also consisted of a trip to Acme for produce. I've been hesitant to buy fruits & veggies in bulk at BJ's because I don't want them to go bad, but since I've been trying to eat healthier, I think I'll stock up next time. These $10-$15 mini-trips are probably more expensive in the long run.

Here is what I did with my $1 Easter eggs:

I've really enjoyed decorating to the seasons in our house. It makes everything cheerier, but can be expensive. The dollar store has proved to be the best way to dress up the kitchen & downstairs bathroom without breaking the bank. Total spent for this project was only the $1 I paid for the Easter eggs. I already had the dip tray & the mini candle. I bought those cloth napkins a few months ago at Kohl's for a mere 0.89 cents. Even the hubs said he liked it!

Have you had success at the dollar store lately? Any tips I should know?

Apple Pie Chart

Bonus time! What Wheel of Fortune catagory does today's headline belong in?

What's that? No one under the age of 30 watches the Wheel? Bummer.

For the past two days I've been condensing the spending on my three cards into ten catagories. Luckily, most companies now offer some kind of "year end summary" so all I had to do was sift through the transactions to make sure they were in the right catagory. Then, I added up the totals and made a neat little pie chart:

For clarity:

"Other" included some printing/photo purchases, charity, & dry cleaning
"Fees" was primarily interest accrued on Card 1 and a small rush shipping fee from Card 2
"Grocery" included grocery & drug stores
"Home" is limited to improvement/maintenance - think Lowe's/Home Depot - anything else went to "Shopping"

I think the other catagories are fairly transparent. Clearly, I chose the right thing to give up for Lent, since shopping is the largest catagory. Looking at the shopping section is rather embarrassing; I can't even name one thing I purchased with all that money.

Yesterday, I scheduled my monthly payment for Card 3 (total: $534.79). I've chosen to pay this card off first, regardless of the method I use for paying down the balances. $134.50 will be March's payment. Since March is a three paycheck month (woohoo!), I plan to make a second payment on this card as well, hopefully for at least the same amount.

Starting Monday, I'll be blogging about the various options/strategies that exist for paying off the debt and picking one as my own. Are there any methods you have found helpful? Please share!

On an unrelated note- I want to thank those of you that have reached out to me, via comments, Facebook, or in person with your suggestions and support. I've only encountered one judgemental person thus far which makes me so grateful to have such uplifting people in my life. Even though it's uncomfortable to look at my flaws head on, it also feels good not to be carrying this secret around anymore. Who knows, maybe this weekend I'll get around to telling the hubs about the whole shebang. I'll admit, this honesty thing is pretty refreshing!

Day Ten Spent:
$1.50 vending machine soda
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Day Ten Saved:
$0.00

Working Hard for the Money

I saw this image on Pinterest last week:

It combined two of the things I'm not very good at into one effective plan- Score! The hubs and I are currently doing the 60 Day Insanity workout. We have successfully completed 8 days of the workout so today, I transferred $8 from my checking account into my short term savings. It's a win-win.

Speaking of wins, last night, we got together with a few of our friends at JD's Pub & Grill to play Quizzo. We used to go weekly when we all lived closer together, but it's been at least a year since our team played together. We were a little rusty out of the gate, but managed to win it all in sudden death overtime! The prize was a $25 gift card to the restaurant which we were able to use on our check last night. $25 divided by 6 = $4.17 per person. So essentially, I got a glass of wine for free!

the rhinos smell like victory. and beer.

Smart and money saving. Now that's a sexy combination.

Day Nine Spent:
$1.00 vending machine Raisonets
$34.00 gas (9.6 gallons @ $3.55 a gal.)
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Day Nine Saved: $12.00