I've Been Avoiding this Blog

It's been a rough few weeks, our spending has been pretty high and we also found out that our income tax bill will likely be even more than I'd previously thought.

We bought most of the supplies to finish out our current remodeling project, and that was $1300.

I found out that some professional expenses ($470) isn't going to get reimbursed by my employer. Unfortunately, I was already told by my supervisor that it would be covered, so we spent the money we had set aside for this (and a bit extra!) and used it to splurge on a big-screen TV. Had I known at the time that the company would take back their word, we would not have spent the money.

Another $265 in professional fees won't be reimbursed until late summer, but I had to front it last month. I'm slightly annoyed at having been told that other things will be reimbursed/taken care of, only to have someone at a higher level reverse that decision (unfortunately, it's happened a few times since I've been at the company), but at this point I'm still pretty sure that this will eventually get reimbursed (unless I get laid off first).

Because of these three things, the credit card that I use for regular monthly expenses/spending (and try to pay off each month) has a balance of around $2600 right now, FAR more than I'd like it to be. And I won't be able to pay off much over the next few months, because:

We will owe roughly $1300 to the IRS, as it appears that our tax withholdings were screwed up when the "Making Work Pay" tax credit went into effect last spring. We're still not quite sure how this happened, because I declare "0" exemptions on my W-2 & Hubby declares "1" on his, but somehow BOTH employers reduced withholdings by the full amount for a married couple. I think we'll end up getting $400-500 back from the State, but the net total is that we'll end up owing a lot of money. Have I mentioned before that situations like this are why I disagree with Dave Ramsey and think a $1000 baby emergency fund is not nearly enough?

Our semiannual car insurance payment is due in April, and will likely be $800-900. We actually have two separate policies that renew within a couple weeks of each other. We probably should set aside $150/mo so that we have the full amount when the bills come, but instead we've always just chosen to cash-flow it. Instead of paying extra to our credit cards, we just shift the money to the bills instead.

A new credit card

Hubby recently went on vacation, charging $750 to his credit card. He covered someone else's expenses for part of the trip, and bought a few things beforehand that he didn't end up using, so the total cost will come out to about $500 after returns & reimbursements. 

And since he was spending money, I decided that I should too. I went shopping at Kohl's and picked out some new clothes for myself. The in-store radio kept playing ads trying to convince people to take out a store charge card to save 10%... and I normally don't cave. In fact, until then, I had never taken out or even applied for a store card.

But Kohl's sends out monthly discount coupons to its cardholders, good on full-price AND sale items, and I want some. The card doesn't have any monthly fees, and I plan to pay in full every month anyway, so it's sort of a win-win for me. I also don't anticipate taking out any new credit lines anytime even remotely soon, and I only have one card with a balance (and that'll be paid off in the next 4 months), so I should be able to handle any minor credit score ding caused by opening a new card.

They gave me a 15% discount, and a $1000 credit limit. Woohoo! 

Income vs. Net Worth

Yesterday afternoon, while my sister was visiting, the subject of debt/net worth came up. I mentioned that we had a negative net worth, and she couldn't figure out why- by her reasoning, I make far more than her and her boyfriend combined, plus we have a second full income... so Hubby & I make about 4X what they do.

Not counting the money we've sunk into repairs and improvements (about $30k over the past 3 years), we've lost quite a bit on the house due to fallen property values... around 20-25% from what the purchase price. The house has dropped over $40k in value, and we're currently upside-down on the mortgage by $25k. Our monthly mortgage & utility payments are roughly four times greater than their monthly rent & utilities... so having a higher income hasn't really helped to give us a greater net worth in that area.

We owe over $50k in student loans currently, all locked in at low interest rates. Since we have so much other debt, it's not worth paying this off quickly - but it's a huge hit on our net worth. By comparison, they have less than $10k in loans... though they're still in school, and that balance is rapidly growing (while ours is slowly decreasing). We are paying on three out of four of our student loans, whereas theirs are all deferred right now.

We have two newer vehicles that we're making monthly car payments on, costing us nearly $800/mo. Since we have loans on both vehicles, we also are required to carry full coverage auto insurance, which adds about $100/mo in expense (solely for collision & comprehensive) - we'd still have to pay at least for basic liability if the cars were paid off. They own both of their vehicles outright, saving them on monthly payments and on insurance, but their cars are high-mileage and have numerous mechanical problems. They both function reasonably well, but I certainly wouldn't feel comfortable relying on either vehicle to get me to/from work daily, at least not without several thousand in repairs and maintenance.

And finally, we have far more consumer debt. It's down quite a bit from it's all-time high, but we still owe over $24k. Our minimum monthly payments are currently over $900/mo. By contrast, they owe less than $5k in credit card debt, and are seriously delinquent on it. They're planning to save up some money and offer the credit card companies a settlement for about 50% of the original balance (before all the late-fees, over-limit fees, and interest were tacked on). If they can convince the card companies to take it, they'll pay less than $1500... but in the meantime, they aren't paying a dime.

Feeling broke

For quite awhile, it seemed like I was able to put nearly $1000 towards paying down the principal on my credit cards. But lately I just haven't been able to get much traction. 

With my husband's credit card payment nearly tripling in August, and our monthly take-home decreasing by $275/mo in July, we haven't had nearly as much wiggle room in our budget. Our income is down due to surgery and minor illnesses. And we've also spent quite a bit on home repairs & improvements. 

Last month I was only able to make the minimum payment on my credit card, a measly $98... it was no fun to update my tracking spreadsheet and see the balance only decrease by $60, when it usually drops several hundred dollars. 

This month it'll be more of the same. With some upcoming & recent social events, we're spending quite a bit on gifts for others. Auto insurance renewal will eat an extra $500. Next month we have insurance renewal for our other vehicle, quarterly water/sewer bill, and the start of our holiday gift shopping. 

Threw out the budget

I only had to work a half day last Friday, which started the weekend on an expensive note. Not only did I have to give up a few extra hours of pay to leave early, but then Hubby & I headed out to my favorite restaurant for a late-lunch ($29). We also ventured to Home Depot to pick up a few necessary supplies ($44). 

Then a friend came over to visit, and we treated her to dinner ($25). We went shopping on Saturday, and I bought some crafting supplies ($21). I'd hoped to spend about $25 total for dinner & shopping, but wasn't too bad. 

The trouble really started on Sunday though, after she left. Hubby & I decided to spend the day relaxing, and went out for lunch downtown ($18). We bought some new window treatments ($65), and we decided to buy something else ($800). 

The damage, $1002. It'll take a month or two to pay that credit card off, and I'll only be able to make minimum payments on my other credit card for the interim. I don't think it'll be possible to pay off my cards by the end of the calendar year... 

Falling Short for Sept

Although I paid off one of the student loans this month, I'm going to be at least a couple hundred dollars short by the end of the month.

My checking account, after tomorrow's paycheck gets deposited, will have $1725.

BUT:

• I still need to pay my car payment, $350.
• My revolving balance credit card (the one I use for groceries/gas/etc, then PIF each month) is currently at $401.
• I'll need $100-150 for groceries & gas to last the rest of the month.

Assuming that I don't eat out, or buy anything else, that leaves only ~$850 to apply towards outstanding credit card balances this month. Realistically, I'll spend at least another $100 on random purchases for the house and for entertainment, leaving only $750.

I had hoped to pay at least $1000!

2009 Debt Tracking

Here's an updated chart showing our progress on credit card debt for 2009, from January 1st through September 1st: 

Starting debts, as of 1/1/09: 

His (blue) - $22,227

Hers (pink) - $12,917

Business debt (not shown) - $4,202

TOTAL (green) - $39,346

Current debts, estimated as of 9/1/09: 

His (blue) - $16,426

Hers (pink) - $6,500

TOTAL (green) - $22,926

Pay off a student loan?

Both Husband and I each have multiple student loans, and we each have to pay two separate student loan payments. The biggest loans are federal Direct student loans, through the government. They're on 20-year repayment plans, so the monthly payments are fairly manageable. 

I only owe $1329 on my other loan (I think it was originally $2500). If I kept paying according to the schedule, I'd have almost three years left. My plan was to pay off my credit card first (currently $7400), and then pay off the smaller student loan - both by January 1st. 

I was thinking about taking either this or next month's credit card payment and instead just using it to pay off that loan instead. I'd still pay the minimum credit card payment, of course, but I could use the extra and pretty much get rid of that loan altogether. I don't think it'll make much difference overall (the credit card has a slightly higher interest rate, but in terms of actual interest paid it would be only $3 or so "extra" to pay off the loan vs. pay down the credit card). It might affect my credit score, but I would guess that would be ever so slight if at all. 

Are there any other considerations I'm missing? 

College Costs

I've decided to quit grad school, for a variety of personal reasons. I feel a bit disappointed, but I think it's the best decision overall. Financially, not having to worry about two of us in college at the same time will be a huge relief. 

I had set aside $2000 for fall tuition, which would have been due mid-August. I've already paid $1100 of that straight to one of the credit cards, and plan to add the remaining $900 to this month's payment. 

For some reason, I hadn't thought about budgeting for tuition hikes (the fiscal year for most public universities changes on July 1st, with tuition increases being finalized at some point during the summer). The actual percent increase was just announced, and would have amounted to $120 extra for the upcoming term. Mid-year tuition increases are also possible, so the December tuition bill may have been even more. 

I knew I'd have to buy books, but I didn't budget that in either. Afterall, it's a nominal amount (at least, compared to the cost of tuition!)... and I figured I could pick up a used book online. Turns out that textbooks and course materials would have been about $150. 

I'd also have to increase the amount that I budget for gas, to cover the additional expense for commuting to class. At current gas prices (about $2.50/gal), that would be an increase of $60/mo. Plus the "cost" of wear & tear on my vehicle, of additional maintenance (oil changes, tires, etc). And our food budget would have to increase, because I won't have time to shop for all the best deals, and we'll undoubtedly end up buying more convenience foods or eating out. 

Wake-Up Call

Over the past year, we've had a few major wake-up calls. I know that the vast majority has been a result of the economy spiraling downward, but it has had a very real impact on our finances. Here's an overview of what we've been hit with over the past 8 months: 

• 1st credit card slashed limit by $12,900 (no reason given)
• 2nd credit card slashed limit by $10,000 (citing high utilization, likely due to 1st card slashing available credit)
• 2nd credit card issuer closed account (citing high utilization & decreased credit score, likely due to both credit cards eliminating all available credit)
• Several cards increased interest rates & switched from fixed to variable APR
• Tried to refinance mortgage, but couldn't because we owe way more than it's worth (and we would have had to pay a significant penalty due to poor credit score, which plummeted when credit cards #1 & #2 slashed limits)
• 3rd credit card hiked minimum payments from 2% to 5%

I really hate being at the mercy of the credit card companies. We've NEVER missed a payment, or even been late, but they're still able to change the rules on us whenever they want. We have to juggle our budget around to accommodate increased monthly payments (some of them pretty significant!) whenever we get a "Change of Terms" letter in the mail, both from increased interest rates and from increased monthly minimum payments. 

But the worst part is how all their changes have impacted our credit scores, which in turn has impacted us financially. We're paying more in insurance premiums, which are partially based on credit scores. Had we refinanced, we would have had to pay an extra $3000 in up-front closing costs, due to a less than ideal credit score. 

I'm so ready to be free from credit cards. It's still a ways off, but I'm feeling motivated! 

Debt Tracking

I've been actively tracking progress on our credit card debt for over two years, since February 2007. At that time, we had $41,755 in personal credit card debt, plus an additional $4738 in business debt (that business has since "failed", and we have assumed that debt).

Two years and three months later, the total credit card debt is down to $33,203. In over two years of this, we've only paid off about $13k! But I guess, to be fair, we've also charged a LOT during that same time frame (as evidenced by several distinct spikes in the chart!).

• The first spike was when we assumed the bad business debt, in January 2008.
• The big spike, in July 2008, was when we spent roughly $7000 for some electronics.
• There are a few smaller spikes, for the purchase of new computers and for a couple of vacations.

During the first seven months of tracking, the total debt didn't really change - despite making monthly minimum payments of nearly $1000/mo! We were paying off only about $200/mo in principal, a rate that would have taken us almost 20 years to pay the credit cards off.

Redoing Budgets

In order to come up with enough money to cover the extra $525/mo in increased minimum credit card payments to Chase, we sat down and reviewed our finances. We evaluated monthly expenditures, paring things back where possible. Overall, we didn't find much that we were willing to eliminate, so the majority will come from deferring money that would have gone to the emergency fund or other credit cards and instead paying it to Chase. 

We decided to cancel an insurance policy, which will save us $356/year. The policy was up for renewal anyway, so we are going to just let it lapse. Otherwise, we would have had to pay half of it by the end of next week. 

We also decided to put a 90-day hold on our NetFlix account. It's only $9.53/mo, but every little bit helps. I thought about canceling it altogether, but I love being able to stream movies at home - and it's far cheaper than going out for a date. I'm hoping that 90-days will give us enough time to get a grip on the bills, and then decide whether we want to keep it or cancel it. In the interim, we don't have to pay the monthly fee, and all the movies we've added to the queue won't be deleted! 

The biggest decision was to pay off several credit cards with smaller balances (and higher interest rates, ranging from 13-20%). In total, we have decided to pay off three credit cards with a combined total of $6204. The money to do this is going to come from a few different sources: 

• $4500, from some self employment work ($2000 of this was supposed to go to the IRS in September for estimated quarterly income taxes, but we have instead modified our withholdings for the rest of the year, so that take-home pay will be around $300/mo less than normal)
• $1150 in reimbursement checks (from a medical flex spending account, the overage on the mortgage escrow account, and for some items we purchased for someone else) that should be coming any day
• $150, for selling some older electronic items that we no longer need
• $400, from the emergency fund

Once these are paid off (by the end of July), we'll be left with only two credit cards - both with a large outstanding balance but with low fixed interest rates. Paying these smaller cards off won't have much impact on monthly payments (roughly $150/mo, which will be going right back to Chase now), but I'm hoping it'll give us extra momentum to keep going with the debt payoff.  

Financial Goals for 2009

I like to project out estimated expenses & income, and figure out where we'll be at various points in the future. I usually just do the rough calculations on a sheet of scratch paper, or on the back of a napkin, and don't often keep 'em or track how that compares to reality. 

The last time that I set written financial goals was in October 2008, and that's when I established the following list of "goals" that I hoped to achieve by the end of 2009: 

1. Contribute $200/month to emergency fund 
2. Achieve balance of $5000 in emergency fund by end of 2009 (current balance = $1900) 
3. Eliminate credit card debt by end of 2009 (current balance = $12590)
4. Pay off Perkins student loan (current balance = $1626)
5. Pay down Stafford student loan to <$25k (current balance = $25502)

Right now it's hard to say whether I'll be able to accomplish all of them. I still think it's possible, but it's going to be a bit tougher than I'd originally anticipated. We had a critical home repair in January that cost $1700, and was paid for using the emergency fund. My decision to go back to school (made after I wrote those goals) will also set us back by about $2500 this year (for tuition, textbooks & fees). 

Because of the economic climate, I've been contributing far more than $200/mo into the emergency fund, so that the current balance is already over $5000. I've also already taken care of #5 (just barely!). 

I'll definitely be able to pay off the credit card debt referenced in #3, but I'll possibly have to make a decision whether to wipe out the emergency fund to do so. Hopefully I'll be able to earn some extra money working overtime, and my company will give a holiday bonus at the end of the year.