Milestone!

I input all of the payments we've made this month, as I do after every pay day. I put all of our new balances in, taking into account what we spent on vacation. The only outstanding payment we have for April is my car, but I can estimate the balance based on interest rates and fixed payment amounts.

And then I came to a shocking and exciting realization.

For the first time since I started my debt payoff journey, we owe less than $200,000 in debt!

This months debt total is $199,564.32!

Slow and steady wins the race, right?

In other news, I'm trying to refinance our house. Supposedly, HARP 2.0 eliminated a cap on LTV and appraisals on your home. As I am learning, this is not necessarily so. Since financial institutions have a choice in whether they want to offer HARP refinancing or not, most of them are not willing to provide refinancing through this program. Why should they, I guess, when they're making a profit off of those of us that are locked into high interest rates and haven't walked away from our homes yet.

I tried to refinance through my credit union yesterday, but they enforce a 125% LTV cap on their HARP loans. We're looking at closer to 148% based on Zillow's values. Even if we used the higher assessment we received from the auditors office for tax purposes, we're still at 133% LTV.

I hate that we live in a society where I'm being punished for being responsible and paying my mortgage, unlike the majority of my neighbors. I don't know if our situation would be more bearable if we were paying less on our home, but it would certainly lessen the sting. Every day I ask myself why we're still paying our mortgage when all of our neighbors have walked away and the current owners paid 1/3 of what we did for our home. We're gluttons for punishment, I guess.

We have to make a pretty big repair to our home, to the tune of over $8000, but I don't know where we're going to find the money. In better times, we might have been able to take out a home equity line of credit, but since our equity is negative, there is nothing to take out. It's our sewer line, and it's a ticking time bomb. The walls are cracked and it has started to shift in about 1/4-1/2 of an inch. I know we need to fix it, but I don't know where we'll find the money.

Roto Rooter was pretty shady about the whole thing; they told us in our home that it would be a max $4000 to have the work done, so I took a $4000 loan out of my 401k, only for them to give us a proposal of $8175. When I told him he had quoted us $4000 at our home, he said there was no way he would have quoted that because it was impossible and told me to take out a loan for the other $4000. I told him I took out a loan for the first $4000 and it wasn't even in the ballpark of what we were willing to do for our home at this time.

I applied for a new job too. I'm not sure if I am ready to leave where I am, but the job I applied for pays significantly more, and it's more in line with the career path I'm following. We'll see if I even get an interview, and then I will start making decisions if it's necessary.

Alas, I must get back to work, but I wanted to share my good news.

More Thinking

Tonight I've started thinking that maybe I'll take a loan out of my 401(k) to pay off the consolidation loan and one of my student loans. I'm trying to think through the tax ramifications of paying off a student loan early, and really, all of the ramifications of a 401(k) loan. The loan would not be that much, as I have not saved much for retirement, but it would be enough combined with my savings account and tax return to pay off my consolidation loan (10.49% interest rate) and my student loan (5%). By paying off the two and paying back the 401(k), I would save $70 a month, or $630 between next month and the end of the year. Again, this is money that I could put directly towards other debt. So I'd miss out on about $100 worth of tax deduction, but I'd pay $630 less in interest, so I think it's worth it. I just want to make sure I have my numbers right before I request the 401(k) loan because I'd hate to take out the loan to pay off these debts only to not have enough to pay off the two debts I'm planning to pay off and still be making the same number of loan payments.

I can not believe how much time I spend thinking about money. It is 1:30 on a Saturday morning, and I'm sitting here thinking about how best to pay off my credit card debt. I can not imagine how much of my life I'm going to get back once these debts are paid off. Maybe then I'll start spending all of my spare time thinking about how to save money instead.

I finally filed my tax return, so that's a step in the right direction as far as actually accumulating the money that is needed to pay this debt off. I have got to remember what I feel right now next time I want to take out a boatload of debt. Yeah.

C'mon Get Happy

I am in such a great mood this morning. I would be in a better mood if I hadn't acted without thinking, as far as spending my bonus money, but I am in a pretty good mood.

My original plan was to apply my entire bonus and our entire tax return to our two Best Buy cards so that I would eliminate those two payments. I paid off the smaller of the two cards, and I paid off the two purchases on the other card whose promotional interest rates were about to expire. Even though none of the purchases were accumulating interest, I thought that it would be good to eliminate those two payments so I could apply them to other debt.

I have a credit union credit card that we use for our day to day purchases because it offers cash back, so I didn't want to apply it to that card because we're likely to run it back up next month and the benefit is short lived.

I have a Discover card that I transferred balances to in December, but I didn't want to put the bonus towards that because it pretty much would have defeated the balance transfers for the 0% interest for 15 months.

Our Target credit card was already paid off, our credit card with our other credit union was already paid off, and we're on a fixed payment for my consolidation loan.

Doh! My consolidation loan, the loan with the highest interest rate (10.49%). I should have put my bonus towards the consolidation loan. While the thought of eliminating two credit card balances was appealing, the majority of the purchases did not start accruing interest until 2013. The minimum payments were very minimum ($25 and $31), and they were accruing $0 in interest. Applying my bonus to the consolidation loan would have decreased the balance, decreasing the interest that is accruing on the loan, and would have put me in the position to pay the loan off at some point this year. The money that is currently going towards the loan could have then been applied to the Best Buy balances, and they still would have been paid off before they began accruing interest.

Lesson learned.

I can't get the money back that I've already paid out, however the balance of my bonus, plus our tax return that we will hopefully receive in March, will instead be applied to the consolidation loan. Paying off just over 30% of the balance of the loan will greatly decrease the interest that is accruing and in December, I will use our savings accounts to pay off the balance of the loan. And just like that, we will get $177.68 a month back in our pockets every month. Or more accurately, we will get $177.68 to apply towards the Discover Card. Depending on how my bonus looks in December, I will either use the remainder of our savings account to pay off the Discover Card, or if my bonus is looking amazing, I will pay off the balance of the Discover Card next February when I receive my bonus.

The money that I am currently putting towards the consolidation loan ($177.68) and the Discover Card ($244) each month, will pay off the balance of the Best Buy card before any of the remaining purchases begin accruing interest next year. By next July, all of our credit cards will be paid off, except one, and our consolidation loan will be gone.

And, I am going to resume contributing to my Roth 401(k) next month when my raise goes into effect. I will not be contributing at the level that I wanted to (6%) because realistically, we can't afford to right now, but I will be contributing at 3%, which is something, and when I pay off the bulk of my debt by this time next year, I will be able to increase my contributions.

None of this takes into account any raise or bonus that my husband will receive in the coming year. He receives monthly bonuses based on production and quarterly bonuses based on job safety, as well as an annual bonus based on a combination of both. It has been hit or miss whether he has gotten raises from year to year, because he works for a small company, so I never count on his paycheck going up.

I think we have decided to forgo the expensive vacation this year, in favor of saving for a Disney trip next year. If we go on vacation, it will be significantly less expensive than previous years, an less expensive than we had planned with the Disney vacation.

So yeah, right now I'm feeling pretty okay with where our finances are headed, as long as I can reign in my husband's spending. I've been making strides not to go to the store unless I need something so that I do not spend impulsively. My next goal is to create grocery shopping lists so that I do not wonder the aisles aimlessly looking for something to cook and end up coming home with a car full of snack foods and no real meals to speak of.

To close, here is the picture of our current debt distribution, after paying all bills for February. As you can see, the overall percentage of debt that is attributable to credit cards has increased, as has the overall credit card total. This is as a result of my husband buying video games, etc on an impulse.

Day 129: Rambling about the Past and the Future

I read this article on Yahoo yesterday, regarding 401(k) matching. As I wrote about a month or so ago, I discontinued my 401(k) contributions temporarily because we needed the additional income to help pay our bills and I was facing a consistent negative rate of return on my investment.

Reading the comments on this article (which is no small feat, given the numerous server errors that plague Yahoo articles), made me really think about my investment philosophy and planning for our future retirement.

I don’t know if I’ve spilled any personal information about myself, but I am 29 years old and my husband is in his mid-30s. I make approximately $42,000 a year plus bonuses (which have ranged anywhere from $500 up to an anticipated bonus this year of closer to $1500). My husband is on an hourly wage and generally has a gross income between $21,000-$25,000 and has not seen a raise in three years. Given our yearly salaries, I find it very sad that we have no savings accounts to speak of.

I put $25 per paycheck into each of our children’s savings accounts and then transfer those funds into small, short term CD’s whenever the savings account balances reach $500. I keep the CD’s small, and occasionally have multiple CD’s with different maturity dates, usually only buying 3 month CD’s due to the low savings rate. If the savings rate ever increases (which I anticipate it will in the future), I may buy more long term CD’s. My children know these bank accounts exist, even if they don’t fully understand them. In addition to my automatic contributions every two weeks, we also put any change and cash they receive into their piggy banks, and when the piggy banks get full, we take the piggy’s to the bank, dump the change into the change machine, and deposit that money into their savings accounts as well. When they get older, I will teach them how money is used to buy things, and we will maybe put half of their change into savings, and the rest of it will be used to buy things they want. I will also give them an allowance for doing chores around the house; something I never received growing up.

I think a lot of my financial immaturity can be traced back to my parents and how I was raised. I don’t want to blame my parents, because they did the best they could, given their financial position. They were both teenagers when I was born and my mom dropped out of school at 16. My dad graduated, but always worked hard, manual labor jobs just to make ends meet. They had five kids, and then divorced, and spent the next 14 years arguing over money, child support, medical bills, and everything else. I remember my dad, over and over again, telling me and my siblings how my mom was being unreasonable, expecting him to pay half of the medical and dental bills when he already paid child support, even though that was what the court order stated. I remember him showing me his paychecks and telling me, “This is how much I bring home, and this is how much I pay your mom, and how much does that leave me with? Do you think that it’s fair that I should have to pay her more for doctors and dentist bills?” Similarly, I remember copying every check that my dad sent my mom for child support so she would have proof for the courts that he wasn’t paying his fair share, and knowing how much she was bringing in, and how much the mortgage was, and really having no clue on utilities or car payments. Based on what I know now, as an adult, it’s no wonder our home was foreclosed on when I was 17 years old.

When we bought our house, we made an effort to determine how much home we could afford. I never wanted my children to feel the sense of loss that I did when we lost our home. It was as if I went off to college, and never had a home to go back to. Apartments never felt like home, and I moved every year so I didn’t really accumulate much from year to year. My first apartment was furnished, but my second was not, and the only furniture I owned was a queen sized bed and a 19” tv. I sat the tv on a box and didn’t have cable. My living room was empty. Same with my second apartment, until my (now) husband bought me a tv stand to set my tv on for my birthday. It wasn’t until I moved in with my husband that I actually had furniture in my living room, and even then we had a broken down couch that he’d gotten from friends, or family, or somewhere, and a dresser that had broken handles. We got a free washer and dryer when we signed a 15 month lease with the apartment complex, which worked great for us at the time. We got an old desk from a friend that was moving and furniture from friends and family when they replaced theirs.

So as we were saving to buy a house, we calculated how much we were spending on rent, and we put whatever we could into savings every month. We kept track of what we were able to save, what we were spending on extraneous items, and where we could save more. When we met with a mortgage broker, we told him we could afford no more than $950 a month for our mortgage, interest, and insurance; knowing that we could afford closer to $1000, but not wanting to push our budget. He told us that with the amount we were looking to spend, we could only afford a $100,000 house, but that with our income, we qualified for $160,000 home. We disagreed, telling him that $1000 would be pushing our budget and he told us that we would see raises and be able to afford more in the future. I am glad we didn’t listen to him.

We looked at homes between $99,000 and $113,000, and ultimately bought the most expensive one that we looked at, but it had four bedrooms and one and a half baths, and did not need near the work that the others we saw needed. It was, for all intents and purposes, move in ready.

When we bought our home is when finances started going downhill for us. We bought a new couch, new bed, new tv, new tv stands. It was almost as if when we were told we could afford more house, we thought we could afford more stuff to go in it. Of course, we had no more cash, and since our mortgage payment was at the top of our limit, everything went on credit. At a time when many people were losing their job and defaulting on debt payments, we were a great asset to companies looking to make a profit, like banks. We bought and bought and made the minimum payments and finally, at Christmas last year, hit a point where we were questioning how we were going to buy gifts for everybody that we were supposed to buy for. We had been buying with the assumption that our tax return would bail us out, that bonuses would hold us over, that all of the spending that we did throughout the year would be wiped out with the influx of cash in the spring.

The problem was that with the credit card reform that went into effect earlier this year, some of our creditors, especially the ones with the biggest balances, decided to change their fixed rate cards into variable rates, and increased the interest rates to the point that 90%+ of our minimum payment was going towards interest. This led to higher minimum payments to cover the interest plus a minimum payment towards the balance, and without the tax return, we didn’t have the money to pay the balances down.

Then we were hit by problem after problem financially. Our air conditioner broke, twice. Our basement flooded with sewage. Our air conditioner broke again. The bottom of our car was rusted out and it would have cost more to repair than it was worth to keep it.

Through it all, though, we’ve managed to keep our heads above water. Our 2010 tax return went towards paying off the credit cards we used to fix our basement. Our 2011 tax return will go towards the other problems we’ve had crop up throughout the year.

Once we’ve made a sizable dent in our debt, I will start putting a percentage of our pay into savings for a rainy day fund, instead of throwing so much money towards the debt, that way we will have a cushion. We’re less stressed with an emergency fund.

And after we’ve made payments towards these credit cards and I feel that we have sufficiently gotten our heads above water, I will resume contributions to my company 401(k). My company matches 50 cents on the dollar up to 6% of my salary. I contribute to a Roth 401(k) because I’d like to think that I will be making more money when I retire than I do now, pushing me into a higher tax bracket. Even if I’m not making anymore, I will still probably be in a higher tax bracket due to inflation. After contributing to the maximum that my employer will match, I plan to contribute to a Roth IRA, eventually up to the maximum that I am allowed. I would eventually like to put some amount into the market for long term investing, not to play the market. I want to learn more about buying stock and diversifying my investments. My company also offers a pension, in addition to the 401(k), which I am well aware makes me very fortunate.

Anyway, this discussion about planning for retirement has gotten very long winded and off track, but I guess I just needed a brain dump today. To sum it up, I want to diversify. I know that 401(k)’s aren’t guaranteed, so I’d like to also contribute to a Roth IRA and savings and CD’s, but I’d also like to try some long term investing in the stock market, and hopefully by time we retire, we’ll have paid off our mortgage and won’t be carrying debt, and we’ll be able to live comfortably without worrying where our next meal is coming from.